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Office of Environment, Health, Safety and Security, U.S. Department of Energy.
Final rule.
On September 2, 2022, the U.S. Department of Energy (DOE or the Department) published a notice of proposed rulemaking (NOPR) for public comment in which it proposed to amend its current worker safety and health program regulation. In this final rule, DOE is adopting the amendments proposed in the NOPR without change. The amendments make corrections to the worker safety and health program regulation requirements related to beryllium and beryllium compounds for purposes of accuracy and consistency with DOE's Chronic Beryllium Disease Prevention Program regulation and clarify that DOE did not intend to adopt the 2016 American Conference of Governmental Industrial Hygienists threshold limit value for beryllium and beryllium compounds. In addition, in this final rule DOE is correcting minor typographical errors identified in the regulation.
This rule is effective January 16, 2024. The incorporation by reference of certain publications listed in this rule was approved by the Director of the Federal Register on January 17, 2018.
Mr. James Dillard, U.S. Department of Energy, Office of Environment, Health, Safety and Security, Mailstop EHSS-11, 1000 Independence Ave. SW, Washington, DC 20585, Telephone: 301-903-1165, or by email at:
DOE has broad authority to regulate worker safety and health with respect to its nuclear and nonnuclear functions pursuant to the Atomic Energy Act of 1954 (AEA), 42 U.S.C. 2011
In this final rule, DOE is adopting the amendments proposed in the NOPR published on September 2, 2022 (87 FR 54178) without any substantive change. The amendments make corrections to the worker safety and health program regulation requirements related to beryllium and beryllium compounds for purposes of accuracy and consistency with DOE's Chronic Beryllium Disease Prevention Program regulation and clarify that DOE did not intend to adopt the 2016 American Conference of Governmental Industrial Hygienists (ACGIH®) threshold limit value (TLV®) for beryllium and beryllium compounds. On February 9, 2006, when DOE promulgated 10 CFR part 851,
On January 9, 2017, OSHA promulgated new regulations in 29 CFR parts 1910, 1915, and 1926 for the protection of workers from the effects of beryllium and beryllium compounds in the workplace (82 FR 2470). These new provisions had the potential to conflict with or overlap DOE's beryllium safety and health requirements in 10 CFR part 850.
On December 18, 2017 (82 FR 59947), DOE issued a technical amendment to 10 CFR part 851 that replaced the existing references to safety and health standards and guidelines with the latest versions of the standards and guidelines. In the December 2017 amendment, DOE updated the safety and health standards and guidelines that were incorporated by reference in 10 CFR part 851, including the ACGIH® TLVs® in the “
On September 2, 2022, the Department published the NOPR (87 FR 54178) which proposed to make amendments to 10 CFR part 851 with respect to the requirements for beryllium and beryllium compounds that would: (1) ensure accuracy and consistency with 10 CFR part 850,
The NOPR also proposed to make minor corrections to clarify the meaning of § 851.23(b) regarding contractor compliance with additional safety and health requirements that are necessary to protect workers at their covered workplace.
The Department's NOPR invited public comments on the proposal and provided a public comment period that ended on October 3, 2022. The Department received three sets of comments, which were all in support of the proposed changes to the rule. Copies of the comments are in the docket for this rulemaking. To access the docket, which includes
In this section, DOE discusses the comments it received, the final rule provisions, and the minor typographical errors in §§ 851.3, 851.7 and 851.23(a)(2) that DOE identified since publication of the NOPR and will be correcting in this final rule.
In general, the commenters (Document ID 0002, 0003, 0004) agreed with and supported the proposed amendments to the rule. They appreciated the Department's efforts to protect its workers and to provide a safe and healthful workplace.
In the NOPR, DOE stated the current § 851.2(d) provides that part 851 does not require compliance with any OSHA beryllium requirement except for any permissible exposure limit for beryllium in 29 CFR 1910.1000. DOE proposed text in § 851.2(d) that would modify the language by instead referring to DOE's beryllium rule and stating that part 851 does not require compliance with any OSHA requirements for beryllium and beryllium compounds except as provided in 10 CFR part 850,
DOE did not receive any specific comments on this section, and DOE has not changed the language as proposed in the NOPR. Final § 851.2(d) states that this part does not require compliance with any OSHA requirements for beryllium or beryllium compounds except as provided in 10 CFR part 850, “Chronic Beryllium Disease Prevention Program.” This language ensures consistency between the language in 10 CFR parts 850 and 851 with respect to beryllium and beryllium compounds.
In the NOPR, DOE stated that § 851.23(a) currently requires contractors to comply with safety and health standards and guidelines that are applicable to the hazards at their covered workplace, including those identified at paragraphs (a)(3), (a)(4), and (a)(7) of that section. DOE proposed to change § 851.23(a) to clarify that, while DOE currently adopts OSHA's permissible exposure limit for beryllium, it is not DOE's intention to adopt OSHA's remaining beryllium requirements in 29 CFR parts 1910, 1915, and 1926.
One commenter (Document ID 0003) specifically mentioned that it supported the proposed changes to § 851.23(a) and encouraged DOE to work with its stakeholders regarding OSHA's remaining beryllium requirements in 29 CFR part 1910. DOE appreciates this comment and has adopted the proposed changes to this paragraph in this final rule.
In this final rule, DOE adopts the changes to § 851.23(a)(3), (4), and (7) that were proposed in the NOPR. Final
Final § 851.23(a)(4) refers to 29 CFR part 1915,
In the NOPR, DOE noted that in 2017, DOE adopted and incorporated by reference the ACGIH®
One commenter (Document ID 0003) specifically mentioned that it supported DOE's clarification that it did not intend to adopt the ACGIH® TLV® for beryllium and beryllium compounds. DOE agrees with this commenter and has clarified the language in final § 851.23(a)(9).
DOE adopts the language in final § 851.23(a)(9) proposed in the NOPR, with minor changes in phrasing to improve clarity. As stated in the NOPR, it is DOE's intent in § 851.27(b)(1) that the incorporation by reference of ACGIH®,
In the NOPR, DOE proposed minor editorial changes to § 851.23(b) to clarify that nothing in part 851 relieves contractors from the responsibility to comply with any additional safety and health requirements that are necessary to protect the safety and health of workers. One commenter (Document ID 0003) specifically mentioned that it supported the proposed changes to § 851.23(b). DOE appreciates the commenter's support for the proposed changes and has adopted the proposed changes to the paragraph in this final rule.
In addition to the changes proposed in the NOPR, DOE is correcting minor typographical errors in §§ 851.3, 851.7(b) and 851.23(a)(2).
DOE is revising § 851.3 to correct the spelling of the word “contractor” in the definition of “Final notice of violation”.
DOE is revising § 851.7(b) to correct the spelling of the word “envelope”.
DOE is revising § 851.23(a)(2) to correct the reference to “Parts” and add in its place “Part” followed by specific section numbers.
Executive Order 12866, “Regulatory Planning and Review,” 58 FR 51735 (Oct. 4, 1993), as supplemented and reaffirmed by Executive Order 13563, “Improving Regulation and Regulatory Review,” 76 FR 3821 (Jan. 21, 2011) and amended by Executive Order 14094, “Modernizing Regulatory Review,” 88 FR 21879 (April 11, 2023), requires agencies, to the extent permitted by law, to (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. DOE emphasizes as well that Executive Order 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible. In its guidance, the Office of Information and Regulatory Affairs (OIRA) has emphasized that such techniques may include identifying changing future compliance costs that might result from technological innovation or anticipated behavioral changes. For the reasons stated in the preamble, this regulatory action is consistent with these principles.
Section 6(a) of Executive Order 12866 also requires agencies to submit “significant regulatory actions” to OIRA for review. OIRA determined that this regulatory action does not constitute a “significant regulatory action” within the scope of Executive Order 12866. Accordingly, this action is not subject to review by OIRA under that Executive Order.
The Regulatory Flexibility Act of 1980 (5 U.S.C. 601
This final rule updates DOE's worker safety and health program regulation and clarifies DOE's ongoing intent to exempt DOE contractors from specified OSHA regulations and the ACGIH® TLV® pertaining to beryllium and beryllium compounds. This rule applies only to activities conducted by DOE's contractors. DOE expects that any potential economic impact of this rule on small businesses will be minimal because work performed at DOE sites is under contracts with DOE or the prime contractor at the site. DOE contractors are reimbursed through their contracts for the costs of complying with worker
This final rule does not impose a collection of information requirement subject to review and approval by OMB under the Paperwork Reduction Act (44 U.S.C. 3501
Pursuant to the National Environmental Policy Act of 1969 (NEPA), DOE analyzed this final action in accordance with NEPA and DOE's NEPA implementing regulations (10 CFR part 1021). DOE determined that this rule is covered under the categorical exclusion found in DOE's NEPA regulations at paragraph A.5 of appendix A to subpart D, 10 CFR part 1021, because it is a rulemaking that interprets or amends an existing rule or regulation that does not change the environmental effect of the rule.
With respect to the review of existing regulations and the promulgation of new regulations, Section 3(a) of Executive Order 12988, “Civil Justice Reform,” 61 FR 4729 (February 7, 1996), imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; (3) provide a clear legal standard for affected conduct rather than a general standard; and (4) promote simplification and burden reduction. Section 3(b) of Executive Order 12988 specifically requires that executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for the affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, if any; (5) adequately defines key terms; (6) specifies whether administrative proceedings are to be required before parties may file suit in court and, if so, describes those proceedings and requires the exhaustion of administrative remedies; and (7) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of the standards. DOE completed the required review and determined that, to the extent permitted by law, this final rule meets the relevant standards of Executive Order 12988.
Executive Order 13132, “Federalism,” 64 FR 43255 (August 10, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the States and carefully assess the necessity for such actions. The Executive order also requires agencies to have an accountable process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR 13735. DOE examined this final rule and determined that it will not preempt State law and will not have a substantial direct effect on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. No further action is required by Executive Order 13132.
Under Executive Order 13175 (65 FR 67249, November 9, 2000) on “Consultation and Coordination with Indian Tribal Governments,” DOE may not issue a discretionary rule that has “Tribal” implications and imposes substantial direct compliance costs on Indian Tribal governments unless DOE provides funds necessary to pay the costs of the Tribal governments or consults with Tribal officials before promulgating the rule. DOE determined the final rule will not have such effects and concluded Executive Order 13175 does not apply to this final rule.
Title II of the Unfunded Mandates Reform Act (UMRA) of 1995 (Pub. L. 104-4) requires each Federal agency to assess the effects of a Federal regulatory action on State, local, and Tribal governments, and the private sector. (Pub. L. 104-4, sec. 201
DOE determined, under Executive Order 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights” 53 FR 8859 (March 18, 1988), that this final regulation will not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution.
Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001) requires Federal agencies to prepare and submit to the OIRA, which is part of OMB, a Statement of Energy Effects for any significant energy action. A “significant energy action” is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that: (1)(i) is a significant regulatory action under Executive Order 12866, or any successor order; and (ii) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (2) is designated by the Administrator of OIRA as a significant energy action. For any significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.
This final rule is not a significant regulatory action under Executive Order 12866 and DOE has concluded that this final rule will not have a significant adverse effect on the supply, distribution, or use of energy. Therefore, this final rule is not a significant energy action, and accordingly, DOE has not prepared a Statement of Energy Effects.
Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule that may affect family well-being (5 U.S.C. 601, note). This final rule will not impact the autonomy or integrity of the family as an institution. Accordingly, DOE concluded it is not necessary to prepare a Family Policymaking Assessment.
Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516, note) provides for Federal agencies to review most disseminations of information to the public under guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (February 22, 2002), and DOE's guidelines were published at 67 FR 62446 (October 7, 2002). Pursuant to OMB Memorandum M-19-15,
DOE reviewed this final rule under the OMB and DOE guidelines and concluded that it is consistent with applicable policies in those guidelines.
DOE is excluding beryllium and beryllium compounds from its adoption of the TLVs® for chemical substances and physical agents and biological exposure indices published by the ACGIH® titled
As required by 5 U.S.C. 801(2), DOE will submit to Congress a report regarding the issuance of this final rule prior to the effective date set forth at the outset of this rulemaking. The report will state it has been determined that the rule is not a “major rule” as defined by 5 U.S.C. 804(2).
The Secretary of Energy has approved publication of this final rule.
Federal buildings and facilities, Hazardous substances, Incorporation by reference, Occupational safety and health, Penalties, Reporting and recordkeeping requirements, Safety.
This document of the Department of Energy was signed on December 8, 2023, by Jennifer Granholm, Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
For the reasons set forth in the preamble, the Department of Energy amends part 851 of chapter III of title 10 of the Code of Federal Regulations as set forth below:
42 U.S.C. 2201(i)(3), (p); 42 U.S.C. 2282c; 42 U.S.C. 5801
(d) This part does not require compliance with any Occupational Safety and Health Administration requirements for beryllium or beryllium compounds except as provided in 10 CFR part 850, “Chronic Beryllium Disease Prevention Program.”
(a) * * *
(2) Title 29 CFR, part 1904, “Recording and Reporting Occupational Injuries and Illnesses”, §§ 1904.4 through 1904.11, 1904.29 through 1904.33, and 1904.46.
(3) Title 29 CFR, part 1910, “Occupational Safety and Health Standards,” excluding 29 CFR 1910.1096, “Ionizing Radiation”; 29 CFR 1910.1000, “Air Contaminants,” Tables Z-1 and Z-2, as they relate to beryllium and beryllium compounds; and 29 CFR 1910.1024, “Beryllium.”
(4) Title 29 CFR, part 1915, “Occupational Safety and Health Standards for Shipyard Employment,” except for 29 CFR 1915.1024, “Beryllium.”
(7) Title 29 CFR, part 1926, “Safety and Health Regulations for Construction,” except for 29 CFR 1926.1124, “Beryllium.”
(9) American Conference of Governmental Industrial Hygienists (ACGIH®),
(b) Nothing in this part relieves contractors from the responsibility to comply with any additional safety and health requirements that are necessary to protect the safety and health of workers.
(a) Certain material is incorporated by reference into this subpart with the approval of the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that specified in this section, the U.S. Department of Energy (DOE) must publish a document in the
Federal Aviation Administration (FAA), DOT.
Final rule.
The FAA is adopting a new airworthiness directive (AD) for all Viking Air Limited (type certificate previously held by Bombardier Inc. and de Havilland, Inc.) (Viking) Model DHC-3 airplanes. This AD was prompted by a report of cracking in the left-hand side (LHS) and right-hand side (RHS) lower engine mount pickup fittings. This AD requires a one-time inspection of the affected parts for cracking, deformation, corrosion, fretting or wear, paint or surface coating damage, and loose, missing, or broken fasteners, and applicable corrective actions. This AD also requires reporting the inspection results. The FAA is issuing this AD to address the unsafe condition on these products.
This AD is effective January 19, 2024.
The Director of the Federal Register approved the incorporation by reference of certain publications listed in this AD as of January 19, 2024.
• For service information identified in this final rule, contact Viking Air Limited Technical Support, 1959 de Havilland Way, Sidney, British Columbia, Canada, V8L 5V5; phone: (800) 663-8444; fax: (403) 295-8888; email:
• You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110. It is also available at
Yaser Osman, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (917) 348-6266; email:
The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Viking Model DHC-3 airplanes. The NPRM published in the
Cracking of any of the engine mount pickup fittings can result in failure of the fitting, leading to a loose connection of the engine mount ring, which provides main support for the engine at the firewall. This condition, if not addressed, could, in the case of cracking of any of the engine mount pickup fittings, result in failure of the fitting, leading to a loose connection of the engine mount ring and consequent reduced control of the airplane. To address the unsafe condition, the MCAI requires a one-time inspection of the affected parts and applicable corrective
In the NPRM, the FAA proposed to require a one-time inspection of the affected parts for cracking, deformation, corrosion, fretting or wear, paint or surface coating damage, and loose, missing, or broken fasteners, and applicable corrective actions. Additionally, in the NPRM, the FAA proposed to require reporting the inspection results. The FAA is issuing this AD to address the unsafe condition on these products.
You may examine the MCAI in the AD docket at
The FAA received no comments on the NPRM or on the determination of the costs.
These products have been approved by the aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. This AD is adopted as proposed in the NPRM.
The FAA reviewed Part 1 of Viking PSM 1-3-3, DHC-3 Otter Repair Manual, dated August 1, 1963. This service information specifies procedures for determining the damage classification and repair limits of any structural damage found on an engine mount pickup fitting and determining if an affected engine mount pickup fitting can be repaired or if it should be replaced. Although the watermarked words “Uncontrolled for Reference Only” appear on the title page and each page of the table of contents of this document, and the watermarked word “Uncontrolled” appears on each page of Part 1 of this document, this is the current version.
The FAA also reviewed Part 1 of Viking PSM 1-3-5, DHC-3 Otter Supplemental Inspection and Corrosion Control Manual, Revision IR, dated December 21, 2017 (Viking PSM 1-3-5, Revision IR). This service information specifies procedures for repairing any damaged paint or surface coating of an engine mount pickup fitting.
In addition, the FAA reviewed Viking Service Bulletin V3/0012, Revision NC, dated January 20, 2022. This service information specifies procedures for inspecting the upper and lower LHS and RHS engine mount pickup fittings, reporting the inspection results, and performing corrective actions. The corrective actions include replacing any loose, missing, or broken fastener; and replacing any cracked or deformed engine mount pickup fitting with a new or serviceable part.
This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in
The MCAI requires contacting Viking for approval of proposed repair instructions if any corrosion, wear, or fretting damage to any engine mount pickup fitting is found and this AD does not. This AD requires contacting either the Manager, International Validation Branch, FAA; Transport Canada; or Viking's Transport Canada Design Approval Organization (DAO). If approved by the DAO, the approval must include the DAO-authorized signature.
Where Part 1 of Viking PSM 1-3-5, Revision IR, specifies contacting Viking if the alloy and condition of an affected engine mount pickup fitting cannot be identified, this AD requires contacting the Manager, International Validation Branch, FAA; Transport Canada; or Viking's Transport Canada DAO for instructions. If approved by the DAO, the approval must include the DAO-authorized signature.
The FAA considers that this AD is an interim action. If final action is later identified, the FAA might consider further rulemaking.
The FAA estimates that this AD affects 65 airplanes of U.S. registry.
The FAA estimates the following costs to comply with this AD:
The FAA estimates the following costs to do any necessary actions that would be required based on the results of the inspection. The agency has no way of determining the number of aircraft that might need these actions:
Any repair that may be needed as a result of the detailed visual inspection of the engine mount pickup fitting could vary significantly from airplane to airplane. The FAA has no data to determine the costs to accomplish the repair or the number of airplanes that may require repair.
A federal agency may not conduct or sponsor, and a person is not required to respond to, nor shall a person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act unless that collection of information displays a currently valid OMB Control Number. The OMB Control Number for this information collection is 2120-0056. Public reporting for this collection of information is estimated to take approximately 1 hour per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. All responses to this collection of information are mandatory. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to: Information Collection Clearance Officer, Federal Aviation Administration, 10101 Hillwood Parkway, Fort Worth, TX 76177-1524.
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that this AD:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This airworthiness directive (AD) is effective January 19, 2024.
None.
This AD applies to Viking Air Limited (type certificate previously held by Bombardier Inc. and de Havilland, Inc.) Model DHC-3 airplanes, all serial numbers, certificated in any category.
Joint Aircraft System Component (JASC) Code 7120, Engine Mount Section.
This AD was prompted by a report of cracking in the left-hand side (LHS) and right-hand side (RHS) lower engine mount pickup fittings. The FAA is issuing this AD to address cracking in the LHS and RHS lower engine mount pickup fittings. The unsafe condition, if not addressed, could, in the case of cracking of any of the engine mount pickup fittings, result in failure of the fitting, leading to a loose connection of the engine mount ring, which provides main support for the engine at the firewall, and consequent reduced control of the airplane.
Comply with this AD within the compliance times specified, unless already done.
(1) Within 6 months after the effective date of this AD, do a detailed visual inspection of the lower engine mount pickup fittings part numbers (P/Ns) C3FS46-7 and C3FS46-8 and the upper engine mount pickup fittings P/Ns C3FS42-5 and C3FS42-6 for cracking, deformation (altered form or shape), corrosion, fretting or wear, paint or surface coating damage (loose, delaminating, flaking, peeling, chipping of the coating or paint, exposed bare metal, or corroded), and loose, missing, or broken fasteners, in accordance with Part A, steps 1 through 8, of the Accomplishment Instructions in Viking Service Bulletin V3/0012, Revision NC, dated January 20, 2022 (Viking SB V3/0012).
(2) If any crack or deformation (altered form or shape) of any engine mount pickup fitting is found during the detailed visual inspection required by paragraph (g)(1) of this AD, before further flight, replace the fitting with a new or serviceable part, in accordance with Part A, step 10, of the Accomplishment Instructions in Viking SB V3/0012. For purposes of this AD, “new” means zero hours time-in-service.
(3) If any paint or surface coating of the engine mount pickup fitting is found damaged (loose, delaminating, flaking, peeling, chipping of the coating or paint, exposed bare metal, or corroded) during the detailed visual inspection required by paragraph (g)(1) of this AD, before further flight, repair the fitting in accordance with Part 1 of Viking PSM 1-3-5, DHC-3 Otter Supplemental Inspection and Corrosion Control Manual, Revision IR, dated December 21, 2017 (Viking PSM 1-3-5, Revision IR), and Part A, step 12, of the Accomplishment Instructions in Viking SB V3/0012. Where Part 1 of Viking PSM 1-3-5, Revision IR, specifies contacting Viking if the alloy and condition of an affected engine mount pickup fitting cannot be identified, this AD requires contacting the Manager, International Validation Branch, FAA; Transport Canada; or Viking's Transport Canada Design Approval Organization (DAO) for instructions.
(4) If any loose, missing, or broken fastener is found during the detailed visual inspection required by paragraph (g)(1) of this AD, before further flight, replace the fastener with a new fastener, do a detailed visual inspection of the fastener hole to detect cracking, corrosion, an elongated bore hole, bore surface roughness, or other defects (abnormalities when compared to a new part), and repair any damage found or replace the engine mount pickup fitting with a new or serviceable part if damage is beyond repairable limits, in accordance with Part 1
(5) If any corrosion, wear, or fretting to any engine mount pickup fitting is found during the detailed visual inspection required by paragraph (g)(1) of this AD, before further flight, contact the Manager, International Validation Branch, FAA; Transport Canada; or Viking's Transport Canada DAO to obtain instructions for an approved repair and, within the compliance timeframe specified therein, do the repair. If approved by the DAO, the approval must include the DAO-authorized signature. Alternatively, before further flight, replace the engine mount pickup fitting with a new or serviceable part in accordance with Part A, step 10, of the Accomplishment Instructions in Viking SB V3/0012.
Report the inspection results from the detailed visual inspection required by paragraph (g)(1) of this AD at the applicable time specified in paragraph (h)(1) or (2) of this AD in accordance with Part A, step 14, of the Accomplishment Instructions in Viking SB V3/0012.
(1) For inspections done on or after the effective date of this AD: Submit the report within 30 days after the inspection.
(2) For inspections done before the effective date of this AD: Submit the report within 30 days after the effective date of this AD.
The Manager, International Validation Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the International Validation Branch, mail it to the address identified in paragraph (j)(2) of this AD or email to:
(1) Refer to Transport Canada AD CF-2022-41, dated August 4, 2022, for related information. This Transport Canada AD may be found in the AD docket at
(2) For more information about this AD, contact Yaser Osman, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (917) 348-6266; email:
(1) The Director of the Federal Register approved the incorporation by reference of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
(2) You must use this service information as applicable to do the actions required by this AD, unless the AD specifies otherwise.
(i) Viking PSM 1-3-3, DHC-3 Otter Repair Manual, Part 1, dated August 1, 1963.
Although the document specified in paragraph (k)(2)(i) has the watermarked words “Uncontrolled for Reference Only” on the title page and each page of the table of contents, and the watermarked word “Uncontrolled” on each page of Part 1, this is a current version of that document.
(ii) Viking PSM 1-3-5, DHC-3 Otter Supplemental Inspection and Corrosion Control Manual, Revision IR, Part 1, dated December 21, 2017.
(iii) Viking Service Bulletin V3/0012, Revision NC, dated January 20, 2022.
(3) For Viking service information identified in this AD, contact Viking Air Limited Technical Support, 1959 de Havilland Way, Sidney, British Columbia, Canada, V8L 5V5; phone: (800) 663-8444; fax: (403) 295-8888; email:
(4) You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110.
(5) You may view this material at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, visit
Federal Aviation Administration (FAA), DOT.
Final rule.
The FAA is adopting a new airworthiness directive (AD) for all Diamond Aircraft Industries Inc. Model DA 62 airplanes. This AD was prompted by reports of baggage nets installed with defective buckles, which may result in failure of the baggage net to restrain the baggage or cargo, which could lead to injury to the occupants in the case of an emergency landing. This AD requires identifying and replacing the affected part. The FAA is issuing this AD to address the unsafe condition on these products.
This AD is effective January 19, 2024.
The Director of the Federal Register approved the incorporation by reference of a certain publication listed in this AD as of January 19, 2024.
• For service information identified in this final rule, contact Diamond Aircraft Industries Inc., Att: Thit Tun, 1560 Crumlin Road, London, N5V 1S2, Canada; phone: (519) 457-4000; email:
• You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110. It is also available at
Fatin Saumik, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (516) 228-7350; email:
The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Diamond Aircraft Industries Inc. Model DA 62 airplanes. The NPRM published in the
Previously, the FAA issued AD 2022-13-06, Amendment 39-22092 (87 FR 40435, July 7, 2022) (AD 2022-13-06) to address the unsafe condition on all Diamond Aircraft Industries Inc. Model DA 40, DA 40 F, and DA 40 NG airplanes (including Model DA 40 D airplanes that have been converted to Model DA 40 NG airplanes). AD 2022-13-06 requires removing and replacing the affected baggage nets. The Diamond Aircraft Industries Inc. Model DA 62 airplanes were not included in AD 2022-13-06. This AD requires these same actions on the Diamond Aircraft Industries Inc. Model DA 62 airplanes.
In the NPRM, the FAA proposed to require identifying and replacing affected baggage nets. The FAA is issuing this AD to prevent failure of the baggage net to restrain the baggage or cargo. This unsafe condition, if not corrected, could result in injury to occupants in the case of an emergency landing.
You may examine the MCAI in the AD docket at
The FAA received no comments on the NPRM or on the determination of the costs.
These products have been approved by the aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. This AD is adopted as proposed in the NPRM.
The FAA reviewed Diamond Aircraft Industries Mandatory Service Bulletin MSB 62-028, Rev. 1, dated July 6, 2021, which specifies procedures for identifying, removing, and replacing the affected baggage nets.
This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in
The MCAI applies to Diamond Aircraft Industries Inc. Model DA 40, DA 40 D, DA 40 F, DA 40 NG, and DA 62 airplanes. This AD only applies to Diamond Aircraft Industries Inc. Model DA 62 airplanes and does not apply to Model DA 40, DA 40 F, and DA 40 NG airplanes because those airplanes are already covered by AD 2022-13-06. This AD does not apply to Model DA 40 D airplanes because that model does not have an FAA type certificate.
The FAA estimates that this AD affects 81 airplanes of U.S. registry.
The FAA estimates the following costs to comply with this AD:
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify that this AD:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Will not affect intrastate aviation in Alaska, and
(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
This airworthiness directive (AD) is effective January 19, 2024.
AD 2022-13-06, Amendment 39-22092 (87 FR 40435, July 7, 2022) is related to this AD.
This AD applies to Diamond Aircraft Industries Inc. Model DA 62 airplanes, all serial numbers, certificated in any category.
Joint Aircraft System Component (JASC) Code 2550, Cargo Compartments.
This AD was prompted by reports of baggage nets installed with defective buckles. The FAA is issuing this AD to prevent failure of the baggage net to restrain the baggage or cargo. The unsafe condition, if not addressed, could result in injury to occupants in the case of an emergency landing.
Comply with this AD within the compliance times specified, unless already done.
The following are “affected baggage nets” for purposes of this AD: Quick fix baggage net assembly part number D67-2550-90-00_02 with a date of manufacture of June 2016.
(1) Within 12 months after the effective date of this AD or within 50 hours time-in-service after the effective date of this AD, whichever occurs first, inspect each baggage net to determine whether an affected baggage net is installed on your airplane.
The date of manufacture is located on the label with the abbreviation “DMF.”
(i) If an affected baggage net is installed, before further flight, remove the baggage net from service.
(ii) Before the next flight carrying baggage or cargo in the baggage compartment, install a baggage net that is not an affected baggage net in accordance with Figure 1 of the Accomplishment Instructions in Diamond Aircraft Industries Mandatory Service Bulletin MSB 62-028, Rev. 1, dated July 6, 2021.
(2) As of the effective date of this AD, do not install an affected baggage net on any airplane.
The Manager, International Validation Branch, FAA, has the authority to approve AMOCs for this AD, if requested using the procedures found in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request to your principal inspector or local Flight Standards District Office, as appropriate. If sending information directly to the manager of the International Validation Branch, mail it to the address identified in paragraph (j)(2) of this AD or email to:
(1) Refer to Transport Canada AD CF-2021-24, dated July 21, 2021, for related information. This Transport Canada AD may be found in the AD docket at
(2) For more information about this AD, contact Fatin Saumik, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; phone: (516) 228-7350; email:
(1) The Director of the Federal Register approved the incorporation by reference of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
(2) You must use this service information as applicable to do the actions required by this AD, unless the AD specifies otherwise.
(i) Diamond Aircraft Industries Mandatory Service Bulletin MSB 62-028, Rev. 1, dated July 6, 2021.
(ii) [Reserved]
(3) For service information identified in this AD, contact Diamond Aircraft Industries Inc., Att: Thit Tun, 1560 Crumlin Road, London, N5V 1S2, Canada; phone: (519) 457-4000; email:
(4) You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 901 Locust, Kansas City, MO 64106. For information on the availability of this material at the FAA, call (817) 222-5110.
(5) You may view this material at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, visit
Bureau of Industry and Security, U.S. Department of Commerce.
Extension of comment period.
On October 25, 2023, the Bureau of Industry and Security (BIS) published in the
The comment period for the interim final rules published on October 25, 2023, at 88 FR 73424 and 88 FR 73458, is extended until January 17, 2024.
Comments on the SME IFR and the AC/S IFRs may be submitted to the Federal rulemaking portal (
All filers using the portal should use the name of the person or entity submitting the comments as the name of their files. Anyone submitting business confidential information should clearly identify the business confidential portion of the submission at the time of submission, file a statement justifying nondisclosure and referring to the
For comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC.” Any page containing business confidential information must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. The corresponding non-confidential version of those comments must be clearly marked “PUBLIC.” The file name of the non-confidential version should begin with the character “P.” Any submissions with file names that do not begin with either a “BC” or a “P” will be assumed to be public and will be made publicly available through
For questions on the license requirements in the interim final rules, contact Eileen Albanese, Director, Office of National Security and Technology Transfer Controls, Bureau of Industry and Security, Department of Commerce, Phone: (202) 482-0092, Fax: (202) 482-482-3355, Email:
On October 17, 2023, BIS released two interim final rules (IFR): “Export Controls on Semiconductor Manufacturing Items” (SME IFR) (88 FR 73424, October 25, 2023) and “Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections” (AC/S IFR) (88 FR 73458, October 25, 2023). The October 17 AC/S IFR and SME IFR included a comment period deadline of December 18, 2023. The Department of Commerce has determined at this time that the extension of the comment period through January 17, 2024 is warranted to allow for commenters to have additional time to review the interim final rules and to benefit from the significant amount of public outreach that BIS is conducting on the rules prior to preparing and submitting comments. This extension notice specifies that comments may be submitted at any time but must be received by January 17, 2024, to be considered.
Coast Guard, DHS.
Final rule.
The Coast Guard is removing the existing drawbridge operation regulation for the Causton Bluff, SR 26, Bridge across the Atlantic Intracoastal Waterway, mile 579.9, near Causton Bluff, GA. The drawbridge was replaced with a fixed bridge and the bascule span leaves have been removed from the structure. The operating regulation is no longer applicable or necessary.
This rule is effective December 15, 2023.
To view documents mentioned in this preamble as being available in the docket, go to
If you have questions on this rule, call or email Ms. Jennifer Zercher, Bridge Management Specialist, Seventh Coast Guard District; telephone 305-415-6740, email
The Coast Guard is issuing this final rule without prior notice and opportunity to comment pursuant to authority under section 4(a) of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). This provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Under 5 U.S.C. 553(b), the Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because it is unnecessary. The Causton Bluff, SR 26, Bridge, that once required draw operations in 33 CFR 117.353(b), was removed and replaced with a fixed bridge in October 2023. Therefore, the regulation is no longer applicable and shall be removed from publication. It is unnecessary to publish an NPRM because this regulatory action does not purport to place any restrictions on mariners but rather removes a restriction that has no use or value because the new bridge does not open.
Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective in less than 30 days after publication in the
The Coast Guard is issuing this rule under authority 33 U.S.C. 499.
The Causton Bluff, SR 26, Bridge was removed and replaced with a fixed bridge in October 2023. The elimination of this drawbridge necessitates the removal of the drawbridge operation regulation, 33 CFR 117.353(b), that pertains to the former drawbridge.
The purpose of this rule is to remove the section (b) of 33 CFR 117.353 that refers to the Causton Bluff, SR 26, Bridge at mile 579.9, from the Code of Federal Regulations since it governs a bridge that is no longer able to be opened.
The Coast Guard is removing the regulation in 33 CFR 117.353 related to the draw operations for this bridge because it is no longer a drawbridge. The change removes the section (b) of the regulation governing Causton Bluff, SR 26, Bridge since the bridge has been
We developed this rule after considering numerous statutes and Executive Orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive Orders.
Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This proposed rule has not been designated a “significant regulatory action,” under section 3(f) of Executive Order 12866, as amended by Executive Order 14094 (Modernizing Regulatory Review). This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, it has not been reviewed by the Office of Management and Budget (OMB).
This regulatory action determination is based on the fact that the bridge was replaced with a fixed bridge and no longer operates as a drawbridge. The removal of the operating schedule from 33 CFR 117 Subpart B will have no effect on the movement of waterway or land traffic.
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601-612, as amended, requires federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.
While some owners or operators of vessels intending to transit the bridge may be small entities, for the reasons stated in section V.A above this final rule would not have a significant economic impact on any vessel owner or operator.
Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please contact the person listed in the
Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.
This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).
A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.
Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.
The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.
We have analyzed this rule under Department of Homeland Security Management Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning Policy COMDTINST 5090.1 (series) which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f). The Coast Guard has determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule promulgates the operating regulations or procedures for drawbridges and is categorically excluded from further review, under paragraph L49, of Chapter 3, Table 3-1 of the U.S. Coast Guard Environmental Planning Implementation Procedures.
Neither a Record of Environmental Consideration nor a Memorandum for the Record are required for this rule.
Bridges.
For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 117 as follows:
33 U.S.C. 499; 33 CFR 1.05-1; Department of Homeland Security Delegation No. 00170.1. Revision No. 01.3.
Federal Communications Commission.
Final rule.
In this document, the Federal Communications Commission (Commission) adopts rules for commercial mobile service providers that have elected to participate in the Wireless Emergency Alert system (WEA) (Participating CMS Providers) to support WEA messages in the 13 most commonly spoken languages in the U.S. as well as English and American Sign Language. Participating CMS Providers are to support this expanded multilingual alerting by enabling mobile devices to display message templates that will be pre-installed and stored on the mobile device. The Commission also directs its Public Safety and Homeland Security Bureau to seek comment on various implementation details of the multilingual alerting requirements and future expansion to additional languages. In addition, to help personalize emergency alerts, the Commission requires participating wireless providers to support the inclusion of maps in WEA messages that show the alert recipient's location relative to the geographic area where the emergency is occurring, and establishes a Commission-hosted database to provide the public with easy-to-access information on WEA availability. Wireless providers will be required to supply information on whether they participate in WEA and, if so, the extent of WEA availability in their service area and on the mobile devices that they sell. Last, to support more effective WEA performance and public awareness, the amended rules enable alerting authorities to send two local WEA tests per year that the public receives by default, provided that the alerting authority takes steps to ensure that the public is aware that the test is, in fact, only a test.
Effective December 15, 2026, except for the amendments to 47 CFR 10.210(b), (c), and (d)), 10.350(d), 10.480(a) and (b), and 10.500(e), which are delayed indefinitely. The Federal Communications Commission will announce the effective dates of the delayed amendments by publishing documents in the
For further information regarding this Further Notice, please contact Michael Antonino, Cybersecurity and Communications Reliability Division, Public Safety and Homeland Security Bureau, (202) 418-7965, or by email to
This is a summary of the Commission's
This
This document contains new and modified information collection requirements subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to the Office of Management and Budget (OMB) for review under Section 3507(d) of the PRA. OMB, the general public, and other Federal agencies will be invited to comment on the new or modified information collection requirements contained in this proceeding. In addition, we note that pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198,
1. It is essential that the public be able to receive in accessible language and format WEA Messages that are intended for them. It is also important that those who initiate these messages and those who rely upon them can access information about WEA's availability and performance. Through the requirements the Commission adopts in the
2. To expand WEA's reach to millions of people who primarily speak a language other than English or Spanish who may not be able to understand the potentially life-saving alerts they receive, the Commission requires Participating CMS Providers to support multilingual WEA through the use of Alert Messages translated into the most common languages (referred to in this item as “templates”). These templates would be pre-installed and stored on the mobile device itself. As described below, where an alerting authority chooses to send a multilingual Alert Message, the WEA-capable mobile device must be able to extract and display the relevant template in the subscriber's default language, if available. See, 47 CFR 10.500(e). If the default language for a WEA-capable mobile device is set to a language that is not among those supported by templates, the WEA-capable device must present the English-language version of the Alert Message.
3. The weight of the record supports expanding WEA's language capabilities
4. The implementation of multilingual WEA through the use of templates, as described in the
5. Promoting multilingual WEA through templates will enhance the flexibility that alerting authorities have in communicating with their communities. There may be times where the benefit of delivering an Alert Message to the public as soon as possible outweighs the need for additional context that freeform text could provide. The Commission does not require alerting authorities to use templates, but require CMS Providers to support them should alerting authorities wish to use them at their discretion. The Commission defers to alerting authorities on how best to utilize these new WEA functions for their communities.
6. The Commission further declines to require Participating CMS Providers to implement multilingual WEA using machine translation at this time. The Commission will continue to examine the feasibility of machine translation technologies and its application in connection with multilingual alerting.
7. As a baseline, the Commission requires Participating CMS Providers' WEA-capable mobile devices support templates in the 13 most commonly spoken languages in the United States, based on U.S. Census data, in addition to English templates. These languages include: Spanish, Chinese, Tagalog, Vietnamese, Arabic, French, Korean, Russian, Haitian Creole, German, Hindi, Portuguese, and Italian. This action is consistent with the request of numerous members of Congress who wrote a letter urging the Commission to make WEA capable of multilingual alerting, noting that, without sending WEAs in languages beyond English and Spanish, “[l]ives are put at stake without this crucial information about impending inclement weather events, stay-at-home orders, AMBER alerts, and other emergencies.” The Commission agrees that that the 13 languages for which we require support today would help make WEA content available to people who primarily speak a language other than English or Spanish for the first time, and that this change will most directly benefit those who have historically been underserved by WEA. The Commission believes that this action will mitigate a risk observed by researchers that individuals who primarily speak a language other than English or Spanish may not understand evacuation notices or instructions, raising the risk of harm.
8. In addition, the Commission requires Participating CMS Providers' WEA-capable mobile devices to support templates in ASL. The Commission received a robust record demonstrating that ASL templates would increase the effectiveness and accessibility of WEAs for people who are deaf and hard of hearing who use ASL. The Commission believes there is no adequate substitute for ASL for many individuals in the deaf and hard of hearing community, and unlike the other languages for which we require support, however, ASL is not a language to which a mobile device can be set. Because of this, the Commission requires Participating CMS Providers' WEA-capable mobile devices to provide subscribers with the ability to opt-in to receive ASL alerts. The Commission recognizes that, unlike textual translations, English language Alert Messages would be translated into ASL by video. To avoid the risk that ASL templates could unnecessarily consume mobile device resources for individuals that do not need them, the rules allow the user's voluntary selection of the option to receive WEAs in ASL to trigger the mobile device to download ASL templates to the device. WEA-capable mobile devices need not be sold with ASL templates pre-installed on them, so long as the templates are available to download in the manner described here
9. A consumer's choice to receive Alert Message templates in ASL should override the preferred language setting and the Alert Message should be extracted in ASL. This approach is necessary to give meaning to the consumer's choice. Template-based ASL Alert Messages would function like other template-based Alert Messages in other respects.
10. The Commission directs the Public Safety and Homeland Security Bureau (Bureau) to develop the specific implementation parameters for template-based multilingual alerting. In this regard, the
11. The
12. The
13. If minimally burdensome to implement, the
14. After an opportunity for comment, the Bureau will publish an Order in the
15. The Commission believes that 30 months is reasonable to implement the templates for the 13 languages, as well as English and ASL. As the
16. Applying the 30-month compliance timeframe to all Participating CMS Providers affords sufficient time to comply. Irrespective of whether small and rural carriers choose to allocate resources to participate in the standards process in which wireless industry has routinely engaged to support compliance with the Commission's WEA requirements, the record suggests that this process can be completed within 12 months and will benefit all Participating CMS Providers equally. The remaining 18 months in the 30-month compliance timeframe include 12 months for software development and testing and 6 months for deployment in regular business cycles. The Commission believes that any delays that small and rural carriers may encounter in accessing the network equipment or mobile devices needed to support the requirements adopted today can be accommodated within the 6-month flexibility that we offer to all Participating CMS Providers. In proposing to require compliance within 30 months of the rule's publication in the
17. The Commission also agrees that languages should be maintained and reassessed to keep pace with evolving communities and technological capabilities. The Commission therefore anticipates that, in the years to come, as technology evolves and as language needs change, the Commission will continue to examine these issues to assess whether further adjustments are warranted.
18. For a multilingual WEA to reach the intended recipient, the subscriber must first set the phone to the default language of their choice. Raising public awareness about this critical step is an important component of ensuring consumers are able to take advantage of multilingual alerts. Equally important is helping consumers understand how to set a WEA-capable device to a default language that enables them to receive multilingual alerts. The Commission encourages all stakeholders involved in the distribution of WEA (CMS providers, device retailers, alerting authorities, and consumer advocates) to conduct outreach to educate the public about setting their WEA-capable devices to their preferred language to receive multilingual alerts. The
19. To help people personalize threats that potentially affect them, the
20. The record demonstrates a compelling public safety need for WEA messages to include location-aware maps. Location-aware maps will personalize threats so recipients will more quickly understand whether an alert applies to them and hasten protective actions. Providing such maps will spur people to take actions to protect their lives and property more quickly than they otherwise might, including in situations where a timely response can save lives. The Commission also agrees with commenters that location-aware maps could mitigate the effects of target area overshoot.
21. The
22.
23. The
24. A WEA-enabled map may not be accessible to screen readers, which means the map may not be useful to blind and low vision individuals. To ensure that this mapping capability is accessible to as many people as possible and that the inclusion of maps enhances the effectiveness of WEA, the
25. To allow alerting authorities to develop a better understanding of how WEA operates within their unique jurisdictions and circumstances and to engage in important public awareness exercises, the
26. The
27. However, limiting the number of permissible tests by alerting authority may be insufficient to mitigate the risk of alerting fatigue because people in counties over which alerting authorities have overlapping jurisdictions could receive a large number of additional WEA tests each year. The
28. With these revisions, the Commission removes regulatory obstacles to WEA performance testing and reduce time and cost burdens on alert originators by eliminating the need to obtain a waiver. Today, alerting authorities may conduct end-to-end tests of the WEA system only using a State/Local WEA Test, which the public does not receive by default. Instead, only those people who affirmatively opt in to receive State/Local WEA tests will receive them. Alerting authorities currently must obtain a waiver to conduct WEA tests that the public receives by default, which can be cumbersome and place an unnecessary administrative burden on alerting authorities and CMS Providers. By doing away with this paperwork requirement, the
29. The Commission's experience with “Live Code” EAS tests over the years suggests that two WEA Performance and Public Awareness Tests per year is sufficient to meet alerting authorities' public safety objectives and that the preconditions pursuant to which they are issued are effective at limiting the potential for public confusion. The Commission has found that effective public awareness testing helps the public to understand how to respond to WEAs in the event of an actual emergency. Verizon states that public-facing tests can be a valuable public education tool. Alert originators who wish to conduct additional testing may continue to utilize the State/Local WEA test code, which allows alert originators to send test messages only to those who proactively opt in to receive them. As the Commission noted in the
30. Alerting authorities can use WEA Performance and Public Awareness Tests as a tool to gather data about how WEA works in practice, as the Commission has done repeatedly over the years. Multiple alerting authorities highlight the importance of receiving data about how WEA performs in their local jurisdictions. State/Local WEA Tests may be less effective than WEA Performance and Public Awareness Tests for this purpose because the amount of data that transmission of a State/Local WEA Test can generate is limited by the number of people within the target area that have affirmatively opted in to receive tests of this type. To further facilitate WEA testing for this purpose, the Commission offers alerting authorities access to a Commission survey instrument that has proven effective at gathering data about WEA's reliability, accuracy, and speed. The
31. While the Commission continues to evaluate the record on our proposed performance reporting requirements, the Commission believe that this revision of our testing rules will at least help address alerting authorities' immediate needs for WEA performance information in their jurisdictions.
32. The
33. To equip alerting authorities with information that allows them to prepare for reliable emergency communications during disasters, the
34. The WEA Database will aggregate WEA participation information in one location for ease of access and understanding, increasing its utility for emergency planning purposes and for the public. Alerting authorities believe they need nuanced information about WEA's availability, specifically if WEA is
35. The
36. To empower alerting authorities with information about where WEA is and is not available within their communities, the
37. CMS Providers that offer WEA in an area that is not co-extensive with their wireless voice coverage area must submit a geospatial data file compatible with the WEA Database describing their WEA coverage area to satisfy this requirement. The Commission disagrees with Verizon and AT&T that the information about Participating CMS Providers' wireless coverage areas that is publicly available today, including via the Commission's National Broadband Map, is sufficient to inform alerting authorities' use of WEA. CMS Providers that choose to participate in WEA in part do not attest that their WEA service area is coextensive with their wireless voice coverage area. Without the additional attestation that the WEA Database will elicit, it would therefore be unreasonable for an alerting authority to infer that any information that these CMS Providers make available about their wireless voice coverage area is representative of their WEA service area.
38. The
39. Communities can only benefit from the many WEA enhancements that the Commission has required Participating CMS Providers to support to the extent that deployed mobile devices support them. Creating an aggregated account of the WEA capabilities of the mobile devices that Participating CMS Providers sell will allow alerting authorities to understand the extent to which their communities will benefit from messages crafted to take advantage of modern WEA functionalities, such as a longer, 360-character version of an Alert Message, a Spanish-language version of an Alert Message, or clickable hyperlinks. According to New York City Emergency Management (NYCEM), this information would “allow for jurisdictions to supplement the alert with additional messaging as needed.” The Association of Public-Safety Communications
40. The
41. Most CMS Providers have not updated their election to transmit alert messages since filing their initial election in 2008. As a result, the Commission is concerned that many WEA elections could now be outdated and do not accurately reflect WEA's current availability. The Commission agrees with Verizon that “refreshing service provider elections are sensible, given the time that has lapsed since service providers submitted their elections over a decade ago and the many intervening changes in the wireless industry.” The
42. The Commission is persuaded not to require Participating CMS Providers to provide an account of their roaming partners via the WEA Database at this time. The Commission agrees that “given the comprehensive roaming arrangements across the industry, maintaining this information would be too unwieldy for individual providers and result in confusing, duplicative information for consumers.”
43. The Commission is also persuaded not to require CMS Providers to attest to the WEA capabilities of resellers of their facilities-based services at this time, unless those resellers are wholly-owned or controlled by the CMS Provider. The
44. The
45. The
46. The
47. The Competitive Carrier Association (CCA) contends that there are limits on the Commission's authority to adopt enhancements to the system given the timing specifications in the WARN Act and its provision that the Commission “shall have no rulemaking authority under this chapter, except as provided in paragraphs (a), (b), (c), and (f).” See 47 U.S.C. 1201(a) and (d).
48. Consistent with the WARN Act, WEA “enable[s] commercial mobile service alerting capability for commercial mobile service providers that voluntarily elect to transmit emergency alerts.” The WEA system is a voluntary program designed to deliver life-saving emergency information to the public, and the Commission has worked hard to build enhancements into the system since it was created. The system now includes embedded links to additional information, Spanish-language alerts, and geotargeting designed to help messages reach the intended audience that needs the information to act in an emergency. Today's improvements, which will help reach audiences that speak additional languages or that have disabilities that could limit WEA's utility in its present form, build on these prior efforts. Those providers opting to support the system must be prepared to accommodate these enhancements and to follow the rules that the Commission adopts.
49. With that important context in mind, the Commission finds no merit in CCA's contentions. Contrary to CCA's view, the time periods set out in paragraphs (a), (b), and (c) only established deadlines for initial actions on the directives described in those provisions. Moreover, paragraph (f), which is also referenced in paragraph (d), contains no deadline for the Commission's regulatory authority over WEA technical testing. Under CCA's interpretation of the statute, the Commissoin's WEA rulemaking authority would have lapsed after establishing initial rules in 2008; yet this reading is inconsistent with Congress's amendment of the WARN Act in 2021, when it directed the Commission to examine the feasibility of expanding the reach of emergency alerts using new technologies. In fact, a bipartisan group of lawmakers representing both chambers of Congress has expressed keen interest in continuing to upgrade WEA to support multilingual capabilities. Over time, the Commission's enhancements to WEA and Congress's recognition of the importance of the system, including those enhancements, reflect Congress's endorsement of how the Commission was exercising its authority under the WARN Act.
50. In any event, however, the Commission's legal authority concerning emergency alerts is based not solely on the provisions of the WARN Act but also on several provisions of the Communications Act, which is the backdrop against which Congress adopted the WARN Act. In particular, section 303(b) directs the Commission to “[p]rescribe the nature of the service to be rendered” by licensees. The rule changes in the
51. The Commission finds that the benefits from the improvements made to WEA by the
52. The Commission believes that the rules adopted will result in benefits measurable in terms of lives saved and injuries and property damage prevented. The Commission agrees with Verizon that these rule changes could offer “tangible safety benefits to consumers and alert originators.” According to CTIA and Southern Communications Services, Inc. d/b/a Southern Linc (Southern Linc), WEA has become one of the most effective and reliable alert and warning tools for public safety and the public. The requirements adopted in the
53.
54.
55.
56.
57. The Third Report and Order estimates that the rules adopted in the
58. Consistent with prior estimates, the one-time cost of $42.4 million to update the WEA standards and software necessary to comply with the proposals in the Further Notice includes approximately a $845,000 to update applicable WEA standards and approximately a $41.5 million to update applicable software. The
59. The Commission determines that costs associated with our adopted rules related to WEA availability reporting to be relatively low for Participating CMS Providers that participate in WEA in whole or that otherwise offer WEA in the entirety of their geographic service area because such Participating CMS Providers have already provided the Commission with the geospatial data needed to fulfill a significant aspect of their reporting obligation in furtherance of their obligations to support the Commission's Broadband Data Collection. The Commission agrees with T-Mobile that “[w]here WEA is available throughout a wireless provider's network, the GIS files used for the biannual Broadband Data Collection should serve this purpose. If a wireless provider does not offer WEA throughout its network, it should be allowed to submit a different GIS depicting WEA coverage.” The Commission determines that in the Supporting Document of Study Area Boundary Data Reporting in Esri Shapefile Format, the Office of Information and Regulatory Affairs estimates that it takes an average of 26 hours for a data scientist to modify a shapefile. The Commission believes submitting WEA availability information in geospatial data format should require no more time than modifying a shapefile. Therefore, the Commission believes 26 hours would be an upper bound of the time required for a Participating CMS Provider to report its WEA availability in geospatial data format. Given that the average wage rate is $55.40/hour for data scientists, with a 45% markup for benefits, we arrive at $80.33 as the hourly compensation rate for a data scientist. The Commission estimates an aggregate cost of WEA availability reporting to be approximately $$160,000 (≉ $80.33 per hour × 26 hours × 76 providers = $158,732, rounded to $160,000), which may be recurring on an annual basis since availability may change and need to be updated over time. Within these 26 hours, the Commission believes that Participating CMS Providers will also be able to provide the availability information required by the rules adopted today, including lists of all the mobile devices the Participating CMS Provider offers at the point of sale, list of the Participating CMS Provider's DBAs and subsidiaries, and any changes of WEA service. Many Participating CMS Providers already create and maintain this information, and therefore, the Commission believes that providing this information to the WEA Database would require minimal time burdens and would be within the cost estimates.
60. No commenter objected to the belief that CMS Providers would not incur any cost to comply with our proposal to allow alerting authorities to conduct two public awareness tests per year. Based on the foregoing analysis, the Commission finds it reasonable to expect that these improvements will result in lives saved, injuries avoided, and a reduced need to deploy first responders. The Commission concludes that the expected public safety benefits exceed the costs imposed by the rules adopted today.
61.
62.
63.
64.
65.
66.
67.
68. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated into the FNPRM released in June 2023 in this proceeding. The Commission sought written public comment on the proposals in the NPRM, including comment on the IRFA. Comments filed addressing the IRFA are discussed below. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
69. In this proceeding, the Commission adopts rules to enhance the utility of the Wireless Emergency Alert (WEA) system by making it more accessible and enabling WEAs to provide more personalized alerts. Specifically, the Commission requires Participating Commercial Mobile Service Providers (Participating CMS Providers) to enable alerting authorities to display translated Alert Message content via the use of emergency alert message templates. In addition, these efforts to make WEA messages more accessibility extend to the deaf and hard of hearing community pursuant to the requirement that Participating CMS Providers' WEA-capable mobile devices support templates in American Sign Language (ASL). The Commission concludes that enabling the display of translated Alert Message content via the use of emergency alert message templates will allow alert originators to inform those communities that primarily speak a language other than English or Spanish of emergencies and save more lives. The Commission also adopts rules to require Participating CMS Providers' WEA-capable mobile devices to support the presentation of WEA messages that link the recipient to a native mapping application. This requirement will allow alert originators to personalize alerts, spurring people to take protective action more quickly and to understand whether an alert applies to their them. Further, to allow alerting authorities to understand WEA's reliability, speed, and accuracy and to promote the use of WEA as a tool for raising public awareness about emergencies likely to occur, the Commission requires Participating CMS Providers to support up to two end-to-end WEA tests, per county or county equivalent, per year, that consumers receive by default, subject to the conditions described in the
70. In light of the significant public safety benefits, which include the capacity to save lives, mitigate and prevent injuries, the Commission believes that the actions taken in the
71. Three commenters specifically addressed the proposed rules and policies presented in the IRFA. The Competitive Carriers Association (CCA) argued that flexibility of implementing the proposed rules would promote participation in WEA by smaller and regional carriers because the supply chain and level of support for handsets for smaller and regional carriers generally lags behind nationwide carriers. Further, CCA stated the additional requirements would disproportionately burden smaller and regional carriers that operate with small teams and limited resources. CCA suggested increased time for compliance for non-nationwide carriers.
72. Southern Communications Services, Inc. d/b/a Southern Linc (Southern Linc) raised concerns similar to those raised by CCA, namely, that the Commission should account for the disproportionate impact that the proposed requirements in the
73. CTIA—The Wireless Association (CTIA) argued that to the extent the proposals made in the
74. The Commission considered the potential impact of the rules proposed in the IRFA on small entities and we concluded that these mandates provide Participating CMS Providers with a sufficient measure of flexibility to account for any technical and/or cost-related concerns. The Commission has determined that implementing these improvements to WEA are technically feasible for small entities and other Participating CMS Providers and the cost of implementation is reasonable. To help facilitate compliance with the requirements in the
75. The Chief Counsel did not file any comments in response to the proposed rules in this proceeding.
76. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the rules adopted herein. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act.” A “small business concern” is one which:
77. The
78. The Commission determined that costs associated with the adopted rules related to WEA availability reporting to be minimal for small entities that participate in WEA in whole or that otherwise offer WEA in the entirety of their geographic service area because such small entities may have already provided the Commission with the geospatial data needed to fulfill a significant aspect of their reporting obligation in furtherance of their obligations to support the Commission's Broadband Data Collection. Where WEA is available throughout a wireless provider's network, the GIS files used for the biannual Broadband Data Collection should serve this purpose. If a wireless provider does not offer WEA throughout its network, it should be allowed to submit a different GIS depicting WEA coverage. The Commission determined that in the Supporting Document of Study Area Boundary Data Reporting in Esri Shapefile Format, the Office of Information and Regulatory Affairs estimates that it takes an average of 26 hours for a data scientist to modify a shapefile. The Commission believes submitting WEA availability information in geospatial data format should require no more time than modifying a shapefile. Therefore, the Commission believes 26 hours would be an upper bound of the time required for a Participating CMS Provider to report its WEA availability in geospatial data format.
79. The Commission reasons that no additional, ongoing or annualized burdens will result from this reporting obligation for small entities and other Participating CMS Providers because the requirement that we adopt today does not change the approach that Participating CMS Providers must take to updating their elections once this one-time renewed election is completed. For example, the rules adopted in the
80. The Commission continues to adopt measures to improve WEA and continues to meet its obligation to develop the nation's emergency preparedness and response infrastructure by making WEA more accessible by adding multilingual (including ASL) functionality, integrating location-aware maps, enabling Performance and Public Awareness tests, and establishing a WEA Database for Participating CMS Providers to report information about WEA availability. While doing so, the Commission is mindful that small entities may incur costs; the Commission weighed these costs against the public interest benefits of the new obligations and determined the benefits outweigh the costs. The specific steps the Commission has taken to minimize costs and reduce the economic impact for small entities and alternatives considered are discussed below.
81. In adopting the rule to enable alerting authorities to display translated Alert Message content via the use of emergency alert message templates, the Commission found the record demonstrates that machine translation is not yet ripe for use today in WEA. The use of alert message templates should minimize the impact of the adopted requirements for small entities because it will limit developing software and standards to enable machine translations. Because the alert message templates will be produced by the Public Safety and Homeland Security Bureau after taking into account public feedback, small entities will not need to expend resources to translate emergency messages and develop template alert messages.
82. In response to concerns about our proposed compliance timeframe, the
83. The Commission will send a copy of the
Communications common carriers, Radio.
For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 10 as follows:
47 U.S.C. 151, 152, 154(i), 154(n), 201, 301, 303(b), 303(e), 303(g),
The revisions and addition read as follows:
(a) A CMS provider that elects to transmit WEA Alert Messages must elect to participate in part or in whole, as defined by § 10.10(l) and (m), and shall electronically file in the Commission's WEA Database attesting that the Provider:
(b) A CMS Provider that elects to participate in WEA must disclose the following information in their election filed in the Commission's WEA Database:
(1) The entities on behalf of which the Participating CMS Provider files its election, including the subsidiary companies (whether those subsidiaries are wholly owned or operated CMS Providers, Mobile Virtual Network Operators, or wireless resellers) on behalf of which their election is filed and the “doing business as” names under which a Participating CMS Provider offers WEA;
(2) The geographic area in which the Participating CMS Provider agrees to offer WEA alerts, either as:
(i) An attestation that they offer WEA in the entirety of their voice coverage area as reported to the Commission in the Broadband Data Collection or any successors; or
(ii) Geospatial data submitted to the Commission through the WEA Database.
(3) The extent to which all mobile devices that the Participating CMS Provider offers at the point of sale are WEA-capable, as demonstrated by the following:
(i) The mobile devices, as defined in § 10.10(j), that the Participating CMS Provider offers at their point of sale; and
(ii) The WEA-capable mobile devices, as defined in § 10.10(k), that the Participating CMS Provider offers at their point of sale.
(c) If the terms of a CMS Provider's WEA participation change in any manner described by paragraph (b) of this section, it must update the information promptly such that the information in the WEA Database accurately reflects the terms of their WEA participation. Updates (if any) for the period from August 16 through February 15 must be filed by the following March 1, and updates for the period from February 16 through August 15 must be filed by the following September 1 of each year.
(d) A CMS Provider that elects not to transmit WEA Alert Messages shall file electronically in the Commission's WEA Database attesting to that fact. Their filing shall include any subsidiary companies on behalf of which the election is filed and the CMS Provider's “doing business as” names, if applicable.
(d)
(1) Conducts outreach and notifies the public before the test that live event codes will be used, but that no emergency is, in fact, occurring;
(2) To the extent technically feasible, states in the test message that the event is only a test;
(3) Coordinates the test among Participating CMS Providers and with State and local emergency authorities, the relevant SECC (or SECCs, if the test could affect multiple States), and first responder organizations, such as PSAPs, police, and fire agencies); and
(4) Provides in widely accessible formats the notification to the public required by this paragraph that the test is only a test and is not a warning about an actual emergency.
(a) Participating CMS Providers are required to transmit WEA Alert Messages that are issued in the Spanish language or that contain Spanish-language characters.
(b) Participating CMS Providers are required to support the display of a pre-scripted alert pre-installed and stored in the mobile device that corresponds to the default language of the mobile device.
(i) For Alert Messages with a target area specified by a circle or polygon, when a device has location services enabled and has granted location permissions to its native mapping application, Participating CMS Providers must support the presentation of a map along with an emergency alert message that includes at least
(1) The shape of the target area,
(2) The user's location relative to the target area, and
(3) A geographical representation of a target area in which both the targeted area and user are located.
(e) Extraction of alert content in English and the subscriber-specified default language, if applicable.
(1) Storing pre-scripted alerts in English, Spanish, Chinese, Tagalog, Vietnamese, Arabic, French, Korean, Russian, Haitian Creole, German, Hindi, Portuguese, and Italian.
(2) Allowing the subscriber to choose to receive pre-scripted Alert Messages in American Sign Language (ASL) instead of or in addition to their mobile device's subscriber-specified default language setting.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notification of quota transfer.
NMFS announces that the State of North Carolina is transferring a portion of its 2023 commercial summer flounder quota to the Commonwealth of Virginia. This adjustment to the 2023 fishing year quota is necessary to comply with the Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan quota transfer
Effective December 12, 2023, through December 31, 2023.
Laura Deighan, Fishery Management Specialist, (978) 281-9184.
Regulations governing the summer flounder fishery are found in 50 CFR 648.100 through 648.111. These regulations require annual specification of a commercial quota that is apportioned among the coastal states from Maine through North Carolina. The process to set the annual commercial quota and the percent allocated to each state is described in § 648.102 and final 2023 allocations were published on January 3, 2023 (88 FR 11).
The final rule implementing Amendment 5 to the Summer Flounder Fishery Management Plan (FMP), as published in the
North Carolina is transferring 23,319 pounds (lb; 10,577 kilograms (kg)) to Virginia through a mutual agreement between the states. This transfer was requested to repay landings made by out-of-state permitted vessels under safe harbor agreements. The revised summer flounder quotas for 2023 are North Carolina, 3,257,764 lb (1,477,697 kg), and Virginia, 2,788,223 lb (1,264,717 kg).
NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act. This action is required by 50 CFR 648.102(c)(2)(i) through (iv), which was issued pursuant to section 304(b), and is exempted from review under Executive Order 12866.
16 U.S.C. 1801
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS is implementing allowable harvest levels and harvest reference points, including the overfishing limit, acceptable biological catch, and annual catch limit, for Pacific mackerel in the exclusive economic zone off the U.S. West Coast (California, Oregon, and Washington) for the fishing seasons 2023-2024 and 2024-2025. The allowable harvest levels include a harvest guideline and annual catch target for the 2023-2024 fishing season of 7,871 metric tons (mt) and 6,871 mt, respectively and a harvest guideline and annual catch target for the 2024-2025 fishing season of 8,943 mt and 7,943 mt, respectively. If the fishery attains the annual catch target in either fishing season, the directed fishery will close, reserving the 1,000-mt difference between the harvest guideline and annual catch target as a set-aside for incidental landings in other Coastal Pelagic Species fisheries and other sources of mortality. This final rule is made pursuant to the Coastal Pelagic Species Fishery Management Plan and is intended to conserve and manage the Pacific mackerel stock off the U.S. West Coast.
Effective December 15, 2023.
Heather Fitch, West Coast Region, NMFS, (360) 302-6549,
Under the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), 16 U.S.C. 1801
The uncertainty surrounding the current biomass estimates for Pacific mackerel for the 2023-2024 and 2024-2025 fishing seasons was taken into consideration in the development of these harvest specifications. Any Pacific mackerel harvested between July 1, 2023, and the effective date of the final rule will count toward the 2023-2024 ACT and HG.
The Council recommended, and NMFS is implementing, Pacific mackerel harvest specifications for both the 2023-2024 and 2024-2025 fishing seasons. For the 2023-2024 Pacific mackerel fishing season these include an OFL of 11,693 mt, an ABC and ACL of 9,754 mt, a HG of 7,871 mt, and an ACT of 6,871 mt. For the 2024-2025 Pacific mackerel fishing season these include an OFL of 12,765 mt, an ABC and ACL of 10,073 mt, a HG of 8,943 mt, and an ACT of 7,943 mt. These catch specifications are based on the OFL and ABC control rules established in the CPS FMP, recommendations from the Council's SSC and other advisory bodies, and biomass estimates of 55,681 mt (2023-2024) and 60,785 mt (2024-2025). The biomass estimates are the result of a benchmark stock assessment
Under this action, in the unlikely event that catch reaches the ACT in either fishing season, directed fishing will close, reserving the difference between the HG and ACT (1,000 mt) as a set-aside for incidental landings in other fisheries and other sources of mortality.
The NMFS West Coast Regional Administrator will publish a notice in the
NMFS published a proposed rule on September 29, 2023 (88 FR 67222) and received no public comments.
Pursuant to section 304(b)(3) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this final rule is consistent with the CPS FMP, other provisions of the Magnuson-Stevens Act, and other applicable law.
This final rule has been determined to be not significant for purposes of Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. The factual basis for the certification was published in the proposed rule and is not repeated here. No comments were received regarding this certification. As a result, a regulatory flexibility analysis was not required and none was prepared.
This final rule contains no information collection requirements under the Paperwork Reduction Act of 1995.
Fisheries, Fishing, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, NMFS amends 50 CFR part 660 as follows:
16 U.S.C. 1801
(i) * * *
(1) For the Pacific mackerel fishing season July 1, 2023, through June 30, 2024, the harvest guideline is 7,871 mt and the ACT is 6,871 mt; and
(2) For the Pacific mackerel fishing season July 1, 2024, through June 30, 2025, the harvest guideline is 8,943 mt and the ACT is 7,943 mt.
Federal Aviation Administration (FAA), DOT.
Notice of proposed rulemaking (NPRM).
The FAA proposes to supersede Airworthiness Directive (AD) 2021-24-20, which apply to all Airbus SAS Model A350-941 and -1041 airplanes, and AD 2023-03-05, which apply to certain Airbus SAS Model A350-941 and -1041 airplanes. AD 2021-24-20 requires repetitive water drainage and plug cleaning of the left- and right-hand slat geared rotary actuators (SGRAs) having a certain part number installed on slat 5 track 12 with certain functional item numbers. AD 2023-03-05 requires revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations. Since the FAA issued AD 2021-24-20 and AD 2023-03-05, the FAA has determined that new or more restrictive airworthiness limitations are necessary. This proposed AD would continue to require certain actions in AD 2021-24-20 and AD 2023-03-05 and would require revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations, as specified in a European Union Aviation Safety Agency (EASA) AD, which is proposed for incorporation by reference (IBR). The FAA is proposing this AD to address the unsafe condition on these products.
The FAA must receive comments on this proposed AD by January 29, 2024.
You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods:
•
•
•
•
• For EASA material that is proposed for IBR in this NPRM, contact EASA, Konrad-Adenauer-Ufer 3, 50668 Cologne, Germany; telephone +49 221 8999 000; email
• You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 2200 South 216th St., Des Moines, WA. For information on the availability of this material at the FAA, call 206-231-3195.
Dat Le, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email
The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under
Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.
CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as “PROPIN.” The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to Dat Le, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email
The FAA issued AD 2021-24-20, Amendment 39-21841 (86 FR 72838, December 23, 2021) (AD 2021-24-20), for all Airbus SAS Model A350-941 and -1041 airplanes. AD 2021-24-20 was prompted by an MCAI originated by EASA, which is the Technical Agent for the Member States of the European Union. EASA issued AD 2021-0130R1, dated June 10, 2021 (EASA 2021-0130R1) (which corresponds to FAA AD
AD 2021-24-20 requires repetitive water drainage and plug cleaning of the left- and right-hand SGRAs having a certain part number installed on slat 5 track 12 with certain functional item numbers. The FAA issued AD 2021-24-20 to address SGRA jams, which could result in reduced control of the airplane.
The FAA also issued AD 2023-03-05, Amendment 39-22330 (88 FR 10011, February 16, 2023) (AD 2023-03-05), for certain Airbus SAS Model A350-941 and -1041 airplanes. AD 2023-03-05 was prompted by an MCAI originated by EASA, which is the Technical Agent for the Member States of the European Union. EASA issued AD 2022-0127, dated June 28, 2022 (EASA 2022-0127) (which corresponds to FAA AD 2023-03-05), to correct an unsafe condition.
AD 2023-03-05 requires revising the existing maintenance or inspection program, as applicable, to incorporate additional new or more restrictive airworthiness limitations. The FAA issued AD 2023-03-05 to address hazardous or catastrophic airplane system failures. In addition, paragraph (m) of AD 2023-03-05 specifies terminating action for repetitive greasing of certain thrust reverser actuators required by paragraph (g) of AD 2019-20-01, Amendment 39-19754 (84 FR 55495, October 17, 2019). This proposed AD would therefore continue to allow that terminating action.
Since the FAA issued AD 2021-24-20 and AD 2023-03-05, EASA superseded AD 2021-0130R1 and AD 2022-0127 and issued EASA AD 2023-0157, dated July 31, 2023 (EASA AD 2023-0157) (referred to after this as the MCAI), for all Airbus SAS Model A350-941 and -1041 airplanes. The MCAI states that new or more restrictive airworthiness limitations have been developed.
Airplanes with an original airworthiness certificate or original export certificate of airworthiness issued after June 1, 2023, must comply with the airworthiness limitations specified as part of the approved type design and referenced on the type certificate data sheet; this proposed AD therefore does not include those airplanes in the applicability.
The FAA is proposing this AD to address hazardous or catastrophic airplane system failure. You may examine the MCAI in the AD docket at
The FAA reviewed EASA AD 2023-0157. This service information specifies new or more restrictive airworthiness limitations for airplane structures and safe life limits.
This proposed AD would also require EASA AD 2022-0127, dated June 28, 2022, which the Director of the Federal Register approved for incorporation by reference as of March 23, 2023 (88 FR 10011, February 16, 2023).
This proposed AD would also require EASA AD 2021-0130R1, dated June 10, 2021, which the Director of the Federal Register approved for incorporation by reference as of January 27, 2022 (86 FR 72838, December 23, 2021).
This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in
This product has been approved by the aviation authority of another country and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA is issuing this NPRM after determining that the unsafe condition described previously is likely to exist or develop in other products of the same type design.
This proposed AD would retain certain requirements of AD 2021-24-20 and AD 2023-03-05. This proposed AD would also require revising the existing maintenance or inspection program, as applicable, to incorporate additional new or more restrictive airworthiness limitations, which are specified in EASA AD 2023-0157 already described, as proposed for incorporation by reference. Any differences with EASA AD 2023-0157 are identified as exceptions in the regulatory text of this AD.
This proposed AD would require revisions to certain operator maintenance documents to include new actions (
In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA developed a process to use some civil aviation authority (CAA) ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. The FAA has been coordinating this process with manufacturers and CAAs. As a result, the FAA proposes to incorporate EASA ADs by reference in the FAA final rule. This proposed AD would, therefore, require compliance with EASA ADs through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Using common terms that are the same as the heading of a particular section in an EASA AD does not mean that operators need comply only with that section. For example, where the AD requirement refers to “all required actions and compliance times,” compliance with this AD requirement is not limited to the section titled “Required Action(s) and Compliance Time(s)” in EASA AD 2023-0157. Service information required by EASA ADs for compliance will be available at regulations.gov by searching for and locating Docket No. FAA-2023-2240 after the FAA final rule is published.
The FAA's process of incorporating by reference MCAI ADs as the primary source of information for compliance with corresponding FAA ADs has been limited to certain MCAI ADs (primarily those with service bulletins as the primary source of information for accomplishing the actions required by the FAA AD). However, the FAA is now expanding the process to include MCAI ADs that require a change to airworthiness limitation documents, such as airworthiness limitation sections.
For these ADs that incorporate by reference an MCAI AD that changes airworthiness limitations, the FAA requirements are unchanged. Operators must revise the existing maintenance or inspection program, as applicable, to incorporate the information specified in the new airworthiness limitation document. The airworthiness limitations must be followed according to 14 CFR 91.403(c) and 91.409(e).
The previous format of the airworthiness limitation ADs included a paragraph that specified that no alternative actions (
The FAA estimates that this AD, if adopted as proposed, would affect 30 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:
The FAA estimates the total cost per operator for the retained actions from AD 2023-03-05 to be $7,650 (90 work-hours × $85 per work-hour).
The FAA has determined that revising the existing maintenance or inspection program takes an average of 90 work-hours per operator, although the agency recognizes that this number may vary from operator to operator. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), the FAA has determined that a per-operator estimate is more accurate than a per-airplane estimate.
The FAA estimates the total cost per operator for the new proposed actions to be $7,650 (90 work-hours × $85 per work-hour).
Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.
The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.
The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.
For the reasons discussed above, I certify this proposed regulation:
(1) Is not a “significant regulatory action” under Executive Order 12866,
(2) Would not affect intrastate aviation in Alaska, and
(3) Would not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.
Air transportation, Aircraft, Aviation safety, Incorporation by reference, Safety.
Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:
49 U.S.C. 106(g), 40113, 44701.
The FAA must receive comments on this airworthiness directive (AD) by January 29, 2024.
(1) This AD replaces AD 2021-24-20, Amendment 39-21841 (86 FR 72838, December 23, 2021) (AD 2021-24-20); and AD 2023-03-05, Amendment 39-22330 (88 FR 10011, February 16, 2023) (AD 2023-03-05).
(2) This AD affects AD 2019-20-01, Amendment 39-19754 (84 FR 55495, October 17, 2019) (AD 2019-20-01).
This AD applies to Airbus SAS Model A350-941 and -1041 airplanes, certificated in any category, with an original airworthiness certificate or original export certificate of airworthiness issued on or before June 1, 2023.
Air Transport Association (ATA) of America Code 05, Time Limits/Maintenance Checks.
This AD was prompted by a determination that new or more restrictive airworthiness limitations are necessary. The FAA is issuing this AD to address hazardous or catastrophic airplane system failures.
Comply with this AD within the compliance times specified, unless already done.
This paragraph restates the requirements of paragraph (g) of AD 2021-24-20, with no changes. Except as specified in paragraph (h) of this AD, comply with all required actions and compliance times specified in, and in accordance with, European Union Aviation Safety Agency (EASA) AD 2021-0130R1, dated June 10, 2021 (EASA AD 2021-0130R1). Accomplishing the revision of the existing maintenance or inspection program required by paragraph (m) of this AD terminates the requirements of this paragraph.
This paragraph restates the exceptions specified in paragraph (h) of AD 2021-24-20, with no changes.
(1) Where EASA AD 2021-0130R1 refers to “the effective date of the original issue of this [EASA] AD,” this AD requires using January 27, 2022 (the effective date of AD 2021-24-20).
(2) The “Remarks” section of EASA AD 2021-0130R1 does not apply to this AD.
This paragraph restates the no reporting requirement of paragraph (i) of AD 2021-24-20, with no changes. Although the service information referenced in EASA AD 2021-0130R1 specifies to submit certain information to the manufacturer, this AD does not include that requirement.
This paragraph restates the requirements of paragraph (j) of AD 2023-03-05, with no changes. For airplanes with an original airworthiness certificate or original export certificate of airworthiness issued on or before May 2, 2022: Except as specified in paragraph (k) of this AD, comply with all required actions and compliance times specified in, and in accordance with, EASA AD 2022-0127, dated June 28, 2022 (EASA AD 2022-0127). Accomplishing the revision of the existing maintenance or inspection program required by paragraph (m) of this AD terminates the requirements of this paragraph.
This paragraph restates the exceptions specified in paragraph (k) of AD 2023-03-05, with no changes.
(1) The requirements specified in paragraphs (1) and (2) of EASA AD 2022-0127 do not apply to this AD.
(2) Paragraph (3) of EASA AD 2022-0127 specifies to revise “the AMP” within 12 months after its effective date, but this AD requires revising the existing maintenance or inspection program, as applicable, within 90 days after March 23, 2023 (the effective date of AD 2023-03-05).
(3) The initial compliance time for doing the tasks specified in paragraph (3) of EASA AD 2022-0127 is at the applicable “limitations” as incorporated by the requirements of paragraph (3) of EASA AD 2022-0127, or within 90 days after March 23, 2023 (the effective date of AD 2023-03-05), whichever occurs later.
(4) The provisions specified in paragraphs (4) and (5) of EASA AD 2022-0127 do not apply to this AD.
(5) The “Remarks” section of EASA AD 2022-0127 does not apply to this AD.
This paragraph restates the requirements of paragraph (l) of AD 2022-0127, with a new exception. Except as required by paragraph (m) of this AD, after the existing maintenance or inspection program has been revised as required by paragraph (j) of this AD, no alternative actions (
Except as specified in paragraph (n) of this AD: Comply with all required actions and compliance times specified in, and in accordance with, EASA AD 2023-0157, dated July 31, 2023 (EASA AD 2023-0157). Accomplishing the revision of the existing maintenance or inspection program required by this paragraph terminates the requirements of paragraphs (g) and (j) of this AD.
(1) This AD does not adopt the requirements specified in paragraphs (1) and (2) of EASA AD 2023-0157.
(2) Paragraph (3) of EASA AD 2023-0157 specifies revising “the AMP” within 12 months after its effective date, but this AD requires revising the existing maintenance or inspection program, as applicable, within 90 days after the effective date of this AD.
(3) The initial compliance time for doing the tasks specified in paragraph (3) of EASA 2023-0157 is at the applicable “limitations” and “associated thresholds” as incorporated by the requirements of paragraph (3) of EASA AD 2023-0157, or within 90 days after the effective date of this AD, whichever occurs later.
(4) This AD does not adopt the provisions specified in paragraphs (4) and (5) of EASA AD 2023-0157.
(5) This AD does not adopt the “Remarks” section of EASA AD 2023-0157.
After the existing maintenance or inspection program has been revised as required by paragraph (m) of this AD, no alternative actions (
After the maintenance or inspection program has been revised as required by paragraph (j) or (m) of this AD, the repetitive greasing specified in EASA AD 2018-0234R1, dated November 13, 2018, and EASA AD 2018-0234R2, dated September 17, 2019, as required by AD 2019-20-01, is terminated for thrust reverser actuators, having part number (P/N) 351D9908-689, P/N 351D9908-691 or P/N 351D9908-693.
The following provisions also apply to this AD:
(1)
(2)
For more information about this AD, contact Dat Le, Aviation Safety Engineer, FAA, 1600 Stewart Avenue, Suite 410, Westbury, NY 11590; telephone 516-228-7300; email
(1) The Director of the Federal Register approved the incorporation by reference (IBR) of the service information listed in this paragraph under 5 U.S.C. 552(a) and 1 CFR part 51.
(2) You must use this service information as applicable to do the actions required by this AD, unless this AD specifies otherwise.
(3) The following service information was approved for IBR on [DATE 35 DAYS AFTER PUBLICATION OF THE FINAL RULE].
(i) European Union Aviation Safety Agency (EASA) AD 2023-0157.
(ii) [Reserved]
(4) The following service information was approved for IBR on March 23, 2023 (88 FR 10011, February 16, 2023).
(i) European Union Aviation Safety Agency (EASA) AD 2022-0127, dated June 28, 2022.
(ii) [Reserved]
(5) The following service information was approved for IBR on January 27, 2022 (86 FR 72838, December 23, 2021).
(i) European Union Aviation Safety Agency (EASA) AD 2021-0130R1, dated June 10, 2021.
(ii) [Reserved]
(6) For EASA ADs 2021-0130R1, 2022-0127, and 2023-0157, contact EASA, Konrad-Adenauer-Ufer 3, 50668 Cologne, Germany; telephone +49 221 8999 000; email
(7) You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 2200 South 216th St., Des Moines, WA. For information on the availability of this material at the FAA, call 206-231-3195.
(8) You may view this material at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, visit
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking and public hearing.
This document contains proposed regulations to implement the advanced manufacturing production credit established by the Inflation Reduction Act of 2022 to incentivize the production of eligible components within the United States. Eligible components include certain solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical minerals. The proposed regulations would affect eligible taxpayers who produce and sell eligible components and intend to claim the benefit of an advanced manufacturing production credit, including by making elective payment or credit transfer elections. This document also provides notice of a public hearing on the proposed regulations.
Written or electronic comments must be received by February 13, 2024.
A public hearing on this proposed regulation has been scheduled for February 22, 2024, at 10 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by February 13, 2024. If no outlines are received by February 13, 2024, the public hearing will be cancelled.
Requests to attend the public hearing must be received by 5 p.m. ET on February 20, 2024. The public hearing will be made accessible to people with disabilities. Requests for special assistance during the public hearing must be received by 5 p.m. ET on February 16, 2024.
Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at
Concerning the proposed regulations, Mindy Chou, John Deininger, or Alexander Scott at (202) 317-6853 (not a toll-free number); concerning submissions of comments or the public hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by email to
This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) to implement section 45X of the Internal Revenue Code (Code). Section 45X was added to the Code on August 16, 2022, by section 13502(a) of Public Law 117-169, 136 Stat. 1818, 1971, commonly referred to as the Inflation Reduction Act of 2022 (IRA). Section 13502(c) of the IRA provides that section 45X applies to components produced and sold after December 31, 2022.
Section 45X(a)(1) provides that, for purposes of the general business credit under section 38 of the Code, the advanced manufacturing production credit (section 45X credit) for any taxable year is an amount equal to the sum of the credit amounts determined under section 45X(b) with respect to each eligible component, as defined in section 45X(c)(1), which is produced by the taxpayer, and during the taxable year, sold by such taxpayer to an unrelated person. Section 45X(a)(2) provides that any eligible component produced and sold by the taxpayer is taken into account only if the production and sale is in a trade or business of the taxpayer.
Section 45X(a)(3) provides rules regarding the sale of components to an unrelated person, and generally provides a special rule that, for purposes of section 45X(a), treats a taxpayer as selling a component to an unrelated person if that component is sold to the unrelated person by a person related to the taxpayer. Under section 45X(a)(3)(B), if a taxpayer makes an election in the form and manner prescribed by the Secretary of the Treasury or her delegate (Secretary), a sale of components by the taxpayer to a related person will be treated as if made to an unrelated person for purposes of section 45X(a) (Related Person Election). As a condition of, and prior to, a taxpayer making the Related Person Election, the Secretary may require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, or any improper or excessive credit amount.
Section 45X(b)(1)(A) through (M) and section 45X(b)(2) set forth the credit amounts for each type of eligible component, which amounts, except for purposes of determining the credit amount for any applicable critical mineral, are subject to phase out rules set forth in section 45X(b)(3). For any eligible component (except applicable critical minerals) sold after December 31, 2029, the credit amount for such component equals the product of the amount determined under section 45X(b)(1) for such component multiplied by the applicable phase out percentage under section 45X(b)(3)(B)(i) through (iv). In the case of an eligible component sold during calendar year 2030, 2031, and 2032, the phase out percentages are 75 percent, 50 percent, and 25 percent, respectively. In the case of an eligible component sold after December 31, 2032, the phase out percentage is zero percent. Thus, current law provides no section 45X credit after 2032 for eligible components other than for applicable critical minerals.
Section 45X(b)(4) provides capacity limitations used to compute the credit amount for eligible battery cells and battery modules under sections 45X(b)(1)(K)(ii) and (L)(ii). To compute the credit for these eligible components, section 45X(b)(4)(A) provides that the capacity determined with respect to a battery cell or battery module must not exceed a capacity-to-power-ratio of 100:1. Section 45X(b)(4)(B) defines the term “capacity-to-power-ratio” as the ratio of the capacity of a battery cell or battery module to the maximum discharge amount of such cell or module.
Section 45X(c)(1)(A) defines the term “eligible component” to mean any solar energy component, any wind energy component, any inverter described in section 45X(c)(2)(B) through (G), any
Section 45X(c)(2)(A) generally defines an “inverter” as an end product that is suitable to convert direct current (DC) electricity from one or more solar modules or certified distributed wind energy systems into alternating current (AC) electricity. Section 45X(c)(2)(B) through (G) define the following different types of eligible inverters: central inverter, commercial inverter, distributed wind inverter, microinverter, residential inverter, and utility inverter.
Section 45X(c)(3)(A) defines a “solar energy component” as a solar module, photovoltaic cell, photovoltaic wafer, solar grade polysilicon, torque tube, structural fastener, or polymeric backsheet. Section 45X(c)(3)(B) defines these different types of eligible solar energy components as well as the term “solar tracker.”
Section 45X(c)(4)(A) defines a “wind energy component” as blades, nacelles, towers, offshore wind foundations, and related offshore wind vessels. Section 45X(c)(4)(B) defines these different types of eligible wind energy components.
Section 45X(c)(5)(A) defines a “qualifying battery component” as electrode active materials, battery cells, and battery modules. Section 45X(c)(5)(B) defines these different types of qualifying battery components.
Section 45X(c)(6) provides the following list of 50 minerals that if converted or purified to specified purities are considered an “applicable critical mineral” for purposes of the section 45X credit: aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium.
Section 45X(d) provides special rules that are applicable to the section 45X credit. Section 45X(d)(1) provides that persons are treated as related to each other if they would be treated as a single employer under the regulations prescribed under section 52(b) of the Code. Section 52(b) generally provides that trades or businesses that are partnerships, trusts, estates, corporations, or sole proprietorships under common control are members of a controlled group and are treated as a single employer.
Section 45X(d)(2) provides that sales of eligible components are taken into account under section 45X only for eligible components that are produced within the United States (including continental shelf areas described in section 638(1) of the Code), or a U.S. territory (including continental shelf areas described in section 638(2)). (For purposes of this document, the term “U.S. territory” has the meaning of the term “possession” as defined in section 638(2).) Section 45X(d)(3) directs the Secretary to promulgate regulations adopting rules similar to the rules of section 52(d) to apportion credit amounts between estates or trusts and their beneficiaries on the basis of the income of the estates or trusts allocable to each, and to pass-thru any apportioned credit amounts to the beneficiaries. Section 45X(d)(4) provides that for purposes of the section 45X credit, a person is treated as having sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component that is sold to an unrelated person.
On October 24, 2022, the Treasury Department and the IRS published Notice 2022-47, 2022-43 I.R.B. 312. The notice requested general comments on issues arising under section 45X, as well as specific comments concerning: (1) definitions (including the definitions of eligible components); (2) the Related Person Election; (3) capacity-to-power ratios for battery cells or battery modules; (4) credit amount for components used in systems of varying capacity; (5) offshore wind vessels; (6) applicable critical minerals; and (7) apportionment and pass-thru of credit amounts to beneficiaries of estates or trusts. The Treasury Department and the IRS received over 300 comments from industry participants and other stakeholders. The Treasury Department and the IRS appreciate the commenters' interest and engagement on these issues. These comments have been carefully considered in the preparation of these proposed regulations.
On March 6, 2023, the Treasury Department and the IRS published Notice 2023-18, 2023-10 I.R.B. 508, to establish the qualifying advanced energy projects program (section 48C(e) program). On June 20, 2023, the Treasury Department and the IRS published Notice 2023-44, 2023-25 I.R.B. 924, to provide additional guidance on the section 48C(e) program, including rules for the interaction between sections 45X and 48C. The rules regarding the interaction between sections 45X and 48C provided in Notices 2023-18 and 2023-44 have been incorporated into these proposed regulations and upon finalization of this rulemaking, section 5.05 of Notice 2023-18 and section 3 of Notice 2023-44 will be superseded.
Consistent with section 45X(a)(1), these proposed regulations would provide that for purposes of section 38, the section 45X credit for any taxable year is an amount equal to the sum of the credit amounts determined under section 45X(b) with respect to each eligible component, as defined in section 45X(c), produced by the taxpayer, and, during the taxable year, sold by that taxpayer to an unrelated person. Consistent with section 45X(a)(2), only eligible components that are produced and sold in a trade or business of the taxpayer are taken into account for purposes of the section 45X credit.
These proposed regulations are organized into four sections, proposed §§ 1.45X-1 through 1.45X-4. Proposed § 1.45X-1 would provide general rules applicable to the section 45X credit, including the definition of the term “produced by the taxpayer” for both primary and secondary production. Primary production involves producing an eligible component using non-recycled materials while secondary production involves producing an eligible component using recycled
Proposed § 1.45X-1(a) would provide an overview of the general rules regarding the advanced manufacturing production credit under section 45X.
Proposed § 1.45X-1(b) would explain how to calculate the amount of the credit provided under section 45X for any taxable year.
Proposed § 1.45X-1(c) would define the term “produced by the taxpayer” for both primary and secondary production. Proposed § 1.45X-1(c)(1) would provide the general definition of the term. Proposed § 1.45X-1(c)(1)(i) would state that partial transformation that does not result in a substantial transformation of inputs into a complete and distinct eligible component is not included in the definition of “produced by the taxpayer.” Proposed § 1.45X-1(c)(1)(ii) would state that neither minor assembly of constituent inputs nor superficial modification of a final eligible component are included in the definition of “produced by the taxpayer.” Proposed § 1.45X-1(c)(1)(iii) would provide examples illustrating the definition of “produced by the taxpayer.” Proposed § 1.45X-1(c)(2) would provide a special rule for applying the definition of “produced by the taxpayer” for solar grade polysilicon, electrode active materials, and applicable critical minerals.
Proposed § 1.45X-1(c)(3)(i) would state that the taxpayer claiming a section 45X credit with respect to an eligible component must be the person that performs the actual production activities that bring about a substantial transformation resulting in the eligible component and that sells such eligible component to an unrelated person. Proposed § 1.45X-1(c)(3)(ii)(A) would provide that if the production of an eligible component is performed in whole or in part subject to a contract that is a contract manufacturing arrangement, then the party to such contract that may claim the section 45X credit with respect to such eligible component, provided all other requirements in section 45X are met, is the taxpayer that performs the actual production activities that bring about a substantial transformation resulting in the eligible component. This proposed rule is intended to provide an administrable rule that provides taxpayers clarity and certainty in determining which taxpayer may claim the section 45X credit in a contract manufacturing arrangement.
Proposed § 1.45X-1(c)(3)(ii)(B) would define the term “contract manufacturing arrangement” to mean any agreement providing for the production of an eligible component if the agreement is entered into before the production of the eligible component to be delivered under the contract is completed. Proposed § 1.45X-1(c)(3)(ii)(B) would further provide that a routine purchase order for off-the-shelf property is not treated as a contract manufacturing arrangement for purposes of proposed § 1.45X-1(c)(3). Proposed § 1.45X-1(c)(3)(ii)(B) would also provide that an agreement will be treated as a routine purchase order for off-the-shelf property if the contractor is required to make no more than de minimis modifications to the property to tailor it to the customer's specific needs, or if at the time the agreement is entered into, the contractor knows or has reason to know that the contractor can satisfy the agreement out of existing stocks or normal production of finished goods. This definition of the term “routine purchase order” is based on the definition found in § 1.263A-2(a)(1)(ii)(B)(2)(ii). The Treasury Department and the IRS request comments on whether this definition should be further clarified or modified.
Proposed § 1.45X-1(c)(3)(iii) would explain the special rule allowing parties to a contract manufacturing arrangement to agree on which party to the contract will claim the section 45X credit for eligible components produced subject to such contract. Proposed § 1.45X-1(c)(3)(iv) would explain the certification requirements for the special rule. Proposed § 1.45X-1(c)(3)(v) would provide examples illustrating the application of the special rule.
Proposed § 1.45X-1(c)(4)(i) would explain the requirements for the timing of production and sale of eligible components. Proposed § 1.45X-1(c)(4)(ii) would provide an example illustrating the application of these requirements.
Proposed § 1.45X-1(d)(1) would state that sales are taken into account for purposes of the section 45X credit only for eligible components produced within the United States, as defined in section 638(1) of the Code, or a United States territory, which for purposes of section 45X has the meaning of the term “possession” provided in section 638(2) of the Code. Proposed § 1.45X-1(d)(2) would clarify that constituent elements, materials and subcomponents used in the production of eligible components are not subject to the domestic production rule. It would also be permissible for elements, materials, and subcomponents used in the production of eligible components to be recycled rather than newly created elements, materials, and subcomponents.
Proposed § 1.45X-1(e) would state that an eligible component must be produced and sold in a trade or business of the taxpayer, with the term “trade or business” defined as a trade or business within the meaning of section 162 of the Code.
Proposed § 1.45X-1(f)(1) would state that a taxpayer is treated as having produced and sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component that is then sold to an unrelated person. This proposed rule would further define the term “integrated, incorporated, or assembled” to mean the production activities by which eligible components that are constituent elements, materials, or subcomponents are substantially transformed into another complete and distinct eligible component functionally different from that which would result from mere assembly or superficial modification of the eligible components used as elements, materials or subcomponents and other elements, materials or subcomponents. Proposed § 1.45X-1(f)(2)(i) would clarify that a taxpayer may claim a section 45X credit for each eligible component the taxpayer produces and sells to an unrelated person, including any eligible component the taxpayer produces that was used as a constituent element,
Proposed § 1.45X-1(g)(1) would, consistent with section 45X(c)(1)(B), provide that for purposes of section 45X, an eligible component must be produced at a section 45X facility and does not include any property (produced property) that is produced at a facility if the basis of any property that is part of the production unit that produces the produced property is eligible property that is included in a section 48C facility and is taken into account for purposes of a credit allowed under section 48C (section 48C credit) after August 16, 2022. Proposed § 1.45X-1(g)(2)(i) would define a section 45X facility to include all tangible property that comprises an independently functioning production unit that produces one or more eligible components. Proposed § 1.45X-1(g)(2)(ii) would provide that a production unit is comprised of the tangible property that substantially transforms material inputs to complete the production process of an eligible component. Proposed § 1.45X-1(g)(3)(i) would define a section 48C facility to include all eligible property included in a qualifying advanced energy project for which a taxpayer receives an allocation of section 48C credits and claims such credits after August 16, 2022. Proposed § 1.45X-1(g)(3)(ii) would define eligible property included in a section 48C facility. Proposed § 1.45X-1(g)(4) would provide examples to illustrate the application of these rules.
The Treasury Department and the IRS intend to provide rules addressing how the section 45X credit applies in the case of pass-thru from estates and trusts. The Treasury Department and the IRS request comments on how such rules should be implemented and whether there are any special considerations for estates and trusts claiming the section 45X credit. Proposed § 1.45X-1(h) is reserved for this purpose.
Proposed § 1.45X-1(i)(1) provides a general anti-abuse rule that would make the section 45X credit unavailable in extraordinary circumstances in which, based on a consideration of all the facts and circumstances, the primary purpose of the production and sale of an eligible component is to obtain the benefit of the section 45X credit in a manner that is wasteful, such as discarding, disposing of, or destroying the eligible component without putting it to a productive use.
In cases where the cost of producing certain eligible components is less than the amount of the section 45X credit that would be available, the Treasury Department and the IRS are concerned that taxpayers may have an incentive to produce such components solely for the purpose of exploiting the section 45X credit in a manner that is inconsistent with a purpose of section 45X, which is to provide an incentive to produce eligible components that contribute to the development of secure and resilient supply chains. Producing and selling eligible components with the primary purpose of obtaining the benefit of the section 45X credit in a wasteful manner would not satisfy the requirement for the eligible component to be produced and sold in a trade or business of the taxpayer under section 45X(a)(2) in certain circumstances. Proposed § 1.45X-1(i)(2) would provide an example illustrating this anti-abuse rule.
Proposed § 1.45X-2(a) would state the general rule that the amount of the section 45X credit for any taxable year is equal to the sum of the credit amounts determined under section 45X(b) (and described in §§ 1.45X-3 and 1.45X-4) with respect to each eligible component that is produced by the taxpayer and, during the taxable year, sold by the taxpayer to an unrelated person (as defined in section 45X(a)(3) and described in § 1.45X-2(b)(3)).
Section 45X(d)(1) provides that persons are treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b). Proposed § 1.45X-2(b) would provide definitions of the terms “person,” “related person,” and “unrelated person” for purposes of the section 45X credit.
Section 45X(a)(3)(A) provides a special rule for purposes of section 45X that a taxpayer is treated as selling components to an unrelated person if such component is sold to such person by a person related to the taxpayer. Proposed § 1.45X-2(c) would provide this rule and an example to illustrate its application.
Section 45X(a)(3)(B)(i) provides that at the election of the taxpayer (in such form and manner as the Secretary may prescribe), a sale of components by such taxpayer to a related person is treated as if made by the taxpayer to an unrelated person for purposes of section 45X(a) (Related Person Election). Thus, the Related Person Election is only available if an eligible component is sold by a taxpayer to a related person. The Related Person Election is not available if a taxpayer does not actually sell the eligible component to another person, for example, if an eligible component is transferred between a person and an entity that is not regarded as separate from the person under § 301.7701-3 of the Procedure and Administration Regulations (26 CFR part 301) or between divisions of a single corporation. Section 45X(a)(3)(B)(ii) provides that as a condition of, and prior to, any election described in clause (i), the Secretary may require such information or registration as the Secretary deems necessary for purposes of preventing duplication, fraud, or any improper or excessive amount determined under section 45X(a)(1).
Proposed § 1.45X-2(d)(1) would provide that the Related Person Election must be made in the form and manner prescribed in guidance. The term “guidance” is defined as guidance published in the
Proposed § 1.45X-2(d)(2) would provide the time and manner for a
Proposed § 1.45X-2(d)(3) would describe the scope and effect of the Related Person Election and provide that a separate Related Person Election must be made with respect to related person sales made by a taxpayer in each eligible trade or business of the taxpayer. Proposed § 1.45X-2(d)(3) would also provide that a Related Person Election applies to all sales to related persons (including between members of the same consolidated group, notwithstanding the rules provided in § 1.1502-13) of eligible components produced by the taxpayer during the taxable year for which that election is made and is irrevocable for that taxable year. Additionally, proposed § 1.45X-2(d)(3) would provide that a Related Person Election applies solely for purposes of the section 45X credit, the provisions of proposed §§ 1.45X-1 through 1.45X-4, and so much of sections 6417 and 6418 and the regulations under sections 6417 and 6418 related to the section 45X credit.
Proposed § 1.45X-2(d)(3)(ii) and (iii) would apply the provisions of proposed § 1.45X-2(d)(2) and (d)(3)(i) to consolidated groups and partnerships. Proposed § 1.45X-2(d)(3)(ii) would apply the provisions of proposed § 1.45X-2(d)(2) and (d)(3)(i) to consolidated groups by providing that for a trade or business of a consolidated group (as defined in § 1.1502-1(h)), a Related Person Election is made by the agent for the group on behalf of the member claiming the section 45X credit and filed with the group's timely filed original Federal income tax return, including extensions, with respect to each trade or business that the consolidated group conducts.
Proposed § 1.45X-2(d)(3)(iii) would apply the provisions of proposed § 1.45X-2(d)(2) and (d)(3)(i) to partnerships by stating that an election for a partnership must be filed with the partnership's timely filed original Federal income tax return, including extensions, with respect to each trade or business that the partnership conducts. Additionally, proposed § 1.45X-2(d)(3)(iii) provides that an election by a partnership does not apply to any trade or business conducted by a partner outside the partnership.
Proposed § 1.45X-2(d)(4) would provide an anti-abuse rule for the Related Person Election that is necessary for preventing duplication, fraud, or any improper or excessive amount of the section 45X credit. This anti-abuse rule would make the Related Person Election unavailable in extraordinary cases where a taxpayer seeks to use the Related Person Election to exploit the section 45X credit in an improper and wasteful manner or sell defective components to a related person. Proposed § 1.45X-2(d)(4)(i) would provide that a Related Person Election may not be made if the taxpayer fails to provide the information required by proposed § 1.45X-2(d)(2) with respect to the relevant eligible components, the taxpayer provides information that shows such components were put to an improper use or were defective, or such components were actually put to an improper use or were defective.
Proposed § 1.45X-2(d)(4)(ii) would provide that an eligible component is put to an improper use if it is so used by the related person to which the eligible component is sold. The term “improper use” would mean a use that is wasteful, such as discarding, disposing of, or destroying the eligible component without putting it to a productive use.
As discussed previously, in cases in which the cost of producing certain eligible components may be less than the amount of the section 45X credit that is available, the Treasury Department and the IRS are concerned that taxpayers may have an incentive to produce such components solely for the purpose of exploiting the section 45X credit without putting such components to a productive use. In such cases, the Related Person Election would remove an important safeguard against the improper and wasteful production of eligible components that an unrelated-person-sale requirement would provide. The Treasury Department and the IRS request comments on this definition of the term “improper use” and whether any clarifications to its scope are necessary.
Proposed § 1.45X-2(d)(4)(iii) would provide that an eligible component is “defective” if it does not meet the requirements of section 45X. The Treasury Department and the IRS are concerned that the Related Person Election may be used by taxpayers to claim a credit for eligible components that are defective, not capable of being used for its intended purpose, do not meet the requirements for the section 45X credit, and therefore are not eligible for the section 45X credit. For example, a taxpayer that mass produces a large quantity of an eligible component may find that some of those components are defective, cannot be used for its intended purposes, and are not eligible for the section 45X. Such components could also be difficult to sell to an unrelated person because they are defective. In such cases, the Related Person Election would remove an important safeguard against improper credit claims for defective components that an unrelated-person-sale requirement would provide. The Treasury Department and the IRS request comments on the definition of the term “defective components” and whether clarifications to its scope are necessary.
Section 45X(d)(4) provides that for purposes of section 45X, a person is treated as having sold an eligible component to an unrelated person if such component is integrated, incorporated, or assembled into another eligible component that is sold to an unrelated person. See part II.F of this Explanation of Provisions for rules applicable to eligible components that are integrated, incorporated or assembled into other eligible components and sold to an unrelated person.
Proposed § 1.45X-2(e)(1) would provide that a taxpayer that produces and then sells an eligible component to a related person who then integrates, incorporates, or assembles the taxpayer's eligible component into another complete and distinct eligible component that is subsequently sold to an unrelated person may claim a section 45X credit in the taxable year of the sale to the unrelated person. Proposed
Proposed § 1.45X-2(e)(3)(i) would provide that if a taxpayer makes the Related Person Election and produces and sells an eligible component to a related person who then integrates, incorporates, or assembles the taxpayer's eligible component into another complete and distinct eligible component that is subsequently sold to an unrelated person, the taxpayer's sale of the eligible component to the related person would be treated as if made to an unrelated person in the taxable year in which the sale to the related person occurs. Proposed § 1.45X-2(e)(3)(ii) would provide an example to illustrate the treatment of sales of multiple integrated eligible components to related and unrelated persons with a Related Person Election.
For solar energy components, wind energy components, inverters, and qualifying battery components, proposed § 1.45X-3 would provide definitions, rules for determining the credit amount, and documentation requirements. Proposed § 1.45X-3 would also provide rules for applying the phase out of the section 45X credit. Proposed § 1.45X-4 would provide such information for applicable critical minerals (other than rules for applying the phase out which do not apply to applicable critical minerals).
Proposed § 1.45X-3(a) defines the term “eligible component” as any solar energy component, any wind energy component, any inverter, any qualifying battery component, and any applicable critical mineral.
Proposed § 1.45X-3(b) would define the term “solar energy component” as a solar module, photovoltaic cell, photovoltaic wafer, solar grade polysilicon, torque tube, structural fastener, or polymeric backsheet. Proposed § 1.45X-3(b) would clarify the definition of each type of solar energy component.
Proposed § 1.45X-3(b) would also clarify the calculation of the credit amount for each type of solar energy component. Proposed § 1.45X-3(b)(1)(ii) and (b)(5)(ii) would require the capacity of a solar module or photovoltaic cell to be determined by the nameplate capacity in direct current watts using Standard Test Conditions, as defined by the International Electrotechnical Commission.
Proposed § 1.45X-3(b) would also require taxpayers to maintain specific documentation with respect to certain solar energy components. For example, for structural fasteners to be eligible for the section 45X credit, section 45X(c)(3)(B)(vii)(II) provides that structural fasteners must be used (1) to connect the mechanical and drive system components of a solar tracker to the foundation of such solar tracker, (2) to connect torque tubes to drive assemblies, or (3) to connect segments of torque tubes to one another. Proposed § 1.45X-3(b)(8)(iii) would require taxpayers to document that a structural fastener meets this use requirement with a bill of sale, or other similar documentation that explicitly describes such use. Proposed § 1.45X-3(b)(7)(iii) would apply similar documentation rules to torque tubes because section 45X(c)(3)(B)(vii)(I)(aa) requires a torque tube to be “part of a solar tracker” to be eligible for the section 45X credit.
Proposed § 1.45X-3(c) would define the term “wind energy component” as a blade, nacelle, tower, offshore wind foundation, or related offshore wind vessel. Proposed § 1.45X-3(c) would clarify the definition of each type of wind energy component.
Proposed § 1.45X-3(c)(4)(i) would clarify the definition of the term “related offshore wind vessel.” Section 45X(c)(4)(B)(iv) defines the term “related offshore wind vessel” as any vessel that is purpose-built or retrofitted for purposes of the development, transport, installation, operation, or maintenance of offshore wind energy components. Proposed § 1.45X-3(c)(4)(i) would clarify that a vessel is purpose-built for development, transport, installation, operation, or maintenance of offshore wind energy components if it is built to be capable of performing such functions and it is of a type that is commonly used in the offshore wind industry. Proposed § 1.45X-3(c)(4)(i) would further clarify that a vessel is retrofitted for development, transport, installation, operation, or maintenance of offshore wind energy components if such vessel was incapable of performing such functions prior to being retrofitted, the retrofit causes the vessel to be capable of performing such functions, and the retrofitted vessel is of a type that is commonly used in the offshore wind industry.
Proposed § 1.45X-3(c) would also clarify the calculation of the credit amount for each type of wind energy component. The credit amount for a blade, nacelle, tower, or offshore wind foundation is based on the total rated capacity of the completed wind turbine for which such component is designed. Proposed § 1.45X-3(c)(6) would define “total rated capacity of the completed wind turbine” as, for the completed wind turbine for which a blade, nacelle, offshore wind foundation, or tower was manufactured and sold, the nameplate capacity at the time of sale as certified to the relevant national or international standards, such as International Electrotechnical Commission (IEC) 61400, or ANSI/ACP 101-1-2021, the Small Wind Turbine Standard. Certification of the turbine to such standards must be documented by a certificate issued by an accredited certification body. The total rated capacity of a wind turbine must be expressed in watts.
For a related offshore wind vessel, the credit amount is equal to 10 percent of the sales price of the vessel. The sales price of the vessel does not include the price of maintenance or other services that may be sold with the vessel. Proposed § 1.45X-3(c)(4)(ii) would confirm that, for a related offshore wind vessel with respect to which a Related Person Election (as discussed in part III.C of this Explanation of Provisions) has been made, the effect of the election is limited to allowing the related person sale to qualify for a credit under section 45X (despite the fact that it is not actually between unrelated persons) and, therefore, the election does not also treat the sale price as an arm's length price that was determined between uncontrolled taxpayers for purposes of section 482 of the Code and the regulations thereunder.
For blades, nacelles, offshore wind foundations, or towers, proposed § 1.45X-3(c)(7) would require a taxpayer to document the turbine model for which such component is designed and the total rated capacity of the completed wind turbine in technical documentation associated with the sale of such component.
Proposed § 1.45X-3(d) would define the term “inverter” as an end product that is suitable to convert DC electricity from one or more solar modules or certified distributed wind energy systems into AC electricity. An end product is suitable to convert DC electricity from one or more solar modules or certified distributed wind energy systems into AC electricity if, in the form sold by the manufacturer, it is able to connect with such modules or systems and convert DC electricity to
Section 45X(c)(2) requires certain types of inverters be “suitable to” or “suitable for” a statutorily required use or application to be considered an eligible component. For example, section 45X(c)(2)(B) requires a central inverter to be “suitable for large utility-scale systems.” Proposed § 1.45X-3(d)(2)(i) would clarify that an inverter is suitable for large utility-scale systems if, in the form sold by the manufacturer, it is capable of serving as a component in a large utility-scale system and meets the core engineering specifications for such application.
Proposed § 1.45X-3(d)(5) would clarify that a direct current optimized inverter system (DC optimized inverter system) may qualify as a microinverter. Proposed § 1.45X-3(d)(5)(i) would define a microinverter as an inverter that is suitable to connect with one solar module, has a rated output of 120 or 240 volt single-phase power, or 208 or 480 volt three-phase power, and has a capacity, expressed on an AC watt basis, that is not greater than 650 watts. Proposed § 1.45X-3(d)(5)(iii)(A) would clarify that an inverter is suitable to connect to one solar module if, in the form sold by the manufacturer, it is capable of connecting to one or more solar modules and regulating the DC electricity from each module independently before that electricity is converted into alternating current electricity. Proposed § 1.45X-3(d)(5)(iii)(B) would provide that a DC optimized inverter system is an inverter that is comprised of an inverter connected to multiple DC optimizers that are each designed to connect to one solar module.
Proposed § 1.45X-3(d)(5)(iv)(B) would clarify how to determine the credit amount for a DC optimized inverter system that qualifies as a microinverter. For a DC optimized inverter system to qualify as a microinverter, the inverter must meet the requirements of section 45X(c)(2)(E) and a taxpayer must produce and sell the inverter and the DC optimizers in the DC optimized inverter system together as a single end product.
Proposed § 1.45X-3(d)(5) would clarify that, similar to a DC optimized inverter system, a multi-module inverter may also qualify as a microinverter. The term “multi-module inverter” means an inverter that is comprised of an inverter with independent connections and DC optimizing components for two or more modules. Proposed § 1.45X-3(d)(5)(iv)(C) would provide that the credit amount for a multi-module inverter that qualifies as a microinverter is equal to the product of 11 cents multiplied by the total alternating current capacity of the DC optimizers in the multi-module inverter when paired with the inverter in the multi-module inverter.
Proposed § 1.45X-3(d) would also clarify the calculation of the credit amount for each type of inverter. In general, the credit amount for each type of inverter would be equal to the product of the inverter's total rated capacity and the amount prescribed in section 45X(b)(2)(B) for such inverter.
Proposed § 1.45X-3(d) would generally require taxpayers to document whether an inverter is suitable to or suitable for a statutorily required use or application, the inverter's rated output, and the inverter's capacity, as applicable, in a specification sheet, bill of sale, or other similar documentation.
Proposed § 1.45X-3(e)(1) would define the term “qualifying battery component” as electrode active materials, battery cells, or battery modules. Proposed § 1.45X-3(e)(2)(i)(A) would define the term “electrode active materials” to include cathode electrode materials, anode electrode materials, and electrochemically active materials that contribute to the electrochemical processes necessary for energy storage. In general, electrode active materials are materials that are capable of being used within a battery for energy storage. Proposed § 1.45X-3(e)(2)(i)(A) would also provide that the following materials in a battery or vehicle would not qualify for the section 45X credit as an electrode active material: battery management systems, terminal assemblies, cell containments, gas release valves, module containments, module connectors, compression plates, straps, pack terminals, bus bars, thermal management systems, and pack jackets.
Proposed § 1.45X-3(e)(2)(i)(B) would define “cathode electrode materials” to mean the materials that comprise the cathode of a commercial battery technology, such as binders, and current collectors (that is, cathode foils). Proposed § 1.45X-3(e)(2)(i)(C) would define “anode electrode materials” to mean the materials that comprise the anode of a commercial battery technology, including anode foils. Proposed § 1.45X-3(e)(2)(i)(D) would define “electrochemically active materials that contribute to the electrochemical processes necessary for energy storage” to mean the battery-grade materials that enable the electrochemical storage within a commercial battery technology. In addition to the list of electrochemically active materials provided in section 45X(c)(5)(B)(i) (solvents, additives, and electrolytic salts), these may include electrolytes, catholytes, anolytes, separators, and metal salts and oxides. Proposed § 1.45X-3(e)(2)(i)(E) would also include an example illustrating this concept. Proposed § 1.45X-3(e)(2)(i)(F) would define “battery-grade materials” to mean the processed materials found in a final battery cell or an analogous unit, or the direct battery-grade precursors to those processed materials.
Proposed § 1.45X-3(e)(2)(v) would clarify that a taxpayer may claim only one section 45X credit with respect to a material that qualifies as both an electrode active material and an applicable critical mineral.
Proposed § 1.45X-3(e)(2)(ii) would provide that for an electrode active material the credit amount is equal to 10 percent of the costs incurred by the taxpayer with respect to production of such materials. Proposed § 1.45X-3(e)(2)(iii) would also provide the definition of purified and converted with respect to electrode active materials. Proposed § 1.45X-3(e)(2)(iv) would clarify that the costs incurred for purposes of determining the credit amount includes costs as defined in § 1.263A-1(e) that are paid or incurred within the meaning of section 461 of the Code by the taxpayer for the production of an electrode active material only. Thus, production costs with respect to an electrode active material would not include any costs incurred after the production of the electrode active material. For example, the costs to incorporate the electrode active material into a battery component would not be taken into account as costs incurred in producing the electrode active material. These proposed regulations apply section 263A and the regulations under section 263A (section 263A regulations) solely to identify the types of costs that are includible in production costs incurred for purposes of computing the amount of the section 45X credit, but do not apply section 263A or the section 263A regulations for any other purposes, such as to determine whether a taxpayer is engaged in production activities.
Direct material costs as defined in § 1.263A-1(e)(2)(i)(A), or indirect material costs as defined in § 1.263A-1(e)(3)(ii)(E), and any costs related to the extraction or acquisition of raw
The Treasury Department and the IRS seek to appropriately provide a credit for the costs associated with production activities that add value to the electrode active material and are conducted by the taxpayer that produces the electrode active material. Merely purchasing raw materials may enable a taxpayer to produce an electrode active material but it is not by itself an activity that adds value. Excluding material costs would also mitigate the risk of crediting the same costs multiple times. For example, if material costs are included in production costs for electrode active materials, the costs of producing an applicable critical mineral that is later incorporated into an electrode active material could be credited more than once, and such material costs could make up a significant share of the cost of producing the electrode active material.
The Treasury Department and the IRS recognize that a wide range of costs are incurred in the production of electrode active materials. The Treasury Department and the IRS request comments on this proposed rule for determining the costs incurred with respect to the production of electrode active materials, specifically whether and how extraction and other similar value-added activities in the production of raw materials used in electrode active materials should be taken into account. The Treasury Department and the IRS welcome an assessment of the magnitude of extraction costs and other direct and indirect material costs relative to the overall costs incurred in the production of an electrode active material, and the extent to which these costs are incurred by the taxpayer that also produces the electrode active material and add value to the electrode active material. The Treasury Department and the IRS also welcome comments on how extraction should be defined for this purpose, and whether it should be defined consistent with proposed § 1.30D-3(c)(8).
The Treasury Department and the IRS are considering including in production costs the costs of extraction and other similar value-added activities in the production of raw materials used in electrode active materials. However, such costs would only be included if the IRS could effectively administer such an approach and there are sufficient assurances that adopting such an approach would pose a limited risk of (i) crediting the same production costs multiple times and (ii) increasing other forms of fraud, waste, and abuse. The Treasury Department and the IRS request comments on whether and to what extent including these costs might raise such risks.
The Treasury Department and the IRS intend for the production cost incurred rules in proposed § 1.45X-3(e)(2) to apply to a credit claimant in a contract manufacturing arrangement. The Treasury Department and the IRS request comments on whether the proposed rules need further clarification or modification as applied to contract manufacturing arrangements.
Proposed § 1.45X-3(e)(3) and (4) would provide definitions, rules for measuring capacity, and documentation requirements for battery cells and battery modules. Proposed § 1.45X-3(e)(4)(i) would define a “battery module” as a module, in the case of a module using battery cells, with two or more battery cells that are configured electrically, in series or parallel, to create voltage or current, as appropriate, to a specified end use, or a module with no battery cells, and, in each case, with an aggregate capacity of not less than 7 kilowatt-hours (or, in the case of a module for a hydrogen fuel cell vehicle, not less than 1 kilowatt-hour). Proposed § 1.45X-3(e)(4)(i)(A) would define a “module using battery cells” as a module with two or more battery cells that are configured electrically, in series or parallel, to create voltage or current (as appropriate), to a specified end use, meaning an end-use configuration of battery technologies. An end-use configuration is the product that ultimately serves a specified end use. It is the collection of interconnected cells, configured to that specific end-use and interconnected with the necessary hardware and software required to deliver the required energy and power (voltage and current) for that use. As applied to batteries commonly used in electric vehicles, proposed § 1.45X-3(e)(4)(i)(A) would permit a credit for the production and sale of the battery pack in the electric vehicle, but it would not permit a credit for the production of a module that is not the end-use configuration. The Treasury Department and the IRS request comments on this proposed interpretation of the phrase “to a specified end use” in section 45X(c)(5)(B)(iii)(I)(aa).
Proposed § 1.45X-3(e)(4)(i)(B) would define the term “module with no battery cells” as a product with a standardized manufacturing process and form that is capable of storing and dispatching useful energy, that contains an energy storage medium that remains in the module (for example, it is not consumed through combustion), and that is not a custom-built electricity generation or storage facility. This proposed definition would allow battery technologies such as flow batteries and thermal batteries to be eligible for the section 45X credit, but it would not permit technologies that do not meet this definition such as standalone fuel storage tanks or fuel tanks connected to engines or generation systems to qualify as a module with no battery cells.
Proposed § 1.45X-3(e) would clarify how capacity must be determined for battery cells and battery modules. Proposed § 1.45X-3(e)(3)(ii) would provide that taxpayers must measure the capacity of a battery cell in accordance with a national or international standard, such as IEC 60086-1 (Primary Batteries), or an equivalent standard. Taxpayers can reference the United States Advanced Battery Consortium (USABC) Battery Test Manual for additional guidance. Proposed § 1.45X-3(e)(4)(ii)(A) would provide that, for modules using battery cells, taxpayers must measure the capacity of a module using battery cells with a testing procedure that complies with a national or international standard published by a recognized standard setting organization. The capacity of a battery module using battery cells may not exceed the total capacity of the battery cells in the module. Proposed § 1.45X-3(e)(4)(ii)(B) would provide that, for modules with no battery cells, taxpayers must measure the capacity using a testing procedure that complies with a national or international standard published by a recognized standard setting organization. If no such standard applies to a type of module with no battery cells, taxpayers must measure the capacity of such module as the Secretary may prescribe in regulations or other guidance. The Treasury Department and the IRS request comments on what recognized national or international standards are currently available for measuring capacity of modules with no battery cells and
Proposed § 1.45X-3(f) would provide the rules for the phase out of the section 45X credit. In the case of any eligible component that is not an applicable critical mineral and is sold after December 31, 2029, the amount of the section 45X credit determined with respect to such eligible component would be equal to the product of the amount determined under proposed § 1.45X-3 with respect to such eligible component, multiplied by the phase out percentage. Proposed § 1.45X-3(f)(2) would provide the phase out percentages. The phase out percentage would be equal to 75 percent for eligible components sold during calendar year 2030; 50 percent for eligible components sold during calendar year 2031; 25 percent for eligible components sold during calendar year 2032, and zero percent for eligible components sold after calendar year 2032. The phase out percentages would be determined based on the year the eligible component is sold rather than the year in which the eligible component is produced by the taxpayer. Proposed § 1.45X-3(f)(3) would clarify that the phase out rules described in proposed § 1.45X-3(f) do not apply to applicable critical minerals as defined in proposed § 1.45X-4(b).
Section 45X(c)(6) defines applicable critical minerals that are eligible components for purposes of the section 45X credit. Congress enacted section 45X to incentivize the domestic production of eligible components, including certain applicable critical minerals, that are vital to strengthening the country's renewable energy and energy storage supply chains. In addition, Congress amended section 30D in the IRA to provide that section 30D credit eligibility and credit amount is based in part on the sourcing of applicable critical minerals contained in the battery of new clean vehicles from secure and resilient supply chains, with applicable critical minerals defined by cross-reference to section 45X(c)(6). See section 30D(d)(7)(A) and (e)(1). The Treasury Department and the IRS interpret the applicable critical minerals described in section 45X(c)(6) through this lens.
Proposed § 1.45X-4(b) adopts, with some clarifications, the definitions of applicable critical minerals provided in section 45X(c)(6). In particular, section 45X(c)(6)(N) provides that the term “graphite” means graphite (both natural and synthetic) that is purified to a minimum purity of 99.9 percent graphitic carbon by mass. Some stakeholders have questioned whether this definition could be interpreted to refer to a particular crystalline structure of carbon, that is, 99.9 percent carbon in a graphitic form. After consulting with experts at the Department of Energy, U.S. Geological Survey, and Department of the Interior, the Treasury Department and the IRS are unaware of a current application in the energy sector for graphite that is at least 99.9 percent carbon in the graphitic form. However, graphite that is at least 99.9 percent carbon by mass is used in electric vehicle batteries to facilitate the electrochemical processes necessary for energy storage, as well as in other energy sector applications. Consistent with the general intent of section 45X, proposed § 1.45X-4(b)(14) would clarify that the term “99.9 percent graphitic carbon by mass” means graphite that is 99.9 percent carbon by mass. This interpretation reflects that various forms of matter are 99.9 percent carbon, such as carbon black, so the word “graphitic” is providing additional clarification regarding the particular application of the carbon. This interpretation provides an incentive for the domestic production of the type of graphite that is used in the renewable energy and energy storage industry, including both synthetic and natural graphite for use in electric vehicle batteries. This interpretation also supports the secure supply chain objectives expressed by Congress in amendments to section 30D that cross-reference the section 45X definition of applicable critical minerals.
Section 45X(c)(6)(A) provides that aluminum that is converted from bauxite to a minimum purity of 99 percent alumina by mass or purified to a minimum purity of 99.9 percent aluminum by mass, qualifies as an applicable critical mineral. Some stakeholders have requested clarification whether commercial grade aluminum that is 99.7 percent aluminum by mass may qualify as an applicable critical mineral under section 45X(c)(6)(A).
Section 45X(c)(6)(A) should be interpreted in light of the dynamics of the aluminum industry and the role that critical materials like aluminum play in the renewable energy and energy storage industry. Aluminum oxide, commonly known as alumina, is a form of aluminum that is referred to in section 45X(c)(6)(A)(i). Proposed § 1.45X-4(b)(1) would interpret section 45X(c)(6)(A) to mean aluminum, including commodity-grade aluminum, described in section 45X(c)(6)(A)(i) and (ii). Proposed § 1.45X-4(b)(1) would define “commodity-grade aluminum” as aluminum that has been produced directly from aluminum that is described in proposed § 1.45X-4(b)(1)(i) or (ii) and is in a form that is sold on international commodity exchanges, which would include commercial grade aluminum that is 99.7 percent aluminum by mass.
Proposed § 1.45X-4(b)(1) clarifies that the term “commodity-grade aluminum” is limited to primary production of unwrought forms by specifying that commodity-grade aluminum must be “produced directly” from certain forms of aluminum. The Treasury Department and the IRS currently understand that the ability to ascertain and substantiate the process or processes used in an earlier point in the lifecycle of feedstock aluminum for secondary production is limited. Such limitations would pose significant substantiation and administrability issues if secondary production were permitted for commodity-grade aluminum under proposed § 1.45X-4(b)(1). Excluding secondary production would also avoid significant administrability challenges that would arise if the process or processes used at previous points in the lifecycle of feedstock aluminum used in secondary production had to be verified to determine eligibility for the section 45X credit.
The Treasury Department and the IRS request comments on this interpretation of section 45X(c)(6)(A).
Section 45X(b)(1) generally provides the credit amount determined with respect to any eligible component, including any eligible component it incorporates, subject to the credit phase out provided at section 45X(b)(3). Section 45X(b)(3)(C) provides that the credit phase out does not apply with respect to any applicable critical mineral.
Section 45X(b)(1)(M) provides that in the case of any applicable critical mineral, the credit amount is an amount equal to 10 percent of the costs incurred by the taxpayer with respect to production of such mineral.
Proposed § 1.45X-4(c)(1) would provide that for an applicable critical mineral the credit amount is equal to 10 percent of the costs incurred by the taxpayer with respect to production of such materials. Proposed § 1.45X-4(c)(2) would provide definitions of production processes for applicable critical minerals. Proposed § 1.45X-1(c)(2)(i)
Proposed § 1.45X-4(c)(3) would clarify that the costs incurred for purposes of determining the credit amount includes costs as defined in § 1.263A-1(e) that are paid or incurred within the meaning of section 461 of the Code by the taxpayer for the production of an applicable critical mineral only. Thus, production costs with respect to an applicable critical mineral would not include any costs incurred after the production of the applicable critical mineral. For example, the costs to incorporate the applicable critical mineral into another product would not be taken into account as costs incurred in producing the applicable critical mineral. These proposed regulations apply section 263A and the section 263A regulations solely to identify the types of costs that are includible in production costs incurred for purposes of computing the credit amount, but do not apply section 263A or the section 263A regulations for any other purposes, such as to determine whether a taxpayer is engaged in production activities.
Direct or indirect materials costs as defined in § 1.263A-1(e)(2)(i)(A) and (e)(3)(ii)(E), respectively, and any costs related to the extraction or acquisition of raw materials would not be taken into account as production costs. A wide range of costs that are attributable to the production of an applicable critical mineral would be taken into account as a cost incurred in producing the applicable critical mineral, including, but not limited to, labor, electricity used in the production of the applicable critical mineral, storage costs, depreciation or amortization, recycling, and overhead. However, the cost of acquiring the raw material used to produce the applicable critical mineral, the cost of materials used for conversion, purification, or recycling of the raw material, and other material costs related to the production of the applicable critical mineral would not be taken into account.
The Treasury Department and the IRS seek to appropriately provide a credit for the costs associated with production activities that add value to the applicable critical mineral and are conducted by the taxpayer that produces the applicable critical mineral. Merely purchasing raw materials may enable a taxpayer to produce an applicable critical mineral but it is not by itself an activity that adds value. Excluding material costs would also mitigate the risk of crediting the same costs multiple times. For example, if material costs are included in production costs for an applicable critical mineral, the costs of producing an applicable critical mineral that is later incorporated into another applicable critical mineral could be credited more than once, and such material costs could make up a significant share of the cost of producing the applicable critical mineral. This might be the case if, for instance, Taxpayer 1 produces Applicable Critical Mineral 1 and then sells it to Taxpayer 2 who uses it to create Applicable Critical Mineral 2. The cost of producing Applicable Critical Mineral 1 would be credited twice if material costs are included in production costs, once by Taxpayer 1 for the initial production of Applicable Critical Mineral 1 and then again by Taxpayer 2 because Taxpayer 2 would include its cost of purchasing Applicable Critical Mineral 1 in its production costs for Applicable Critical Mineral 2.
The Treasury Department and the IRS recognize that a wide range of costs are incurred in the production of applicable critical minerals. The Treasury Department and the IRS request comments on this proposed rule for determining the costs incurred with respect to the production of applicable critical minerals, specifically whether and how extraction and other similar value-added activities in the production of raw materials used in applicable critical minerals should be taken into account. The Treasury Department and the IRS welcome an assessment of the magnitude of extraction costs and other direct and indirect material costs relative to the overall costs incurred in the production of an applicable critical mineral, and the extent to which these costs are incurred by the taxpayer that also produces the applicable critical mineral and add value to the applicable critical mineral. The Treasury Department and the IRS also welcome comments on how extraction should be defined, and whether it should be defined consistent with proposed § 1.30D-3(c)(8).
The Treasury Department and the IRS are considering including in production costs the costs of extraction and other similar value-added activities in the production of raw materials used in applicable critical minerals. However, such costs would only be included if the IRS could effectively administer such an approach and there are sufficient assurances that adopting such an approach would pose a limited risk of (i) crediting the same production costs multiple times and (ii) increasing other forms of fraud, waste, and abuse. The Treasury Department and the IRS request comments on whether and to what extent including these costs might raise such risks.
Proposed § 1.45X-4(c)(3) would also provide that the rules regarding ownership and property produced under a contract with a taxpayer under § 1.263A-2(a)(1)(ii) that are used to determine whether a taxpayer is engaged in production or resale activities for purposes of section 263A do not apply for purposes of determining the taxpayer that is engaged in production activities for purposes of section 45X and the section 45X regulations.
Proposed § 1.45X-4(c)(4) would require the taxpayer to document that their product meets the criteria for an applicable critical mineral as described in section 45X(c)(6) with a certificate of analysis (COA) provided by the taxpayer to the person to which the taxpayer sold the applicable critical mineral. The Treasury Department and the IRS request comments on this substantiation requirement, including whether a similar requirement should be applied to electrode active materials.
Section 6001 of the Code provides that every person liable for any tax imposed by the Code, or for the collection thereof, must keep such records as the Secretary may from time to time prescribe. Section 1.6001-1(a) provides that any person subject to income tax must keep such permanent books of account or records as are sufficient to establish the amount of gross income, deductions, credits, or other matters required to be shown by such person in any return of such tax. Section 1.6001-1(e) provides that the books and records required by § 1.6001-1 must be retained so long as the contents thereof may become material in the administration of any internal revenue law. Various provisions under proposed §§ 1.45X-1 through 1.45X-4 would require taxpayers to maintain specific documentation regarding certain eligible components that are produced by a taxpayer. These requirements would be part of the general recordkeeping requirements
If any provision in this proposed rulemaking is held to be invalid or unenforceable facially, or as applied to any person or circumstance, it shall be severable from the remainder of this rulemaking, and shall not affect the remainder thereof, or the application of the provision to other persons not similarly situated or to other dissimilar circumstances.
Section 5.05 of Notice 2023-18 and section 3 of Notice 2023-44, which relate to the interaction between sections 45X and 48C, will be superseded upon the publication in the
Each of proposed §§ 1.45X-1 through 1.45X-4 is proposed to apply to eligible components for which production is completed and sales occur after December 31, 2022, and during taxable years ending on or after the date of publication of the final regulations in the
Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (PRA) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. The collections of information in these proposed regulations contain reporting and recordkeeping requirements that are required to validate eligibility to claim a section 45X credit. These collections of information would generally be used by the IRS for tax compliance purposes and by taxpayers to facilitate proper reporting and compliance. The general recordkeeping requirements mentioned within these proposed regulations are considered general tax records under § 1.6001-1(e). Specific certification statements under § 1.45X-1(c)(3) are considered general tax records and are required for the IRS to validate the taxpayer that may claim a section 45X credit. For PRA purposes, general tax records are already approved by OMB under 1545-0074 for individuals, 1545-0123 for business entities, and under 1545-0092 for trust and estate filers.
These proposed regulations also provide reporting requirements related to making the Related Person Election as described in § 1.45X-2(d) and calculating the section 45X credit amount as described in § 1.45X-1. The Related Person Election will be made by taxpayers with Forms 1040, 1041, 1120-S, 1065, and 1120, on Form 7207 (or any successor forms); and credit calculations will be made on Form 3800 and supporting forms including Form 7207 (and any successor forms). These forms are approved under 1545-0074 for individuals, 1545-0123 for business entities, 1545-2306 for trust and estate filers of Form 7207, and 1545-0895 for trust and estate filers of Form 3800. These proposed regulations are not changing or creating new collection requirements not already approved by OMB or will be approved under 5 CFR 1320.10 by OMB.
The Regulatory Flexibility Act (5 U.S.C. 601
Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel of the Office of Advocacy of the Small Business Administration for comment on its impact on small business.
The proposed regulations would provide greater clarity to taxpayers that intend to claim a section 45X credit. The proposed regulations would provide necessary definitions, the time and manner to make the Related Person Election and rules regarding the determination of credit amounts. The Treasury Department and the IRS intend and expect that giving taxpayers guidance that allows them to claim the section 45X credit will beneficially impact various industries. In particular, the section 45X credit encourages the domestic production of eligible components and incentivizes taxpayers to invest in clean energy projects that generate eligible credits.
The RFA directs agencies to provide a description of, and if feasible, an estimate of, the number of small entities that may be affected by the proposed rules, if adopted. The Small Business Administration's Office of Advocacy estimates in its 2023 Frequently Asked Questions that 99.9 percent of American businesses meet its definition of a small business. The applicability of these proposed regulations does not depend on the size of the business, as defined by the Small Business Administration.
As described more fully in the preamble to this proposed regulation and in this IRFA, section 45X and these proposed regulations may affect a variety of different entities across several different clean energy industries as multiple types of eligible components are provided for under the statute and manufacturers may produce more than one type. Although there is uncertainty as to the exact number of small businesses within this group, the current estimated number of respondents to these proposed rules is 13,450 taxpayers. The estimated total annual reporting burden and estimated average annual burden per respondent will be computed when Form 7207 and the instructions to Form 7207 are updated to reflect these proposed regulations.
The Treasury Department and the IRS expect to receive more information on the impact on small businesses through comments on this proposed rule and after taxpayers start to claim the section 45X credit using the guidance and
The proposed regulations provide rules for how taxpayers can claim the section 45X credit. Taxpayers that claim the section 45X credit will have administrative costs related to reading and understanding the rules as well as recordkeeping and reporting requirements because of the Related Person Election, computation of the section 45X credit and tax return requirements. The costs will vary across different-sized entities and across the type of production activities in which such entities are engaged.
The Related Person Election allows a taxpayer to make an irrevocable election annually with their Federal income tax return by providing the information required on Form 7207 (or any successor form), including, for example, the name, EIN of the taxpayer; a description of the taxpayer's trade or business; the name, address and EINs of all related persons; a list of the eligible components that are sold, and the intended purpose of the eligible components sold by the related person. To make the Related Person Election and claim the section 45X credit, the taxpayer must file an annual Federal income tax return. The reporting and recordkeeping requirements for that Federal income tax return would be required for any taxpayer that is claiming a general business credit, regardless of whether the taxpayer was making a Related Person Election under section 45X.
The Treasury Department and the IRS considered alternatives to the proposed regulations. For example, the Treasury Department and the IRS considered whether to impose certain pre-return filing requirements as a condition of making the Related Person Election as authorized in section 45X(a)(3)(B)(ii) to prevent duplication, fraud, or improper or excessive credits. The proposed regulations were designed to minimize burdens for taxpayers while ensuring that the IRS has sufficient information to determine eligibility for the section 45X credit. The Treasury Department and the IRS determined that requiring registration before a taxpayer makes the Related Person Election is unnecessary at this time. The proposed regulations would allow taxpayers to make an irrevocable Related Person Election annually with their Federal income tax return by providing the information required on Form 7207 (or any successor form), which would provide the IRS with sufficient information to assist in preventing duplication, fraud, or the claiming of improper or excessive credits if eligible components are produced and then sold to related persons.
Comments are requested on the requirements in the proposed regulations, including specifically, whether there are less burdensome alternatives that ensure the IRS has sufficient information to administer the advanced manufacturing production credit.
The proposed rule would not duplicate, overlap, or conflict with any relevant Federal rules. As discussed above, the proposed rule would merely provide procedures and definitions to allow taxpayers to claim the section 45X credit. The Treasury Department and the IRS invite input from interested members of the public about identifying and avoiding overlapping, duplicative, or conflicting requirements.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Indian Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This proposed rule does not include any Federal mandate that may result in expenditures by State, local, or Indian Tribal governments, or by the private sector in excess of that threshold.
Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.
Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian Tribal governments, and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. This proposed rule does not have substantial direct effects on one or more federally recognized Indian tribes and does not impose substantial direct compliance costs on Indian Tribal governments within the meaning of the Executive order.
Before these proposed amendments to the regulations are adopted as final regulations, consideration will be given to comments regarding the notice of proposed rulemaking that are submitted timely to the IRS as prescribed in this preamble under the
A public hearing with respect to this notice of proposed rulemaking has been scheduled for February 22, 2024, beginning at 10 a.m. ET, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the public hearing. Persons who wish to present oral comments at the public hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by February 13, 2024. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of
Individuals who want to testify in person at the public hearing must send an email to
Individuals who want to testify by telephone at the public hearing must send an email to
Individuals who want to attend the public hearing in person without testifying must also send an email to
Individuals who want to attend the public hearing by telephone without testifying must also send an email to
Public hearings will be made accessible to people with disabilities. To request special assistance during a public hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to
Guidance cited in this preamble is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at
The principal authors of these proposed regulations are Mindy Chou, John Deininger and Alexander Scott, Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the Treasury Department and the IRS participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:
26 U.S.C. 7805 * * *
Section 1.45X-1 also issued under 26 U.S.C. 45X.
Section 1.45X-2 also issued under 26 U.S.C. 45X(b) and (d) and 1502.
Section 1.45X-3 also issued under 26 U.S.C. 45X(b) and (c).
Section 1.45X-4 also issued under 26 U.S.C. 45X(b) and (c).
This section lists the captions contained in §§ 1.45X-1 through 1.45X-4.
(a) Overview.
(b) Credit amount.
(c) Definition of produced by the taxpayer.
(d) Produced in the United States.
(e) Production and sale in a trade or business.
(f) Sale of integrated components.
(g) Interaction between sections 45X and 48C.
(h) [Reserved]
(i) Anti-abuse rule.
(j) Severability.
(k) Applicability date.
(a) In general.
(b) Definitions.
(c) Special rule for sale to related person.
(d) Related person election.
(e) Sales of integrated components to related person.
(f) Severability.
(g) Applicability date.
(a) In general.
(b) Solar energy components.
(c) Wind energy components.
(d) Inverters.
(e) Qualifying battery component.
(f) Phase out rule.
(g) Severability.
(h) Applicability date.
(a) In general.
(b) Definitions.
(c) Credit amount.
(d) Severability.
(e) Applicability date.
(a)
(2)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
(b)
(c)
(i)
(ii)
(iii)
(A)
(B)
(C)
(D)
(E)
(F)
(2)
(3)
(ii)
(B)
(iii)
(iv)
(A) All required information set forth in guidance; and
(B) A properly signed penalty of perjury statement.
(v)
(A)
(B)
(C)
(4)
(ii)
(d)
(2)
(e)
(f)
(i)
(ii)
(2)
(ii)
(g)
(i) Must be produced by a section 45X facility; and
(ii) Does not include any property (produced property) that is produced at a facility if the basis of any property that is part of the production unit (within the meaning of paragraph (g)(2)(ii) of this section) that produces the produced property—
(A) Is eligible property that is included in a section 48C facility; and
(B) Is taken into account for purposes of the credit allowed under section 48C (section 48C credit) after August 16, 2022.
(2)
(ii)
(3)
(ii)
(A) Is necessary for the production or recycling of property described in section 48C(c)(1)(A)(i), re-equipping an industrial or manufacturing facility described in section 48C(c)(1)(A)(ii), or re-equipping, expanding, or establishing an industrial facility described in section 48C(c)(1)(A)(iii);
(B) Is tangible personal property, or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility; and
(C) With respect to which depreciation (or amortization in lieu of depreciation) is allowable.
(4)
(i)
(B)
(ii)
(B)
(iii)
(B)
(iv)
(B)
(v)
(B)
(h) [Reserved]
(i)
(2)
(ii)
(j)
(k)
(a)
(b)
(1)
(2)
(3)
(c)
(2)
(d)
(ii)
(2)
(ii)
(3)
(ii)
(iii)
(4)
(ii)
(iii)
(e)
(2)
(i)
(ii)
(3)
(ii)
(f)
(g)
(a)
(b)
(1)
(ii)
(iii)
(2)
(ii)
(3)
(ii)
(4)
(ii)
(5)
(A) Suitable to generate electricity when exposed to sunlight; and
(B) Ready for installation without an additional manufacturing process.
(ii)
(iii)
(6)
(7)
(A) Is part of a solar tracker;
(B) Is of any cross-sectional shape;
(C) May be assembled from individually manufactured segments;
(D) Spans longitudinally between foundation posts;
(E) Supports solar panels and is connected to a mounting attachment for solar panels (with or without separate module interface rails); and
(F) Is rotated by means of a drive system.
(ii)
(iii)
(8)
(A) To connect the mechanical and drive system components of a solar tracker to the foundation of such solar tracker;
(B) To connect torque tubes to drive assemblies; or
(C) To connect segments of torque tubes to one another.
(ii)
(iii)
(c)
(1)
(ii)
(2)
(A) Fixed platforms, such as offshore wind monopiles, jackets, or gravity-based foundations; or
(B) Floating platforms and associated mooring systems.
(ii)
(3)
(ii)
(4)
(ii)
(5)
(ii)
(6)
(7)
(d)
(2)
(ii)
(iii)
(3)
(A) Is suitable for commercial or utility-scale applications;
(B) Has a rated output of 208, 480, 600, or 800 volt three-phase power; and
(C) Has a capacity expressed on an alternating current watt basis that is not less than 20 kilowatts and not greater than 125 kilowatts.
(ii)
(iii)
(iv)
(4)
(ii)
(iii)
(iv)
(5)
(A) Is suitable to connect with one solar module;
(B) Has a rated output described in paragraph (d)(5)(ii) of this section; and
(C) Has a capacity, expressed on an alternating current watt basis, that is not greater than 650 watts.
(ii)
(A) 120 or 240 volt single-phase power; or
(B) 208 or 480 volt three-phase power.
(iii)
(B)
(C)
(iv)
(B)
(C)
(v)
(6)
(A) Is suitable for a residence;
(B) Has a rated output of 120 or 240 volt single-phase power; and
(C) Has a capacity expressed on an alternating current watt basis that is not greater than 20 kilowatts.
(ii)
(iii)
(iv)
(7)
(A) Is suitable for commercial or utility-scale systems;
(B) Has a rated output of not less than 600 volt three-phase power; and
(C) Has a capacity expressed on an alternating current watt basis that is greater than 125 kilowatts and not greater than 1000 kilowatts.
(ii)
(iii)
(iv)
(e)
(2)
(B)
(C)
(D)
(E)
(F)
(ii)
(iii)
(B)
(iv)
(v)
(B)
(3)
(A) Comprised of one or more positive electrodes and one or more negative electrodes;
(B) With an energy density of not less than 100 watt-hours per liter; and
(C) Capable of storing at least 12 watt-hours of energy.
(ii)
(iii)
(4)
(A)
(B)
(ii)
(B)
(iii)
(B)
(5)
(ii)
(f)
(i) The amount determined under this section with respect to such eligible component, multiplied by;
(ii) The phase out percentage under paragraph (f)(2) of this section.
(2)
(3)
(g)
(h)
(a)
(b)
(i) Converted from bauxite to a minimum purity of 99 percent alumina by mass; or
(ii) Purified to a minimum purity of 99.9 percent aluminum by mass.
(2)
(i) Converted to antimony trisulfide concentrate with a minimum purity of 90 percent antimony trisulfide by mass; or
(ii) Purified to a minimum purity of 99.65 percent antimony by mass.
(3)
(4)
(i) Converted to copper-beryllium master alloy; or
(ii) Purified to a minimum purity of 99 percent beryllium by mass.
(5)
(i) Converted to cerium oxide that is purified to a minimum purity of 99.9 percent cerium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent cerium by mass.
(6)
(i) Converted to cesium formate or cesium carbonate; or
(ii) Purified to a minimum purity of 99 percent cesium by mass.
(7)
(i) Converted to ferrochromium consisting of not less than 60 percent chromium by mass; or
(ii) Purified to a minimum purity of 99 percent chromium by mass.
(8)
(i) Converted to cobalt sulfate; or
(ii) Purified to a minimum purity of 99.6 percent cobalt by mass.
(9)
(i) Converted to not less than 99 percent pure dysprosium iron alloy by mass; or
(ii) Purified to a minimum purity of 99 percent dysprosium by mass.
(10)
(i) Converted to europium oxide that is purified to a minimum purity of 99.9 percent europium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent of europium by mass.
(11)
(i) Converted to fluorspar that is purified to a minimum purity of 97 percent calcium fluoride by mass; or
(ii) Purified to a minimum purity of 99 percent fluorspar by mass.
(12)
(i) Converted to gadolinium oxide that is purified to a minimum purity of 99.9 percent gadolinium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent gadolinium by mass.
(13)
(i) Converted to germanium tetrachloride; or
(ii) Purified to a minimum purity of 99.99 percent germanium by mass.
(14)
(15)
(i) Converted to—
(A) Indium tin oxide; or
(B) Indium oxide that is purified to a minimum purity of 99.9 percent indium oxide by mass; or
(ii) Purified to a minimum purity of 99 percent indium by mass.
(16)
(i) Converted to lithium carbonate or lithium hydroxide; or
(ii) Purified to a minimum purity of 99.9 percent lithium by mass.
(17)
(i) Converted to manganese sulphate; or
(ii) Purified to a minimum purity of 99.7 percent manganese by mass.
(18)
(i) Converted to neodymium-praseodymium oxide that is purified to a minimum purity of 99 percent neodymium-praseodymium oxide by mass;
(ii) Converted to neodymium oxide that is purified to a minimum purity of
(iii) Purified to a minimum purity of 99.9 percent neodymium by mass.
(19)
(i) Converted to nickel sulphate; or
(ii) Purified to a minimum purity of 99 percent nickel by mass.
(20)
(i) Converted to ferronibium; or
(ii) Purified to a minimum purity of 99 percent niobium by mass.
(21)
(i) Converted to cadmium telluride; or
(ii) Purified to a minimum purity of 99 percent tellurium by mass.
(22)
(i) Has a purity of greater than 99.99 percent by mass; and
(ii) Possesses an alpha emission rate of not greater than 0.01 counts per hour per centimeter square.
(23)
(24)
(25)
(i) Converted to yttrium oxide that is purified to a minimum purity of 99.999 percent yttrium oxide by mass; or
(ii) Purified to a minimum purity of 99.9 percent yttrium by mass.
(26)
(i) Arsenic.
(ii) Bismuth.
(iii) Erbium.
(iv) Gallium.
(v) Hafnium.
(vi) Holmium.
(vii) Iridium.
(viii) Lanthanum.
(ix) Lutetium.
(x) Magnesium.
(xi) Palladium.
(xii) Platium.
(xiii) Praseodymium.
(xiv) Rhodium.
(xv) Rubidium.
(xvi) Ruthemium.
(xvii) Samarium.
(xviii) Scandium.
(xix) Tantalum.
(xx) Terbium.
(xxi) Thulium.
(xxii) Titanium.
(xxiii) Ytterbium.
(xxiv) Zinc.
(xxv) Zirconium.
(c)
(2)
(ii)
(3)
(4)
(d)
(e)
Postal Service
Proposed rule.
The Postal Service is proposing to amend Publication 52,
Submit comments on or before January 16, 2024.
Mail or deliver written comments to the Director, Product Classification, U.S. Postal Service, 475 L'Enfant Plaza SW, Room 4446, Washington, DC 20260-5015. If sending comments by email, include the name and address of the commenter and send to
You may inspect and photocopy all written comments, by appointment only, at USPS® Headquarters Library, 475 L'Enfant Plaza SW, 11th Floor North, Washington, DC 20260. These records are generally available for review Monday through Friday, 8 a.m. to 4 p.m., by calling 202-268-2906.
Dale Kennedy, (202) 268-6592, or Jennifer Cox, (202) 268-2108.
All submitted comments and attachments are part of the public record and subject to disclosure. Do not enclose any material in your comments that you consider to be confidential or inappropriate for public disclosure.
The Postal Service proposes to amend Publication 52,
Except as otherwise specified, the Postal Service proposes to require mailers shipping hazardous materials (HAZMAT) or dangerous goods (DG) to utilize rigid outer packaging that meets minimum edge crush test requirements as part of its ongoing efforts to improve safety within the Postal Service network. The Postal Service is proposing these requirements to increase the capability of packages to withstand normal processing and handling from induction to delivery point while reducing potential HAZMAT or DG incidents.
Additionally, the Postal Service proposes to allow mailers to use padded or poly bags as outer packaging for shipments containing lithium batteries installed in the equipment they operate that do not display hazardous text, marks or labels as permitted in sections 349.221a6, 622.51f and 622.52g, but only when packed in an inner container that can withstand a 1.7-meter drop test. Currently, the use of padded and poly bags as outer packaging is permitted only when the mailpiece contains button cell batteries installed in the equipment they operate.
The Postal Service is cognizant that the existing regulations in Pub 52 pertaining to other nonregulated toxic materials (Pub 52, section 346.232) are more stringent than other transportation regulatory agencies and commercial carriers and is therefore proposing to align its regulations with the transportation industry. If the proposal is adopted, the Postal Service will amend Pub 52 to remove quantity restrictions for nonregulated liquid and solid toxic materials, for products such as pesticides, insecticides and herbicides. The Postal Service believes this proposal will provide mailers a clearer understanding of its rules when shipping nonregulated toxic materials and align its regulations with the Pipeline and Hazardous Materials Safety Administration (PHMSA).
The Postal Service proposes to adopt the following changes to Publication 52,
Except as otherwise specified, rigid outer packaging must be used for shipments containing hazardous materials. Outer packaging, as defined in Appendix D, is the outer most enclosure that holds the primary receptacle, and if applicable, secondary packaging, absorbent and/or cushioning material.
When shipping hazardous materials, the following rigid outer packaging is required:
(a) Hazardous materials shipments weighing 20 pounds or less, the outer package must be 200 lb. burst test or 32-edge crush test package or equivalent, at minimum.
(b) Hazardous materials shipments weighing more than 20 pounds, outer packages must be 275 lb. burst test or 44-edge crush test or equivalent, at minimum.
Lithium batteries installed in the equipment they operate that are permitted to be mailed under section 349, are afforded adequate protection by that equipment, and do not display hazardous text, markings or labels as permitted in 349.221a6, 622.51f and 622.52g may utilize padded or poly bags as outer packaging, provided they are within a container that can withstand a 1.7-meter drop test before placing inside the padded or poly bag. See 349.221.a(3).
34 Mailability by Hazard Class
Liquids and solids such as pesticides, insecticides, herbicides and irritating material (346.11e), that are not regulated as hazardous materials under 49 CFR 172.101 are mailable but must be packaged in rigid outer packaging (see 131) and be able to withstand normal transit and handling. Liquids must also follow 451.3a.
a.
1. Each cell or battery must meet the requirements of each test in the UN Manual of Tests and Criteria, part III, and subsection 38.3 as referenced in 49 CFR 171.7.
2. Lithium battery outer packaging must be rigid (see 131), sealed and of adequate size.
3. The use of padded or poly bags as outer packaging is permitted only when:
a. Mailpieces contain lithium batteries properly installed in the equipment/product they intend to operate.
b. The batteries are afforded adequate protection by the equipment/product, and
c. The secondary container (
d. The package containing batteries does not display hazardous materials text, marks.
4. All outer packages must have a complete delivery and return address.
5. Lithium battery marks are required on mailpieces containing 5 to 8 lithium cells installed in the equipment they operate.
a. The marks must be applied to the address side without being folded or
b. The mark must be a DOT-approved lithium battery mark, as specified in 49 CFR 173.183(c)(3)(i) and Exhibit 325.2a.
c. The mark must include a telephone number for those who need to obtain additional information.
d. Lithium metal cells or batteries must be marked with UN3090.
e. Lithium metal cells or batteries installed in or packed with the equipment they intend to operate must indicate UN3091.
f. Lithium-ion cells or batteries must be marked UN3480.
g. Lithium-ion cells or batteries installed in or packed with the equipment they intend to operate must indicate UN3481.
6. Lithium battery marks are not required on packages containing only lithium button cell batteries, no more than 4 lithium cells or 2 lithium batteries installed in the equipment they operate.
7. All used, damaged, or defective electronic devices with lithium cells or batteries contained in or packed with device (excluding electronic devices that are new in original packaging, and manufacturer-certified new or refurbished devices) must be marked with the text “Restricted Electronic Device” and “Surface Transportation Only” on the address side of the mailpiece.
1. Each cell must contain no more than 1.0 gram (g) of lithium content per cell.
2. Each battery must contain no more than 2.0 g aggregate lithium content per battery.
a.
1. The watt-hour rating must not exceed 20 Wh per cell.
2. The watt-hour rating must not exceed 100 Wh per battery.
3. Each battery must bear the “Watt-hour” or “Wh” marking on the battery to determine if it is within the limits defined in items 1 and 2.
Except as otherwise specified, rigid outer packaging must be used for shipments containing dangerous goods following the instructions in 131.
Lithium batteries permitted to be mailed under section 349 that are installed in the device they operate, are afforded adequate protection by that equipment, and do not display hazardous text, markings or labels as permitted in 349.221a6, 622.51f and 622.52g may utilize padded and poly bags as outer packaging provided the device is within a secondary container that can withstand a 1.7-meter drop test. Button cell batteries, meeting the classification criteria in 349.11d, installed in the device they operate are not required to be within a secondary container that can withstand a 1.2-meter drop test prior to utilizing a padded or poly bag as outer packaging.
Lithium batteries installed in the device they operate that are permitted to be mailed under section 622.5, may utilize padded and poly bags as outer packaging provided the device is within a secondary container that can withstand a 1.7-meter drop test. Button cell batteries, meeting the classification criteria in 349.11d, installed in the device they operate are not required to be within a secondary container that can withstand a 1.7-meter drop test prior to utilizing a padded or poly bag as outer packaging.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve a revision to the Sacramento Metropolitan Air Quality Management District (SMAQMD) portion of the California State Implementation Plan (SIP) concerning a rule submitted to address section 185 of the Clean Air Act (CAA or the Act). We are taking comments on this proposal and plan to follow with a final action.
Comments must be received on or before January 16, 2024.
Submit your comments, identified by Docket ID No. EPA-R09-OAR-2023-0588 at
Mae Wang, EPA Region IX, 75 Hawthorne St., San Francisco, CA 94105. By phone: (415) 947-4137 or by email at
Throughout this document, “we,” “us” and “our” refer to the EPA.
Table 1 lists the rule addressed by this proposal with the date that it was amended by the local air agency and submitted by the California Air Resources Board (CARB).
On November 6, 2023, the EPA determined that the submittal for SMAQMD Rule 307 met the completeness criteria in 40 CFR part 51 Appendix V, which must be met before formal EPA review.
We approved an earlier version of Rule 307 into the SIP on August 26, 2003 (68 FR 51184). The SMAQMD adopted revisions to the SIP-approved version on March 23, 2023, and CARB submitted them to us on May 11, 2023. If we take final action to approve the March 23, 2023 version of Rule 307, this version will replace the previously approved version of this rule in the SIP.
Under sections 182(d)(3), (e), (f) and 185 of the Act, states with ozone nonattainment areas classified as “Severe” or “Extreme” are required to submit a SIP revision that requires major stationary sources of volatile organic compounds (VOC) or oxides of nitrogen (NO
The Sacramento Metro ozone nonattainment area has been classified as Severe for the 1-hour, 1997, and 2008 ozone National Ambient Air Quality Standards (NAAQS). Additionally, on January 17, 2023 (88 FR 2541), the EPA issued a finding that the State of California failed to submit CAA section 185 fee programs for the 2008 ozone NAAQS for portions of the Sacramento Metro nonattainment area, including the portion under the jurisdiction of the SMAQMD. The SMAQMD submitted Rule 307 to satisfy the requirement to submit a CAA section 185 fee program for each federal ozone NAAQS for which the Sacramento Metro area is classified as Severe or Extreme.
Rules in the SIP must be enforceable (see CAA section 110(a)(2)), must not interfere with applicable requirements concerning attainment and reasonable further progress or other CAA requirements (see CAA section 110(l)), and must not modify certain SIP control requirements in nonattainment areas without ensuring equivalent or greater emissions reductions (see CAA section 193). The EPA is also evaluating the rule for consistency with the statutory requirements of CAA section 185.
Guidance and policy documents that we used to evaluate enforceability, revision/relaxation and rule stringency requirements for the applicable criteria pollutants include the following:
1. “State Implementation Plans; General Preamble for the Implementation of Title I of the Clean Air Act Amendments of 1990,” 57 FR 13498 (April 16, 1992); 57 FR 18070 (April 28, 1992).
2. “Issues Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,” EPA, May 25, 1988 (the Bluebook, revised January 11, 1990).
3. “Guidance Document for Correcting Common VOC & Other Rule Deficiencies,” EPA Region 9, August 21, 2001 (the Little Bluebook).
This rule meets CAA requirements and is consistent with relevant guidance regarding enforceability and SIP revisions. The EPA's technical support document (TSD) has more information on our evaluation.
The TSD includes recommendations for the next time the local agency modifies the rule.
As authorized in section 110(k)(3) of the Act, the EPA proposes to fully approve submitted Rule 307 because it fulfills all relevant requirements. We will accept comments from the public on this proposal until January 16, 2024. If we take final action to approve the submitted rule, our final action will incorporate this rule into the federally enforceable SIP. Our final action to approve SMAQMD Rule 307 will also remove the EPA's obligation to promulgate a FIP associated with the January 17, 2023 action.
In this rule, the EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with
Under the Clean Air Act, 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 Clean Air Act. Accordingly, this proposed 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 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 14094 (88 FR 21879, April 11, 2023);
• 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 subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it proposes to approve a state program;
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• 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.
In addition, the SIP 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).
Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, Feb. 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. The EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” The EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”
The State did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. The EPA did not perform an EJ analysis and did not consider EJ in this action. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for people of color, low-income populations, and Indigenous peoples.
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen oxides, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
Agricultural Marketing Service, USDA.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, this notice announces the Agricultural Marketing Service's (AMS) intention to request approval from the Office of Management and Budget (OMB) for an extension of and revision to the currently approved information collection 0581-0268 for the Christmas Tree Promotion, Research and Information Program.
Comments must be received by February 13, 2024.
Interested persons are invited to submit written comments concerning this notice. All comments must be submitted through the Federal e-rulemaking portal at
Katie Cook, Marketing Specialist at telephone: (202) 720-8085, or electronic mail:
The Order was implemented November 2011, and immediately stayed. The stay was lifted on April 7, 2014, in accordance with the provisions of the Agriculture Act of 2014 (2014 Farm Bill). Currently, the Christmas tree program is administered by the Christmas Tree Promotion Board (Board) which is appointed by the Secretary of Agriculture and financed by a mandatory assessment on producers and importers of fresh cut Christmas trees. The assessment rate is $0.15 per Christmas tree cut and sold domestically or imported into the United States. The program provides an exemption for producers and importers that cut and sell or import fewer than 500 Christmas trees annually. In 2019, a referendum was held among eligible producers and importers to determine whether they favor continuation of the program. Fifty-five percent of Christmas tree producers and importers who voted were in favor of continuing the program, and therefore, the program continues to help maintain and expand markets for Christmas trees.
The information collection requirements in this request are essential to carry out the intent of the Order and the 1996 Act. The objective in carrying out this responsibility includes assuring the following: (1) funds are collected and properly accounted for; (2) expenditures of all funds are for the purposes authorized by the 1996 Act and Order; and (3) the board's administration of the programs conforms to USDA policy.
The Order's provisions have been carefully reviewed and every effort has been made to minimize any unnecessary recordkeeping costs or requirements, including efforts to utilize information already submitted under other Christmas tree programs administered by USDA and other State programs.
The forms covered under this collection require the minimum information necessary to effectively carry out the requirements of the program. Such information can be supplied without data processing equipment or outside technical expertise. In addition, there are no additional training requirements for individuals filling out reports and remitting assessments to the Board. The forms are simple, easy to understand, and place as small a burden as possible on the person required to file the information.
Collecting information yearly would coincide with normal industry business practices. The timing and frequency of collecting information are intended to meet the needs of the industry while minimizing the amount of work necessary to fill out the required reports. The requirement to keep records for two years beyond the fiscal period of their applicability is consistent with normal industry practices. In addition, the information to be included on these forms is not available from other sources because such information relates specifically to individual producers and importers who will be subject to the provisions of the Order and 1996 Act. Therefore, there is no practical method for collecting the required information without the use of these forms.
AMS is committed to complying with the E-Government Act, which requires Government agencies in general to provide the public the option of submitting information or transacting business electronically to the maximum extent possible.
The Board utilizes a variety of forms including domestic sales report and importer sales report; application for exemption; nomination form and ballot form; reimbursement of assessments and refund application forms; donation form; and recordkeeping requirements. The forms and information covered under this information collection require minimum information necessary to effectively carry out the requirements of the program and their use is necessary to fulfill the intent of the applicable authority. Lastly, the board is always looking to provide electronic versions of the forms for easier access and submission.
Forms were updated to add a box to allow respondents to include both mailing and physical addresses, if they differ. This change allows Board staff to better record contact information for producers and importers. “Domestic Sales Report”, “Importer Sales Report”, and “Application for Exemption” were all updated to add this additional box. Forms requesting a fax number from respondents were revised to remove the box due to the expanded use of electronic mail.
All responses to this document will be summarized and included in the request for OMB approval. All comments will become a matter of public record.
Food Safety and Inspection Service (FSIS), U.S. Department of Agriculture (USDA).
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995 and Office of Management and Budget (OMB) regulations, FSIS is announcing its intention to collect information using web surveys to test new labels for safe handling of raw and partially cooked meat and poultry products. This is a new information collection with 3,550 hours.
Submit comments on or before February 13, 2024.
FSIS invites interested persons to submit comments on this
•
•
•
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; 202-720-5046.
Safe handling instructions (SHI) are required on the labels of raw or partially cooked (
In response to inquiries from consumer groups and other stakeholders about potential changes to SHI requirements, FSIS gathered input from members of academia, industry, and consumer stakeholders concerning the label in November 2013. FSIS presented the results of the input in the form of suggestions to the National Advisory Committee on Meat and Poultry Inspection (NACMPI) in January 2014. The NACMPI Subcommittee on Food Handling Labels recommended that FSIS pursue changes in the existing SHI label and conduct consumer research to determine the effectiveness of any revisions to the SHI label.
In 2015, FSIS conducted six consumer focus groups (OMB No. 0583-0166; 11/30/2017) to evaluate understanding of the current SHI label and responses to possible revisions. The results from the focus groups suggested that consumers would find certain revisions to the SHI label useful. Participants recommended changes to improve consumer comprehension and adherence to recommended safe handling practices (
In 2020, FSIS completed a study that comprised a web-based experimental survey and an experimental behavior change study that included meal preparation in a test kitchen environment, eye tracking, and in-depth interviews to design and evaluate potential revised SHI labels (OMB No. 0583-0177; 4/30/2022). For this study, FSIS created new labels based on recommendations from NACMPI, which focused on updating the existing text and icons in the current SHI label and adding information on recommended internal minimum temperatures for different cuts of meat and poultry. This study found that the three labels tested did not perform better than the current SHI label with regard to visual saliency (
Consumer groups and other stakeholders have continued to advocate for improved labeling for raw and partially cooked meat and poultry products. In response, FSIS is pursuing research to create and assess consumer responses to new labeling not included in previous studies. FSIS plans to start with a “blank slate” (
In December 2022 and January 2023, through a contractor, FSIS conducted listening sessions with consumer groups; representatives from the meat and poultry industry; and experts in health communications, food science, and food safety education to collect information on factors to consider when creating new labeling for raw and partially cooked meat and poultry products. Additionally, a literature review was conducted to identify and summarize best practices for label design for attracting attention and motivating behavior change and recommendations for label design based on human factors research. The findings from the listening sessions and literature review were used for the current study to create new labels for safe handling of raw and partially cooked meat and poultry products.
FSIS plans to use an iterative approach with multiple rounds of consumer research to obtain feedback on the new label designs and make refinements during the study. In Phase 1, the new label designs are being tested in consumer focus groups to obtain qualitative feedback on the labels, and the findings will be used to refine the label design and messaging. In accordance with the Paperwork Reduction Act, FSIS published a 60-day notice (88 FR 30713 May 12, 2023) and a 30-day notice requesting comments regarding this information collection request (88 FR 65359 September 22, 2023). The Agency received no comments, and the information collection request is currently being reviewed by OMB.
In Phase 2, the revised label designs will be tested in an exploratory web survey, and the quantitative findings from this survey will be used to revise and prepare the final labels for testing in a web-based experimental survey to identify the top performing labels based on the outcomes of interest, such as noticeability, changed food safety-related beliefs, and induced thinking about the risks of contracting foodborne illness. In Phase 3, an observation study will be conducted in experimental test kitchens to obtain empirical evidence on the label design that is most effective at encouraging consumers to follow recommended safe handling practices for raw and partially cooked meat and poultry products and will include the use of eye tracking to measure visual saliency for the new labels compared with the control, the current SHI label.
FSIS is requesting approval for a new information collection to conduct Phase 2, consumer web-based surveys. Phase 2 is a new information collection with 3,550 hours. FSIS plans to submit an additional information collection request for approval of Phase 3, the observation studies.
FSIS has contracted with RTI International to conduct the Phase 2 web-based surveys. FSIS will use the exploratory web survey to refine the labeling format, layout, design features (
The experimental survey will use a limited time exposure (LTE) experiment to measure label saliency (
To administer the surveys, RTI will partner with Kantar's Lightspeed
Kantar will conduct a separate set of cognitive interviews for the survey instruments for the exploratory and experimental surveys. Up to nine cognitive interviews will be conducted to evaluate and refine each survey instrument before receiving OMB approval. After receiving OMB approval, Kantar will conduct separate pilot studies for the exploratory and web-based surveys to ensure that the programming logic for the online survey is correct before the full-scale study is implemented.
For the pilot for the experimental survey, it is expected that 2,000 panel members selected by Kantar will receive email invitations and that 100 of the eligible panel members will subsequently complete the questionnaire. For the full-scale study, it is expected that 48,000 panel members selected by Kantar will receive email invitations and that 2,400 of the eligible panel members will subsequently complete the questionnaire. The email invitations for the pilot and the full-scale study are expected to take 2 minutes to read. The exploratory survey is expected to take 20 minutes to complete.
The total estimated burden of the web-based surveys are 3,550 hours (1,050.00 hours for the exploratory survey and 2,500 hours for the experimental survey).
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) 937-4272.
Comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of FSIS' functions, including whether the information will have practical utility; (b) the accuracy of FSIS' 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.
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
In accordance with Federal civil rights law and USDA civil rights regulations and policies, USDA, its Mission Areas, agencies, staff offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status,
Program information may be made available in languages other than English. Persons with disabilities who require alternative means of communication to obtain program information (
To file a program discrimination complaint, a complainant should complete a Form AD-3027,
USDA is an equal opportunity provider, employer, and lender.
Forest Service, Agriculture (USDA).
Notice.
The Ouachita National Forest is proposing to establish several new recreation fee sites. Recreation fee revenues collected at the new recreation fee sites would be used for operation, maintenance, and improvement of the sites. An analysis of nearby recreation fee sites with similar amenities shows the recreation fees that would be charged at the new recreation fee sites are reasonable and typical of similar recreation fee sites in the area.
If approved, the new fees would be implemented no earlier than six months following the publication of this notice in the
Ouachita National Forest, P.O. Box 1270, Hot Springs, Arkansas 71902.
Bill Jackson, Forest Recreation Program Manager, 501-321-5202 or
The Federal Lands Recreation Enhancement Act (16 U.S.C. 6803(b)) directs the Secretary of Agriculture to publish a six-month advance notice in the
An expanded amenity recreation fee of $100 per night would be charged for rental of Shady Lake Caretakers Cabin and an additional $10 per tent adjacent to the cabin. A standard amenity recreation fee of $5 per day per vehicle would be charged at Little Missouri Falls Day Use developed recreation site. The America the Beautiful—the National Parks and Federal Recreational Lands Pass would be honored at these standard amenity recreation fee sites. A special recreation permit fee of $10 per off-highway vehicle (OHV) per day, or a $60 annual pass, is proposed at the Wolf Pen Gap OHV Trail Complex.
Expenditures from recreation fee revenues collected at the new recreation fee sites would enhance recreation opportunities, improve customer service, and address maintenance needs. Once public involvement is complete, these new fees will be reviewed by a Resource Advisory Committee prior to a final decision and implementation. Reservations for the cabin could be made online at
Forest Service, Agriculture (USDA).
Notice.
The Salmon-Challis National Forest is proposing to establish several new recreation fee sites. Recreation fee revenues collected at the new recreation fee sites would be used for operation, maintenance, and improvement of the sites. An analysis of nearby recreation fee sites with similar amenities shows the recreation fees that would be charged at the new recreation fee sites are reasonable and typical of similar recreation fee sites in the area.
If approved, the new recreation fees would be implemented no earlier than six months following the publication of this notice in the
Salmon-Challis National Forest. 1206 S Challis St., Salmon, ID 83467.
James Townley, Recreation Management Specialist, at 208-756-5100 or
The Federal Lands Recreation Enhancement Act (16 U.S.C. 6803(b)) requires the Forest Service to publish a six-month advance notice in the
An expanded amenity recreation fee of $10 per night would be charged for Big Creek, Broad Canyon, Little Bayhorse, Morse Creek, Pass Creek Narrows, Big Bayhorse, Cougar Point, and Tin Cup Campgrounds. An expanded amenity recreation fee of $30 per night would be charged for double campsites at Meadow Lake Campground. An expanded amenity recreation fee of $15 per night would be
Expenditures from recreation fee revenues collected at the new recreation fee sites would enhance recreation opportunities, improve customer service, and address maintenance needs. Once public involvement is complete, these new recreation fees will be reviewed by a Resource Advisory Committee prior to a final decision and implementation. Reservations for Basin Butte Lookout and Bonanza Guard Station could be made online at
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) continues to determine that the 139 companies subject to this administrative review of the antidumping duty order on certain frozen warmwater shrimp (shrimp) from the People's Republic of China (China) are part of the China-wide entity because they did not demonstrate eligibility for separate rates. The period of review (POR) is February 1, 2022, through January 31, 2023.
Applicable December 15, 2023.
Colin Thrasher, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3004.
On September 27, 2023, Commerce published the
Commerce is conducting this review in accordance with section 751(a)(1)(B) of the Tariff Act of 1930, as amended (the Act).
The product covered by this
All issues raised in the case and rebuttal briefs are addressed in the Issues and Decision Memorandum. A list of the issues that parties raised and to which we responded in the Issues and Decision Memorandum is attached to this notice as Appendix I. 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 at
Based on a review of the record and comments received from an interested party, we have made clarifications to the
Commerce considers all companies for which a review was requested to be part of the China-wide entity because they did not demonstrate their separate rate eligibility.
Because no party requested a review of the China-wide entity and Commerce no longer considers the China-wide entity as an exporter conditionally subject to administrative reviews, we did not conduct a review of the China-wide entity.
Commerce will determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review in accordance with section 751(a)(2)(C) of the Act. For the 139 companies subject to this review, we will instruct CBP to apply the China-wide rate of 112.81 percent to all entries of subject merchandise during the POR. Commerce intends to issue assessment
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for shipments of the subject merchandise from China entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) for previously investigated or reviewed Chinese and non-Chinese exporters that have separate rates and for which a review was not requested, the cash deposit rate will continue to be the exporter-specific rate published for the most recently completed segment of this proceeding; (2) for all Chinese exporters of subject merchandise that have not been found to be entitled to a separate rate, the cash deposit rate will be the rate for the China-wide entity (
This notice also serves as the only reminder to parties subject to an 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). Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation subject to sanction.
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 POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
These final results of administrative review are issued and published in accordance with sections 751(a)(1) and 777(i)(l) of the Act, and 19 CFR 351.221(b)(5).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
As a result of this expedited sunset review, the U.S. Department of Commerce (Commerce) finds that revocation of the antidumping duty (AD) order on tapered roller bearings (TRBs) from the People's Republic of China (China) would be likely to lead to continuation or recurrence of dumping at the levels indicated in the “Final Results of Expedited Sunset Review” section of this notice.
Applicable December 15, 2023.
Benjamin Nathan, AD/CVD Operations, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3834.
On June 15, 1987, Commerce published in the
Commerce received a timely, adequate substantive response to the
On October 25, 2023, Commerce notified the U.S. International Trade Commission that it did not receive an adequate substantive response from other interested parties.
The products covered by the
All issues raised in this sunset review are addressed in the Issues and Decision Memorandum, including the likelihood of continuation or recurrence of dumping and the magnitude of the margin of dumping likely to prevail if the
Pursuant to sections 751(c)(1) and 752(c)(1) and (3) of the Act, Commerce determines that revocation of the
This notice serves as the only reminder to interested parties subject to an 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. Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation subject to sanction.
We are issuing and publishing the results in accordance with sections 751(c), 752(c), and 777(i)(1) of the Act and 19 CFR 351.218(e)(1)(ii)(C)(2).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public workshops.
Free Atlantic Shark Identification Workshops and Safe Handling, Release, and Identification Workshops will be held in January, February, and March of 2024. Certain fishermen and shark dealers are required to attend a workshop to meet regulatory requirements and to maintain valid permits. Specifically, the Atlantic Shark Identification Workshop is mandatory for all federally permitted Atlantic shark dealers. The Safe Handling, Release, and Identification Workshop is mandatory for vessel owners and operators who use bottom longline, pelagic longline, or gillnet gear, and who have also been issued shark or swordfish limited access permits. Additional free workshops will be conducted in 2024 and will be announced in a future notice. In addition, NMFS has implemented online recertification workshops for persons who have already taken an in-person training.
The Atlantic Shark Identification Workshops will be held on January 18, 2024, February 22, 2024, and March 21, 2024. The Safe Handling, Release, and Identification Workshops will be held on January 16, 2024, February 2, 2024, and March 7, 2024.
The Atlantic Shark Identification Workshops will be held in Kenner, LA, Fort Pierce, FL, and Medford, NY. The Safe Handling, Release, and Identification Workshops will be held in Portsmouth, NH, Key Colony Beach, FL, and Houston, TX.
Elsa Gutierrez by email at
Atlantic highly migratory species (HMS) fisheries are managed under the 2006 Consolidated HMS Fishery Management Plan (FMP) and its amendments, pursuant to the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1801
Since January 1, 2008, Atlantic shark dealers have been prohibited from receiving, purchasing, trading, or bartering for Atlantic sharks unless a valid Atlantic Shark Identification Workshop certificate is on the premises of each business listed under the shark dealer permit that first receives Atlantic sharks (71 FR 58057, October 2, 2006). Dealers who attend and successfully complete a workshop are issued a certificate for each place of business that is permitted to receive sharks. These certificate(s) are valid for 3 years. Thus, certificates that were initially issued in 2021 will expire in 2024.
Currently, permitted dealers may send a proxy to an Atlantic Shark Identification Workshop. However, if a dealer opts to send a proxy, the dealer must designate a proxy for each place of business covered by the dealer's permit that first receives Atlantic sharks. Only one certificate will be issued to each proxy. A proxy must be a person who is currently employed by a place of business covered by the dealer's permit; is a primary participant in the identification, weighing, and/or first receipt of fish as they are offloaded from a vessel; and who fills out dealer reports. Atlantic shark dealers are prohibited from renewing a Federal shark dealer permit unless a valid Atlantic Shark Identification Workshop certificate for each business location that first receives Atlantic sharks has been submitted with the permit renewal application. Additionally, a copy of a valid dealer or proxy Atlantic Shark Identification Workshop certificate must be in any trucks or other conveyances that are extensions of a dealer's place of business.
1. January 18, 2024, 12 p.m.-4 p.m., Home2 Suites Kenner Airport, 1112 Veterans Memorial Boulevard, Kenner, LA 70062.
2. February 22, 2024, 12 p.m.- 4 p.m., Hampton Inn & Suites Fort Pierce, 1985 Reynolds Drive, Fort Pierce, FL 34945.
3. March 21, 2024, 12 p.m.-4 p.m., Comfort Inn—Medford, 2695 Route 112, Medford, NY 11763.
To register for a scheduled Atlantic Shark Identification Workshop, please contact Eric Sander at
To ensure that workshop certificates are linked to the correct permits, participants will need to bring the following specific items to the workshop:
• Atlantic shark dealer permit holders must bring proof that the attendee is an owner or agent of the business (such as articles of incorporation), a copy of the applicable permit, and proof of identification.
• Atlantic shark dealer proxies must bring documentation from the permitted dealer acknowledging that the proxy is attending the workshop on behalf of the permitted Atlantic shark dealer for a specific business location, a copy of the appropriate valid permit, and proof of identification.
The Atlantic Shark Identification Workshops are designed to reduce the number of unknown and improperly identified sharks reported in the dealer reporting form and increase the accuracy of species-specific dealer-reported information. Reducing the number of unknown and improperly identified sharks will improve quota monitoring and the data used in stock assessments. These workshops will train shark dealer permit holders or their proxies to properly identify Atlantic shark carcasses.
Since January 1, 2007, shark limited access and swordfish limited access permit holders who fish with longline or gillnet gear have been required to submit a copy of their Safe Handling, Release, and Identification Workshop certificate in order to renew either permit (71 FR 58057, October 2, 2006). These certificate(s) are valid for 3 years. Certificates issued in 2021 will expire in 2024. As such, vessel owners who have not already attended a workshop and received a NMFS certificate, or vessel owners whose certificate(s) will expire prior to the next permit renewal, must attend a workshop to fish with, or renew, their swordfish and shark limited access permits. Additionally, new shark and swordfish limited access permit applicants who intend to fish with longline or gillnet gear must attend a Safe Handling, Release, and Identification Workshop and submit a copy of their workshop certificate before either of the permits will be issued.
In addition to vessel owners, at least one operator on board vessels issued a limited access swordfish or shark permit that uses longline or gillnet gear is required to attend a Safe Handling, Release, and Identification Workshop and receive a certificate. Vessels that have been issued a limited access swordfish or shark permit and that use longline or gillnet gear may not fish unless both the vessel owner and operator have valid workshop certificates on board at all times. Vessel operators who have not already attended a workshop and received a NMFS certificate, or vessel operators whose certificate(s) will expire prior to their next fishing trip, must attend a workshop to operate a vessel with swordfish and shark limited access permits on which longline or gillnet gear is used.
1. January 16, 2024, 9 a.m.-2 p.m., Residence Inn by Marriott Downtown Portsmouth, 100 Deer Street, Portsmouth, NH 03801.
2. February 2, 2024, 9 a.m.-2 p.m., Key Colony Inn, 700 W Ocean Drive OS, Key Colony Beach, FL 33051.
3. March 7, 2024, 9 a.m.-2 p.m., Holiday Inn Express—Houston Medical Center, 9300 S Main Street, Houston, TX 77025.
To register for a scheduled Safe Handling, Release, and Identification Workshop, please contact Angler Conservation Education at 386-682-0158. Pre-registration is highly recommended, but not required.
To ensure that workshop certificates are linked to the correct permits, participants will need to bring the following specific items with them to the workshop:
• Individual vessel owners must bring a copy of the appropriate swordfish and/or shark permit(s), a copy of the vessel registration or documentation, and proof of identification;
• Representatives of a business-owned or co-owned vessel must bring proof that the individual is an agent of the business (such as articles of incorporation), a copy of the applicable swordfish and/or shark permit(s), and proof of identification; and
• Vessel operators must bring proof of identification.
The Safe Handling, Release, and Identification Workshops are designed to teach the owner and operator of a vessel that fishes with longline or gillnet gear the required techniques for the safe handling and release of entangled and/or hooked protected species, such as sea turtles, marine mammals, smalltooth sawfish, Atlantic sturgeon, and prohibited sharks. In an effort to improve reporting, the proper identification of protected species and prohibited sharks will also be taught at these workshops. Additionally, individuals attending these workshops will gain a better understanding of the requirements for participating in these fisheries. The overall goal of these workshops is to provide participants with the skills needed to reduce the mortality of protected species and prohibited sharks, which may prevent additional regulations on these fisheries in the future.
NMFS implemented an online option for shark dealers and owners and operators of vessels that fish with longline and gillnet gear to renew their certificates in December 2021. To be eligible for online recertification workshops, dealers and vessel owners and operators need to have previously attended an in-person workshop. Information about the courses is available online at
The Department of Commerce will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. We invite the general public and other Federal agencies to comment on proposed, and continuing information collections, which helps us assess the impact of our information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
This information collection request may be viewed at
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
Committee for Purchase From People Who Are Blind or Severely Disabled.
Deletions from the Procurement List.
This action deletes product(s) from the Procurement List that were furnished by nonprofit agencies employing persons who are blind or have other severe disabilities.
Committee for Purchase From People Who Are Blind or Severely Disabled, 355 E Street SW, Suite 325, Washington, DC 20024.
Michael R. Jurkowski, Telephone: (703) 785-6404, or email
On 11/3/2023 and 11/10/2023, the Committee for Purchase From People Who Are Blind or Severely Disabled published notice of proposed deletions from the Procurement List. This notice is published pursuant to 41 U.S.C. 8503(a)(2) and 41 CFR 51-2.3.
After consideration of the relevant matter presented, the Committee has determined that the product(s) and service(s) listed below are no longer suitable for procurement by the Federal Government under 41 U.S.C. 8501-8506 and 41 CFR 51-2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities. The major factors considered for this certification were:
1. The action will not result in additional reporting, recordkeeping or other compliance requirements for small entities.
2. The action may result in authorizing small entities to furnish the product(s) to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501-8506) in connection with the product(s) deleted from the Procurement List.
Accordingly, the following product(a) are deleted from the Procurement List:
Committee for Purchase From People Who Are Blind or Severely Disabled.
Proposed additions to and deletions from the Procurement List.
The Committee is proposing to add service(s) to the Procurement List that will be furnished by nonprofit agencies employing persons who are blind or have other severe disabilities, and delete product(s) previously furnished by such agencies.
Committee for Purchase From People Who Are Blind or Severely Disabled, 355 E Street SW, Suite 325, Washington, DC 20024.
For further information or to submit comments contact: Michael R. Jurkowski, Telephone: (703) 785-6404, or email
This notice is published pursuant to 41 U.S.C. 8503(a)(2) and 41 CFR 51-2.3. Its purpose is to provide interested persons an opportunity to submit comments on the proposed actions.
If the Committee approves the proposed additions, the entities of the Federal Government identified in this notice will be required to procure the service(s) listed below from nonprofit agencies employing persons who are blind or have other severe disabilities.
The following service(s) are proposed for addition to the Procurement List for production by the nonprofit agencies listed:
The following product(s) are proposed for deletion from the Procurement List:
Department of the Air Force, Department of Defense.
Notice of Intent.
On April 20, 2021, the Department of the Air Force (DAF), and the U.S. Navy acting as a cooperating agency, issued a Notice of Intent to prepare an Environmental Impact Statement (EIS) for Infrastructure Upgrades at Andersen Air Force Base (AFB), Guam. The DAF and U.S. Navy are now reissuing this Notice of Intent to prepare an EIS for the proposed F-15 Beddown and Infrastructure Upgrades at Andersen AFB, Guam. In addition to the originally proposed infrastructure upgrades, the EIS will assess the potential social, economic, and environmental impacts associated with supporting the beddown of 12
A public scoping period of 30 days, to update the public on changes to the DAF's proposal that have occurred since the original scoping period ended on May 30, 2021, will take place starting from the date of this NOI publication in the
For EIS inquires or requests for printed or digital copies of scoping materials, please contact Mr. David Martin, phone: (210) 925-4266 or
The DAF is proposing to beddown and support the mission of 12 RSAF F-15 fighter aircraft, and construct infrastructure upgrades at Andersen AFB, Guam. Following the initial scoping period conducted in April to May 2021 (86 FR 20487, April 20, 2021), the DAF placed the EIS on a strategic pause to further consider the scope of the EIS, including the requirements of evolving strategic initiatives in the Indo-Pacific region and how the Proposed Action could best support these initiatives. As a result of the strategic pause, the DAF revised the scope of the Proposed Action to include the beddown of 12 RSAF F-15 fighter aircraft and associated mission support. The purpose of the Proposed Action is to provide critical infrastructure that enhances U.S. posture west of the International Date Line. Additionally, the purpose of the Proposed Action is to beddown and operate Republic of Singapore Air Force fighter aircraft at Andersen AFB to support training requirements. The Proposed Action is needed to enhance DAF capability to support U.S. and partner nation forces within the Indo-Pacific region and strengthen the U.S.'s ability to respond regionally and worldwide, through construction of infrastructure upgrades and increased support of fighter aircraft, in alignment with evolving DAF and DoD strategies and initiatives for the region. Increasing and improving airfield and munitions infrastructure would address capability gaps and allow for greater efficiencies and agility in the way ground operations are conducted. The DAF is the National Environmental Policy Act (NEPA) lead agency, and the U.S. Navy is a cooperating agency for this EIS process.
Under this proposal, the DAF is considering the beddown and mission support of 12 RSAF F-15 fighter aircraft, increase in annual airfield operations, increase in personnel to support the mission, and new infrastructure upgrades adjacent to the northwest corner of the airfield and within the munitions storage area at Andersen AFB. Construction would take place over approximately 3 to 7 years and would include airfield pavements, an aircraft hangar, maintenance and utilities buildings, fuel systems, fencing and utilities, roadways and parking, stormwater management infrastructure, and earth covered magazines. Approximately 209 total acres would be disturbed during construction, which would be either developed sites or maintained vegetation once construction is complete. The proposed infrastructure has multiple uses and could support both the RSAF F-15 beddown and other DAF, service component, and partner nation aircraft or missions operating from Andersen AFB now or in the future. The DAF reviewed requirements for strategic capabilities within the Indo-Pacific region and identified Andersen AFB for enhanced capabilities, including beddown of 12 RSAF F-15 aircraft and upgrade of operationally relevant infrastructure, dismissing five other potential alternative locations within the Pacific Air Forces area of responsibility from consideration. Once Andersen AFB was identified for enhanced strategic capabilities, the DAF considered other locations on Andersen AFB for construction of infrastructure upgrades; however, only the Proposed Action locations were determined to meet the criteria for the infrastructure upgrades. The No Action Alternative will also be addressed in the EIS.
Additional review and consultation which will be incorporated into the preparation of the Draft EIS will include, but are not necessarily limited to, consultation under Section 7 of the Endangered Species Act and consultation under Section 106 of the National Historic Preservation Act. The DAF will conduct cultural and natural resources surveys in the areas proposed for upgrades and consult with appropriate resource agencies to determine the potential for significant impacts on those resources. The Draft EIS will present the analysis of the potential effects of the Proposed Action and alternatives, which may include effects on historic properties, sensitive species or habitat, socioeconomics, and the noise environment among other currently unknown potential effects. Any required permits or authorizations will be determined through the EIS analysis process and presented in the Draft EIS.
Department of the Navy (DoN), Department of Defense (DoD).
Notice.
Pursuant to the National Environmental Policy Act (NEPA) of 1969, and regulations implemented by the Council on Environmental Quality, the Department of the Navy (DoN)(including both the U.S. Navy and the U.S. Marine Corps) in cooperation with the U.S. Coast Guard, U.S. Army, and U.S. Air Force, announces its intent to prepare the Hawaii-California Training and Testing (HCTT) Environmental Impact Statement (EIS)/Overseas EIS (OEIS). The HCTT EIS/OEIS will include an analysis of range sustainment and modernization activities, training activities; and research, development, testing, and evaluation activities (hereafter referred to as “testing”) that will be conducted in the HCTT Study Area. When discussed together, training and testing are also referred to as “military readiness activities.” The DoN is initiating a 45-day public scoping process to receive comments on the scope of the EIS/OEIS including identification of potential alternatives and environmental concerns, information and analyses relevant to the Proposed Action, issues the public would like to see addressed in the EIS/OEIS, and the project's potential to affect historic properties pursuant to section 106 of the National Historic Preservation Act (NHPA) of 1966.
The 45-day public scoping period begins on December 15, 2023, and extends to January 29, 2024. The scoping period is extended 15 calendar days (from the usual 30-day period) since it overlaps with the holidays. Comments must be postmarked or submitted electronically via the website no later than 11:59 p.m. Pacific time on January 29, 2024 for consideration in the Draft EIS/OEIS. The DoN will host a virtual open house presentation on the project website during the scoping period to provide information related to the Proposed Action, its purpose and need, environmental resource areas to be analyzed in the EIS/OEIS, the NEPA process, the consultation under NHPA, and public involvement opportunities.
The DoN invites all interested parties to submit scoping comments on the EIS/OEIS or information regarding historic properties or section 106 consulting party interest through the project website at
U.S. Pacific Fleet Command, Attn: Mr. Sean Gano, Environmental Public Affairs Specialist, 808-474-8441, or visit the project website:
Commander, U.S. Pacific Fleet is the DoN's lead action proponent. Additional DoN action proponents include Naval Sea Systems Command, Naval Air Systems Command, Naval Information Warfare Systems Command, Office of Naval Research, Naval Facilities Engineering Expeditionary Warfare Center, and the U.S. Marine Corps (USMC). In addition, this EIS/OEIS includes certain activities by the U.S. Coast Guard, U.S. Army, and U.S. Air Force when those activities are similar to Navy or Marine Corps activities and are scheduled on Navy controlled at-sea ranges.
Proposed military readiness activities are consistent with those analyzed in the 2018 Hawaii-Southern California Training and Testing (HSTT) EIS/OEIS and the 2022 Point Mugu Sea Range (PMSR) EIS/OEIS, and are representative of training and testing activities that have been conducted off Hawaii and California for more than 80 years.
The EIS/OEIS will include an analysis of military readiness activities using new information including an updated acoustic effects analysis, updated marine mammal density data, and evolving and emergent best available science.
The HCTT Study Area (hereafter referred to as the (“Study Area”) is comprised of established operating and warning areas across the Pacific Ocean, from California west to Hawaii and the International Date Line. The HCTT Study Area differs from the HSTT Study Area in that HCTT includes an extended Southern California (SOCAL) Range Complex; special use airspace corresponding to the new extensions (Proposed W-293 and W-294); two existing training and testing ranges, the PMSR and Northern California (NOCAL) Range Complex; areas along the Southern California coastline from approximately Dana Point to Port Hueneme; and four amphibious approach lanes providing land access from the NOCAL Range Complex and PMSR. The Study Area also includes in-water areas of San Diego Bay, Port Hueneme, and Pearl Harbor, including select pierside facilities associated with DoN ports and naval shipyards and a transit corridor on the high seas and the channels and routes to and from those ports that are not part of the range complexes, where training and testing may occur during vessel transit.
The purpose of the Proposed Action is to ensure U.S. military services are able to organize, train, and equip service members and personnel to meet their respective national defense missions in accordance with their Congressionally mandated requirements
The Proposed Action is to conduct at-sea military readiness activities and range modernization within HCTT the Study Area. Activities include the use of active sonar and explosives while employing marine species protective mitigation measures.
The Navy has identified two preliminary action alternatives to carry forward for analysis in the EIS/OEIS along with the No Action Alternative. Alternative 1 reflects a representative year of training and testing to account for the natural fluctuation of training cycles and deployment schedules that generally limit the maximum level of training occurring every year over any seven-year period. Alternative 2 reflects the maximum number of training and testing activities that could occur within a given year and assumes that the maximum level of activity would occur every year over any seven-year period. As required by NEPA for the purpose of establishing a baseline for analysis, a No Action Alternative will be evaluated which represents a scenario where no military readiness activities are conducted in the Study Area. The tempo and types of training and testing activities have fluctuated because of the introduction of new technologies, the evolving nature of international events, advances in war fighting doctrine and procedures, and changes in force structure (organization of ships, submarines, aircraft, weapons, and Sailors). Such developments influence the frequency, duration, intensity, and location of required training and testing activities. The HCTT EIS/OEIS will reflect the current compilation of training and testing activities required to fulfill the military readiness requirements, and therefore both action alternatives include the analysis of newly proposed activities and changes to previously analyzed activities. Additionally, both action alternatives will include modernization and sustainment of ranges necessary to support military readiness activities. Modernization and sustainment
Environmental resources that are determined to be potentially affected are carried forward for full analysis. Resources to be evaluated include, but are not limited to, biological resources (including marine mammals, reptiles, fishes, vegetation, invertebrates, habitats, birds, and other protected species), sediments and water quality, air quality, cultural resources, socioeconomic resources, and public health and safety. The EIS/OEIS will also analyze measures that would avoid, minimize, or mitigate environmental effects. The Navy will conduct all coordination and consultation activities required by the Marine Mammal Protection Act (MMPA), NHPA, Endangered Species Act (ESA), National Marine Sanctuaries Act, Magnuson-Stevens Fishery Conservation and Management Act, Clean Water Act, Rivers and Harbor Act, Coastal Zone Management Act, Clean Air Act, and other laws and regulations determined to be applicable to the project. As part of this process, the DoN will seek the issuance of regulatory permits and authorizations under MMPA and ESA to support at-sea mission readiness activities within the Study Area, beginning in December 2025.
Pursuant to 40 CFR 1501.8, the DoN invited the National Marine Fisheries Service and the Federal Aviation Administration to be cooperating agencies in preparation of the EIS/OEIS.
The scoping process invites comments on the scope of the EIS/OEIS including identification of potential alternatives, information and analyses relevant to the Proposed Action, identification of environmental concerns, issues the public would like to see addressed in the EIS/OEIS, and the projects potential to affect historic properties pursuant to Section 106 of the NHPA. Parties with demonstrated interest in the undertaking and its effects on historic properties may request to become a consulting party in the section 106 process. Federal agencies, State agencies, local agencies, Native American Indian Tribes and Nations, Native Hawaiian Organizations, the public, and interested persons are encouraged to provide comments.
Comments must be postmarked or submitted electronically via the website no later than 11:59 p.m. Pacific time on January 29, 2024 for consideration during the development of the Draft EIS/OEIS. Comments can be submitted electronically via the project website at
After the scoping period, DoN will coordinate with participating and cooperating agencies to develop a Draft EIS/OEIS. The DoN intends to release the Draft EIS/OEIS in the fall of 2024, release the Final EIS/OEIS in the fall of 2025, and sign a Record of Decision following the 30-day Final EIS/OEIS wait period.
Office of Finance and Operations (OFO), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act (PRA) of 1995, the Department is proposing a revision of a currently approved information collection request (ICR).
Interested persons are invited to submit comments on or before February 13, 2024.
To access and review all the documents related to the information collection listed in this notice, please use
For specific questions related to collection activities, please contact Cleveland Knight, 202-987-0064.
The Department, in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested data in the desired format. The Department is soliciting comments on the proposed information collection request (ICR) that is described below. The Department is especially interested in public comment addressing the following issues: (1) is this collection necessary to the proper functions of the Department; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Department enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Department minimize the burden of this collection on the respondents, including through the use of information technology. Please note that written comments received in response to this notice will be considered public records.
As an interim (usually annual) performance report, ED uses the information submitted by grantees in the ED 524B to evaluate grantee performance and progress and to
ED uses the information submitted on the ED 524B as a final performance report to determine whether grantees whose projects have ended have achieved project objectives and met or exceeded the Government Performance and Results Act and/or other program performance measures and grant requirements. This determination enables ED to assure that grants can be closed out in compliance.
Election Assistance Commission.
Sunshine Act Notice; Notice of public meeting agenda.
Public Meeting: U.S. Election Assistance Commission Local Leadership Council 2024 Annual Meeting.
Monday, January 8, 1:00 p.m.-5:00 p.m. Eastern and Tuesday, January 9, 9:00 a.m.-5:00 p.m. Eastern.
DoubleTree by Hilton Hotel Crystal City, 300 Army Navy Drive, Arlington, Virginia, 22202.
Kristen Muthig, Telephone: (202) 897-9285, Email:
The Local Leadership Council consists of 100 members. The Election Assistance Commission appoints two members from each state after soliciting nominations from each state's election official professional association. At the time of submission, the Local Leadership Council has 89 appointed members. Upon appointment, Advisory Committee members must be serving or have previously served in a leadership role in a state election official professional association.
The full agenda will be posted in advance on the EAC website:
On November 30, 2020, Fiske Hydro, Inc. (Fiske Hydro), the current licensee for the Fiske Mill Hydroelectric Project No. 8615 (project), filed a Notice of Intent (NOI) to file an application for an exemption from licensing for the project.
Pursuant to section 16.20 of the Commission's regulations, an existing licensee with a minor license not subject to sections 14 and 15 of the Federal Power Act must file an application for a subsequent license or exemption at least 24 months prior to the expiration of the current license, which with respect to the Fiske Mill Project, was November 30, 2023.
Pursuant to section 16.25(a) of the Commission's regulations, when an existing licensee, having previously filed an NOI to file an application for an exemption subsequently does not file an application, the Commission must solicit applications from potential applicants other than the existing licensee.
Questions concerning the process for filing an NOI should be directed to Robert Haltner at 202-502-8612 or
On December 11, 2023, the Commission issued an order in Docket No. EL24-13-000, pursuant to section 206 of the Federal Power Act (FPA), 16 U.S.C. 824e, instituting an investigation to determine whether Shady Oaks Wind 2, LLC's Rate Schedule is unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful.
The refund effective date in Docket No. EL24-13-000, established pursuant to section 206(b) of the FPA, will be the date of publication of this notice in the
Any interested person desiring to be heard in Docket No. EL24-13-000 must file a notice of intervention or motion to intervene, as appropriate, with the Federal Energy Regulatory Commission, in accordance with Rule 214 of the Commission's Rules of Practice and Procedure, 18 CFR 385.214 (2022), within 21 days of the date of issuance of the order.
In addition to publishing the full text of this document in the
The Commission strongly encourages electronic filings of comments, protests and interventions in lieu of paper using the “eFile” link at
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
The staff of the Federal Energy Regulatory Commission (FERC or Commission) has prepared an environmental assessment (EA) for the Swarts and Hunters Cave Well Replacement Project, proposed by Equitrans, L.P. (Equitrans) in the above-referenced docket. Equitrans requests authorization to abandon 19 injection/withdrawal wells, and construct two horizontal wells, and associated pipelines and appurtenances, at its existing certificated Swarts and Hunters Cave Storage Fields in Greene County, Pennsylvania.
The EA assesses the potential environmental effects of the construction, operation, and abandonment activities associated with the Swarts and Hunters Cave Well Replacement Project in accordance with the requirements of the National Environmental Policy Act (NEPA). The FERC staff concludes that approval of the proposed project, with appropriate mitigating measures, would not constitute a major federal action significantly affecting the quality of the human environment.
The proposed Swarts and Hunters Cave Well Replacement Project includes the following facilities and activities:
• abandonment by-sale of 19 injection/withdrawal wells at Equitrans' Hunters Cave Storage Field;
• abandonment in-place of the associated well pipelines and any associated facilities;
• construction and operation of a new horizontal well, associated pipelines, and ancillary facilities at the Hunters Cave Storage Field;
• construction and operation of a new horizontal well, associated pipelines, and ancillary facilities at the Swarts Complex;
• expansions of the existing Morris Interconnect and Pierce Gates Valve Yards at the Hunters Cave Storage Field;
• acquisition of non-jurisdictional gathering assets from EQM Gathering Opco, LLC (EQM) (pipelines and related equipment) for operation of the new Swarts Horizontal Storage Well; and
• the sale of 580 million cubic feet of base gas from the Swarts Complex.
The Commission mailed a copy of the
The EA is not a decision document. It presents Commission staff's independent analysis of the environmental issues for the Commission to consider when addressing the merits of all issues in this proceeding. Any person wishing to comment on the EA may do so. Your
For your convenience, there are three methods you can use to file your comments to the Commission. The Commission encourages electronic filing of comments and has staff available to assist you at (866) 208-3676 or
(1) You can file your comments electronically using the eComment feature on the Commission's website (
(2) You can also file your comments electronically using the eFiling feature on the Commission's website (
(3) You can file a paper copy of your comments by mailing them to the Commission. Be sure to reference the project docket number (CP23-507-000) on your letter. Submissions sent via the U.S. Postal Service must be addressed to: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 888 First Street NE, Room 1A, Washington, DC 20426. Submissions sent via any other carrier must be addressed to: Kimberly D. Bose, Secretary, Federal Energy Regulatory Commission, 12225 Wilkins Avenue, Rockville, Maryland 20852.
Filing environmental comments will not give you intervenor status, but you do not need intervenor status to have your comments considered. Only intervenors have the right to seek rehearing or judicial review of the Commission's decision. At this point in this proceeding, the timeframe for filing timely intervention requests has expired. Any person seeking to become a party to the proceeding must file a motion to intervene out-of-time pursuant to Rule 214(b)(3) and (d) of the Commission's Rules of Practice and Procedures (18 CFR 385.214(b)(3) and (d)) and show good cause why the time limitation should be waived. Motions to intervene are more fully described at
Additional information about the project is available from the Commission's Office of External Affairs, at (866) 208-FERC, or on the FERC website (
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
In addition, the Commission offers a free service called eSubscription which allows you to keep track of all formal issuances and submittals in specific dockets. This can reduce the amount of time you spend researching proceedings by automatically providing you with notification of these filings, document summaries, and direct links to the documents. Go to
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system (
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
Federal Energy Regulatory Commission (FERC), DOE.
Notice of a modified system of records.
In accordance with the Privacy Act of 1974, all agencies are required to publish in the
Please submit comments on this modified system of records on or before January 16, 2024. These new routine uses are effective January 16, 2024. If no public comment is received during this period or unless otherwise published in the
Comments may be submitted in writing to Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426 or electronically to
Mittal Desai, Chief Information Officer & Senior Agency Official for Privacy, Office of the Executive Director, Federal Energy Regulatory Commission, 888 First Street NE, Washington, DC 20426, (202) 502-6432.
In accordance with the Privacy Act of 1974, and to comply with the Office of Management and Budget (OMB) Memorandum M-17-12,
The following sections have been updated to reflect changes made since the publication of the last notice in the
Identity, Credential, and Access Management Records (FERC-55).
Unclassified.
Federal Energy Regulatory Commission, Office of the Executive Director, Chief Security Officer Directorate, Mission Integrity Division, 888 First Street NE, Washington, DC 20426.
Director, Federal Energy Regulatory Commission, Chief Security Officer Directorate, Mission Integrity Division, 888 First Street NE, Washington, DC 20426, (202) 502-6296.
44 U.S.C. 3542; 41 CFR 102-74.375, HSPD-12/FIPS 201.
The purpose of the system is the completion of sponsorship and adjudication of individuals, issuance of PIV credentials, identity management and logical access.
The following categories of individuals are covered by this system: current and former employees, current and former contractors, and current and former interns.
Records include: individual's full name, current address, date of birth, place of birth, work email address, work telephone number, government-issued cell number, citizenship, office of assignment, digital photograph, digital and/or paper fingerprint images, social security number, results of background check, PIV credential number, PIV expiration date, and any other information needed to provide or deny logical access and to personalize levels of access.
Records are obtained from the individual to whom the records pertain.
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, information maintained in this system may be disclosed to authorized entities outside FERC for purposes determined to be relevant and necessary as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows:
1. To appropriate agencies, entities, and persons when (1) FERC suspects or has confirmed that there has been a breach of the system of records; (2) FERC has determined that as a result of the suspected or confirmed breach there is a risk of harm to individuals, the Commission (including its information systems, programs, and operations), the Federal Government, or national security; and (3) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Commission's efforts to respond to the suspected or confirmed breach or to prevent, minimize, or remedy such harm.
2. To another Federal agency or Federal entity, when FERC determines that information from this system of records is reasonably necessary to assist the recipient agency or entity in (1) responding to a suspected or confirmed breach or (2) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, programs, and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
3. To a congressional office from the record of an individual in response to an inquiry from that congressional office made at the request of that individual.
4. To the Equal Employment Opportunity Commission (EEOC) when requested in connection with investigations of alleged or possible discriminatory practices, examination of Federal affirmative employment programs, or other functions of the Commission as authorized by law or regulation.
5. To the Federal Labor Relations Authority or its General Counsel when requested in connection with investigations of allegations of unfair labor practices or matters before the Federal Service Impasses Panel.
6. To disclose information to another Federal agency, to a court, or a party in litigation before a court or in an administrative proceeding being conducted by a Federal agency, when the Government is a party to the judicial or administrative proceeding. In those cases where the Government is not a party to the proceeding, records may be disclosed if a subpoena has been signed by a judge.
7. To the Department of Justice (DOJ) for its use in providing legal advice to FERC or in representing FERC in a proceeding before a court, adjudicative body, or other administrative body, where the use of such information by the DOJ is deemed by FERC to be relevant and necessary to the advice or proceeding, and such proceeding names as a party in interest: (a) FERC; (b) any employee of FERC in his or her official capacity; (c) any employee of FERC in his or her individual capacity where DOJ has agreed to represent the employee; or (d) the United States, where FERC determines that litigation is likely to affect FERC or any of its components.
8. To non-Federal Personnel, such as contractors, agents, or other authorized individuals performing work on a contract, service, cooperative agreement, job, or other activity on behalf of FERC or Federal Government and who have a need to access the information in the performance of their duties or activities.
9. To the National Archives and Records Administration in records management inspections and its role as Archivist.
10. To the Merit Systems Protection Board or the Board's Office of the Special Counsel, when relevant information is requested in connection with appeals, special studies of the civil service and other merit systems, review of OPM rules and regulations, and investigations of alleged or possible prohibited personnel practices.
11. To appropriate Federal, State, or local agency responsible for investigating, prosecuting, enforcing, or implementing a statute, rule, regulation, or order, if the information may be relevant to a potential violation of civil or criminal law, rule, regulation, order.
12. To appropriate agencies, entities, and person(s) that are a party to a dispute, when FERC determines that information from this system of records is reasonably necessary for the recipient to assist with the resolution of the dispute; the name, address, telephone number, email address, and affiliation; of the agency, entity, and/or person(s) seeking and/or participating in dispute resolution services, where appropriate.
13. To sponsors, employers, contractors, facility operators, grantees, experts, fiscal agents, and consultants in connection with establishing an access
14. To FERC officials to serve as a data source in determining appropriate logical access to FERC networks.
15. To the news media and the public, with the approval of the Senior Agency Official for Privacy, or their designee, in consultation with counsel, when there exists a legitimate public interest in the disclosure of the information or when disclosure is necessary to preserve confidence in the integrity of FERC or is necessary to demonstrate the accountability of FERC's officers, employees, or individuals covered by the system, except to the extent it is determined that release of the specific information in the context of a particular case would constitute an unwarranted invasion of personal privacy.
16. To contractors, grantees, experts, consultants, detailees, and other no-FERC employees performing or working on a contract, service, grant cooperative agreement, or other assignment from the Federal government, when necessary to accomplish an agency function related to this system of records.
Electronic records are stored on a shared drive within FERC's network. Some electronic records are also stored in the sponsorship or vendor portal. Access to electronic records is controlled by User ID and password combination and/or the organizations Single Sign-On and Multi-Factor Authentication solution. Access to electronic records is restricted to those individuals whose official duties require access.
Records are retrieved by last name and date of birth or social security number and date of birth. Records may also be retrieved by an identification number assigned to a computer; name; or email address.
Records are retained and disposed of in accordance with the schedule approved under the National Archives and Records Administration's General Records Schedule 5.6: Security Management Records; Disposition Authority: DAA-GRS-2021-0001-0005. Temporary. Destroy six (6) years after the end of an employee or contractor's tenure, but longer retention is authorized if required for business use.
Individuals requesting access to the contents of records must submit a request through the Freedom of Information Act (FOIA) office. The FOIA website is located at:
Generalized notice is provided by the publication of this notice. For specific notice, see Records Access Procedure, above.
None.
70 FR 61612.
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
Any person desiring to protest in any the above proceedings must file in accordance with Rule 211 of the Commission's Regulations (18 CFR 385.211) on or before 5:00 p.m. Eastern time on the specified comment date.
The filings are accessible in the Commission's eLibrary system (
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
Environmental Protection Agency (EPA).
Notice of final order on petition.
The Environmental Protection Agency (EPA) Administrator signed an order dated September 29, 2023, denying a petition dated January 5, 2023, submitted by an anonymous petitioner identified as C23D32 (the Petitioner). The petition requested that EPA object to a Clean Air Act (CAA) title V operating permit issued by the Illinois Environmental Protection Agency (IEPA) to the Chicago Department of Aviation located in Cook County, Illinois.
The final order, the petition, and other supporting information are available for public inspection during normal business hours at the following address: Environmental Protection Agency, Region 5, Air and Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois 60604. This facility is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays and facility closures due to COVID-19. We recommend that you contact the individual listed in the
Dan Wolski, Air Permits Section, Air Programs Branch (AR-18J), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-0557,
EPA received a petition from C23D32 dated January 5, 2023, requesting that EPA object to the issuance of operating permit no. 95110002, issued by IEPA to Chicago Department of Aviation in Cook County, Illinois. On September 29, 2023, the EPA Administrator issued an order denying the petition. The order explains the basis for EPA's decision.
Sections 307(b) and 505(b)(2) of the CAA provide that a petitioner may request judicial review of those portions of an order that deny issues in a petition. Any petition for review shall be filed in the United States Court of Appeals for the appropriate circuit no later than February 13, 2024.
Environmental Protection Agency (EPA).
Notice.
The Environmental Protection Agency (EPA) is announcing the availability of and soliciting public comment on the document titled: “2023 Draft Risk Evaluation for Tris(2-chloroethyl) Phosphate (TCEP)” and related draft charge questions. EPA will be submitting the Draft Risk Evaluation and public comments to peer reviewers who will consider the approach and methodologies utilized. The letter peer review will include review of the analysis of physical-chemical properties, the fate of TCEP in the environment, releases of TCEP to the environment, environmental hazard and risk characterization for terrestrial and aquatic species, and human health hazard and risk characterization for workers, consumers, and the general population. The letter peer review is expected to begin on March 13, 2024, and end on April 12, 2024. A preparatory virtual public meeting will be held on March 5, 2024, for reviewers and the public to comment on and ask questions regarding the scope and clarity of the draft charge questions. Feedback from the letter peer review will be considered in the development of the final TCEP risk evaluation.
Submit written comments identified by docket identification (ID) number EPA-HQ-OPPT-2023-0265, through
The Peer Review Leader (PRL), Alaa Kamel, Ph.D., Mission Support Division, Office of Program Support, Office of Chemical Safety and Pollution Prevention, Environmental Protection Agency;
EPA is announcing the availability of and soliciting public comment on the document titled: “2023 Draft Risk Evaluation for Tris(2-chloroethyl) Phosphate (TCEP)”. A letter peer review is expected to begin on March 13, 2024, and end on April 12, 2024, to review the approach and methodologies utilized in this document. A preparatory virtual public meeting will be held on March 5, 2024, for reviewers and the public to comment on and ask questions regarding the scope and clarity of the draft charge questions.
Section 6(b) of the Toxic Substances Control Act (TSCA) (15 U.S.C. 2605(b)), requires that EPA conduct risk evaluations on existing chemical substances and identifies the minimum components EPA must include in all chemical substance risk evaluations. The risk evaluation must not consider costs or other non-risk factors (15 U.S.C. 2605(b)(4)(F)(iii)). The specific risk evaluation process is set out in 40 CFR part 702 and summarized on EPA's website at
This action is directed to the public in general. This action may, however, be of interest to those involved in the manufacture, processing, distribution, and disposal of chemical substances and mixtures, and/or those interested in the assessment of risks involving chemical substances regulated under TSCA. Since other entities may also be interested, the Agency has not attempted to describe all the specific entities that may be affected by this action.
Do not submit CBI or other sensitive information to EPA through
2.
EPA is seeking public comment on both the draft risk evaluation and the draft charge questions for the letter peer review. Both documents are available in EPA Docket ID No. EPA-HQ-OPPT-2023-0265 at
EPA will publish instructions on how to register for the virtual public meeting that will be held on March 5, 2024, from 1-4 p.m. EST. After registering, you will receive the webcast meeting link and audio teleconference information for this public meeting. You may register and participate as a listen-only attendee at any time up to the end of the meeting on March 5, 2024. Requests to make brief (up to five minutes) oral comments during the preparatory meeting can be submitted when registering and will be accepted until Friday, March 1, 2024.
The focus of this Letter Peer Review is on the approach and methodologies utilized in the “2023 Draft Risk Evaluation for Tris(2-chloroethyl) Phosphate (TCEP).” Feedback from this review will be considered in the development of the final TCEP risk evaluation.
TCEP is a High-Priority substance undergoing the TSCA risk evaluation process. TCEP has been primarily used in paint and coating manufacturing, and in polymers used in aerospace equipment and products. In the past it has also been used in commercial and consumer products, including fabric and textile products, foam seating, and construction materials. TCEP may also be imported in articles intended for consumer use.
In August 2020, EPA published a final scope document for 20 High-Priority substances, including TCEP, outlining the hazards, exposures, conditions of use, and the potentially exposed or susceptible subpopulations the Agency expects to consider in its risk evaluation.
EPA is submitting the “2023 Draft Risk Evaluation for Tris(2-chloroethyl) Phosphate (TCEP)” and associated supporting documents for Letter Peer Review. The Letter Peer Review will include review of the analysis of physical chemical properties, the fate of TCEP in the environment, releases of TCEP to the environment, environmental hazard and risk characterization for terrestrial and aquatic species, and human health hazard and risk characterization for workers, consumers, and the general population. Specifically, EPA is seeking comment on the following issues:
• The list of considerations EPA used to arrive at the human health hazard confidence levels and the specific confidence levels chosen for individual human health hazard outcomes (neurotoxicity, reproductive/developmental effects, kidney effects, and cancer) in the TCEP risk evaluation.
• Whether the approach used to estimate anaerobic degradation in the absence of data is appropriate for assessing anaerobic degradation in sediment.
• Use of the model, Web-based Interspecies Correlation Estimation (Web-ICE), to predict acute toxicity hazard values for aquatic species not represented in the available studies.
This is the first time EPA has used Web-ICE in a TSCA risk evaluation. These predictions were used with available empirical data to create a Species Sensitivity Distribution (SSD). The SSD was used to calculate a hazardous concentration for 5% of species (HC
• Human health hazard benchmark dose modeling of animal toxicity data for TCEP.
• The list of considerations EPA used to arrive at the human health hazard confidence levels and the specific confidence levels chosen for individual human health hazard outcomes (neurotoxicity, reproductive/developmental effects, kidney effects, and cancer) to quantitatively evaluate risk from TCEP.
• Use of several approaches for estimating exposures to humans and
• Approach for modeling drinking water contamination from wells near municipal solid waste landfills, which is a new approach for TSCA risk evaluations.
The “2023 Draft Risk Evaluation for Tris(2-chloroethyl) Phosphate (TCEP)” and all background documents, related supporting materials, and draft charge questions are available at
Environmental Protection Agency (EPA).
Notice.
EPA has received applications to register new uses for pesticide products containing currently registered active ingredients. Pursuant to the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA), EPA is hereby providing notice of receipt and opportunity to comment on these applications.
Comments must be received on or before January 16, 2024.
Submit your comments, identified by docket identification (ID) number EPA-HQ-OPP-2023-0067, through the
Charles Smith, Registration Division (RD) (7505T), main telephone number: (202) 566-2427, email address:
You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:
• Crop production (NAICS code 111).
• Animal production (NAICS code 112).
• Food manufacturing (NAICS code 311).
1.
2.
EPA has received applications to register new uses for pesticide products containing currently registered active ingredients. Pursuant to the provisions of FIFRA section 3(c)(4) (7 U.S.C. 136a(c)(4)), EPA is hereby providing notice of receipt and opportunity to comment on these applications. Notice of receipt of these applications does not imply a decision by the Agency on these applications.
1.
2.
Export-Import Bank of the United States.
Notice of request for public comment and submission to OMB of proposed collection of information.
The Export-Import Bank of the United States (Ex-Im Bank), as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal Agencies to comment on the proposed information collection, as required by the Paperwork Reduction Act of 1995. The purpose of this Notice is to announce the initiation of a 30-day period for public comment.
Comments must be received on or before January 16, 2024 to be assured of consideration.
Comments may be submitted electronically on
By neutralizing the effect of export credit support offered by foreign governments and by absorbing credit risks that the private sector will not accept, Ex-Im Bank enables U.S. exporters to compete fairly in foreign markets on the basis of price and product. Under the Working Capital Guarantee Program, Ex-Im Bank provides repayment guarantees to lenders on secured, short-term working capital loans made to qualified exporters. The guarantee may be approved for a single loan or a revolving line of credit. In the event that a borrower defaults on a transaction guaranteed by Ex-Im Bank the guaranteed lender may seek payment by the submission of a claim.
This collection of information is necessary, pursuant to 12 U.S.C. 635(a)(1), to determine if such claim complies with the terms and conditions of the relevant working capital guarantee. The Notice of Claim and Proof of Loss, Working Capital Guarantee is used to determine compliance with the terms of the guarantee and the appropriateness of paying a claim. Export-Import Bank customers are submitting this form electronically.
This form affects entities involved in the export of U.S. goods and services.
Federal Election Commission.
Notice of filing dates for special election.
New York has scheduled a special election on February 13, 2024, to fill the U.S. House of Representatives seat in the 3rd Congressional District that became vacant when Representative George Santos was expelled from Congress.
Committees required to file reports in connection with the Special General Election on February 13, 2024, shall file a 12-day Pre-General and a 30-Day Post-General Report.
Ms. Elizabeth S. Kurland, Information Division, 1050 First Street NE, Washington, DC 20463; Telephone: (202) 694-1100; Toll Free (800) 424-9530.
All principal campaign committees of candidates who participate in the New York Special General Election shall file a 12-day Pre-General Report on February 1, 2024, and a 30-day Post-General Report on March 14, 2024. (See chart below for the closing date for each report.)
Note that these reports are in addition to the campaign committee's regular quarterly filings. (See chart below for the closing date for each report).
Political committees not filing monthly are subject to special election reporting if they make previously undisclosed contributions or expenditures in connection with the New York Special General Election by the close of books for the applicable report(s). (See chart below for the closing date for each report.)
Since disclosing financial activity from two different calendar years on one
Committees filing monthly that make contributions or expenditures in connection with the New York Special General Election will continue to file according to the monthly reporting schedule.
Additional disclosure information for the New York special election may be found on the FEC website at
Principal campaign committees, party committees and leadership PACs that are otherwise required to file reports in connection with the special election must simultaneously file FEC Form 3L if they receive two or more bundled contributions from lobbyists/registrants or lobbyist/registrant PACs that aggregate in excess of the lobbyist bundling threshold during the special election reporting periods. (See chart below for closing date of each period.) 11 CFR 104.22(a)(5)(v), (b), 110.17(e)(2), (f).
The lobbyist bundling disclosure threshold for calendar year 2023 is $21,800. This threshold amount may change in 2024 based upon the annual cost of living adjustment (COLA). As soon as the adjusted threshold amount is available, the Commission will publish it in the
On behalf of the Commission,
The notificants listed below have applied under the Change in Bank Control Act (Act) (12 U.S.C. 1817(j)) and 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the applications are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington, DC 20551-0001, not later than December 29, 2023.
1.
In addition,
1.
Board of Governors of the Federal Reserve System.
Federal Acquisition Service (Q), General Services Administration (GSA).
Meeting notice.
As stipulated by the Federal Advisory Committee Act (FACA), GSA is hereby giving notice of an open public meeting of the Federal Secure Cloud Advisory Committee (FSCAC). Information on attending and providing public comment is under the
The open public meeting will be held on Thursday, January 18, 2024, from 1 p.m. to 3:30 p.m., Eastern Standard Time (EST). The agenda for the meeting will be made available prior to the meeting online at
The meetings will be accessible via webcast. Registrants will receive the webcast information before the meeting.
Michelle White, Designated Federal Officer (DFO), FSCAC, GSA, 703-489-4160,
GSA, in compliance with the FedRAMP Authorization Act of 2022, established the FSCAC, a statutory advisory committee in accordance with the provisions of FACA (5 U.S.C. 10). The Federal Risk and Authorization Management Program (FedRAMP) within GSA is responsible for providing a standardized, reusable approach to security assessment and authorization for cloud computing products and services that process unclassified information used by agencies.
The FSCAC will provide advice and recommendations to the Administrator of GSA, the FedRAMP Board, and agencies on technical, financial, programmatic, and operational matters regarding the secure adoption of cloud computing products and services. The FSCAC will ensure effective and ongoing coordination of agency adoption, use, authorization, monitoring, acquisition, and security of cloud computing products and services to enable agency mission and administrative priorities. The purposes of the Committee are:
• To examine the operations of FedRAMP and determine ways that authorization processes can continuously be improved, including the following:
○ Measures to increase agency reuse of FedRAMP authorizations.
○ Proposed actions that can be adopted to reduce the burden, confusion, and cost associated with FedRAMP authorizations for cloud service providers.
○ Measures to increase the number of FedRAMP authorizations for cloud computing products and services offered by small businesses concerns (as defined by section 3(a) of the Small Business Act (15 U.S.C. 632(a)).
○ Proposed actions that can be adopted to reduce the burden and cost of FedRAMP authorizations for agencies.
• Collect information and feedback on agency compliance with, and implementation of, FedRAMP requirements.
• Serve as a forum that facilitates communication and collaboration among the FedRAMP stakeholder community.
The FSCAC will meet no fewer than three (3) times a calendar year. Meetings shall occur as frequently as needed, called, and approved by the DFO.
As a continuation of the FSCAC meeting series from October 19, 2023 through November 9, 2023, the January 18, 2024 public meeting will be dedicated to the Committee members reviewing their finalized feedback regarding their initial recommendations to the GSA Administrator and to vote on their deliverable to the GSA Administrator. The Committee will provide initial recommendations on their priority initiatives, to include authorization path improvements, continuous monitoring (ConMon) process improvements, and automation initiatives and opportunities. The meeting agenda and draft deliverable will be posted on
This virtual meeting is open to the public. Meeting registration and information is available at
For information on services for individuals with disabilities, or to request accommodation for a disability, please email the FSCAC staff at
Members of the public will have the opportunity to provide oral public comment during the FSCAC meeting on January 18, 2024. Written public comments can be submitted at any time by completing the public comment form on our website,
Office of Government-wide Policy (OGP), General Services Administration (GSA).
Notice; request for information (RFI).
GSA is responsible for implementing the Computers for Veterans and Students Act of 2022 (COVS Act), which aims to close the digital divide and provide access to surplus computers and technology equipment to eligible recipients. GSA is seeking information from nonprofit computer refurbishers and other nongovernmental entities to better understand the industry as GSA develops regulations to implement the COVS Act.
Interested parties should submit written comments to the address shown below on or before February 13, 2024.
Comments to the RFI must be provided in writing. Interested parties are to submit their written comments electronically to
You are not required to answer all of the questions in the RFI, but the more information we receive, the better GSA will understand the nonprofit computer refurbisher industry.
Comments received generally will be posted without change to
Mr. William Garrett, Director, Personal Property Policy Division, Office of Government-wide Policy, Office of Asset and Transportation Management (MA), at 202-368-8163 or
GSA oversees the disposal of federal excess and surplus personal property. Under the COVS Act (codified at
Nonprofit computer refurbishers are responsible for the repair, distribution, and subsequent transfer of the equipment to eligible recipients. The term “eligible recipient” means an educational institution, individual with a disability, low-income individual, student, senior in need, or veteran that is residing or based in the United States. If the equipment cannot be repaired or reused, nonprofit computer refurbishers must use recyclers to the maximum extent practicable. Nonprofit computer refurbishers must also offer training programs to eligible recipients on the use of the repaired computers and technology equipment, and report required information to GSA.
The purpose of this RFI is to gather information from nonprofit computer refurbishers and other nongovernmental entities to better understand the industry's experience in and ability to (1) refurbish computers and technology equipment; (2) recycle computers and technology equipment if the property can't be repaired or reused; (3) distribute property to eligible recipients; (4) provide training programs; and (5) report data to GSA as required. GSA is also requesting information from nongovernmental entities that may be able to facilitate the identification and participation of nonprofit computer refurbishers.
This information will help GSA evaluate the eligibility and suitability of nonprofit computer refurbishers for participating in the COVS Act program and receiving surplus computers and technology equipment from Federal agencies. This information will also help GSA identify nongovernmental entities for potential partnerships and to develop a framework for the COVS Act program and implementing regulations.
GSA is providing the following information to help the industry understand the amount of personal property reported to GSA as excess under Federal Supply Group (FSG) 70 with a condition code of repairable. It's important to note that the amount of property available for transfer under the COVS Act will be less than the amount of property reported to GSA as excess since the COVS Act authorizes the transfer of surplus computer or technology equipment. Excess personal property is available for transfer to other Federal agencies and may be utilized at the excess level before it could be declared surplus, thereby it would not be available for transfer as surplus property under the COVS Act. Additionally, the amount of reported property varies each fiscal year and numbers decreased due to the impact of COVID-19.
This RFI is for general fact-gathering purposes. Interested parties will not be reimbursed for any costs related to providing information in response to this RFI. The Government does not intend to award a contract on the basis of this RFI.
To help GSA assess the ability of nonprofit computer refurbishers or other industry partners to participate in the COVS Act program, please answer the following questions:
• If you are a nonprofit computer refurbisher, what is the name, mission, vision, location, and history of your nonprofit organization? How long have you been operating as a nonprofit computer refurbisher or industry partner?
• What are your sources of funding and support? How do you ensure financial sustainability and accountability?
• How many staff members and volunteers do you have? What are their roles and qualifications? How do you recruit, train, and retain them?
• How many computers and technology equipment do you refurbish per year? What are the types, models, brands, and specifications of the equipment you refurbish? What are the standards and procedures you follow for refurbishing?
• When do you consider computer or technology equipment obsolete or unrepairable? Is there any type of surplus computer or technology equipment that you will not accept? For example, computers without hard drives or equipment over a certain age.
• Do you provide data sanitization services? Do you follow the National Institute of Standards and Technology (NIST Special Publication 800-88, Rev. 1) guidelines? Do you provide evidence/reports that sanitization was completed?
• If computer or technology equipment cannot be repaired or reused, what do you do with the property? Are you a certified electronics recycler? If so, under which standard? If not, do you partner with certified electronics recyclers?
• How many computers and technology equipment do you recycle per year? What are the types, models, brands, and specifications of the equipment you recycle? What are the standards and procedures you follow for recycling?
• What process would you use to identify recipients eligible to receive surplus computer or technology equipment in accordance with 40 U.S.C. 549a? How would you verify eligibility to prevent ineligible persons from obtaining equipment? How would you determine who receives the equipment to ensure fair and equitable distribution?
• Would recipients be required to pay for the equipment? How would you determine the price or fee in compliance with 40 U.S.C. 549a(b)(3)(B)?
• Is your organization able to segregate equipment received under the COVS Act from other sources to ensure this equipment is only provided to eligible recipients?
• Federal agencies are generally unable to pay for shipping and transportation to refurbishers. Would you cover shipping costs? Would you be able to pick up computers and equipment from agency locations?
• How would you distribute refurbished computers and technology equipment to recipients? What would be your distribution network and criteria? How would you ensure quality control and customer service?
• How long (in days) would it take to refurbish computers (from the date the equipment is received) and provide them to eligible recipients?
• Do you offer training programs on the use of the repaired computers and technology equipment? Is this training provided at no cost, or for a fee? If there is a charge for the classes, how is this fee determined?
• Please describe the training programs, platforms (
• Nonprofit computer refurbishers receiving surplus computer or technology equipment under the COVS Act are required to report information to GSA on a recurring basis. This includes information about the distribution of the equipment and which eligible recipients received the equipment. Would you be able to provide the required recipient data and reports to GSA? How soon could you provide reports about who received the equipment (taking into account the time to repair and transfer them)? Do you foresee any challenges in providing this data to GSA?
• Do you have any experience working with Federal agencies or receiving surplus computers and technology equipment from them? If so, please provide examples.
• How do you envision nongovernmental entities partnering with GSA? Do you anticipate any challenges with GSA establishing partnerships with nongovernmental entities to facilitate the identification and participation of nonprofit computer refurbishers?
• Are you aware of any nonprofit computer refurbisher groups, alliances, or associations? If yes, please list them. Are there other types of groups we need to be aware of in the industry?
• Are you a member of a nonprofit computer refurbisher group, alliance, or association? If yes, which one? What are the eligibility and certification requirements to join? Are you required to pay any fees to participate? Why did you decide to join one or choose one particular group, alliance, or association over another?
• If you're not part of a group, alliance, or association, is there a reason you have not joined or are you opposed to joining one?
• Please provide any additional comments or challenges you anticipate related to participating in the COVS Act program.
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing effort to reduce public burden and maximize the utility of government information, invites the general public and other Federal agencies to comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995. This notice invites comment on the proposed data collection titled, CDC Diabetes Prevention Recognition Program (DPRP). The Diabetes Prevention Recognition Program (DPRP) continues the collection of nationwide, de-identified data for the
CDC must receive written comments on or before February 13, 2024.
You may submit comments, identified by Docket No. CDC-2023-0096 by either of the following methods:
•
•
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact Jeffrey M. Zirger, Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE, MS H21-8, Atlanta, Georgia 30329; Telephone: 404-639-7570; Email:
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3520), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
The OMB is particularly interested in comments that will help:
1. 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;
2. 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;
3. Enhance the quality, utility, and clarity of the information to be collected;
4. 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,
5. Assess information collection costs.
CDC Diabetes Prevention Recognition Program (DPRP)—Revision—National Center for Chronic Disease Prevention and Health Promotion (NCCDPHP), Centers for Disease Control and Prevention (CDC).
CDC's Division of Diabetes Translation (DDT) established and administers the National Diabetes Prevention Recognition Program (DPRP), which recognizes organizations that deliver a diabetes prevention program according to evidence-based requirements set forth in the CDC's Diabetes Prevention Recognition Program Standards and Operating Procedures (DPRP Standards). Additionally, the Centers for Medicare & Medicaid Services (CMS) Medicare Diabetes Prevention Program (MDPP) expansion of CDC's National DPP was announced in early 2016, when the Secretary of Health and Human Services (HHS) determined that the Diabetes Prevention Program met the statutory criteria for inclusion in Medicare's expanded list of health care services for beneficiaries (
CDC requests an additional three years of OMB approval to continue collecting the information needed to administer the DPRP and provide information needed by CMS to support the MDPP benefit. Based on experience with the DPRP from 2011-2023, including data analysis and feedback from applicant organizations and internal and external partners, CDC plans to revise the DPRP Standards and the associated information collection. Key changes are a direct result of DPRP data analyses, recent literature reviews, and discussion with National DPP stakeholders, including those serving socially vulnerable populations. Key changes to the evaluation data collection instrument allow for the collection of participant zip codes (for aggregate reporting only, not to be reported per each individual participant); an OMB-recommended 6-point disability variable; a health equity-related social determinants of health (SDOH) variable set (to assess whether there was a social needs assessment conducted; key SDOH issues identified; and whether any action was taken); a Middle Eastern or North African write-in option within the current race/ethnicity variable; and two new options for the current payersource variable.
Key changes to the application data collection instrument allow for: (1) a yes/no drop-down question asking if an organization's zip code is in an area of high social vulnerability based on the Social Vulnerability Index, which would permit an in-person organization to be fast-tracked to preliminary recognition status to allow the organization to apply to CMS to become an MDPP supplier; (2) revisions to the Combination delivery mode to include an option for in-person delivery with a distance learning component; and (3) collection of a projected program start-date.
During the period of this Revision, CDC estimates receipt of approximately 200 DPRP application forms per year from new organizations. The estimated burden per one-time application response is one hour. In addition, CDC estimates receipt of semi-annual evaluation data submissions from the same 200 additional organizations per year, estimated at two hours per response. The total estimated average annualized evaluation burden to new respondents is 2,400 hours. This includes an estimate of the time needed to extract and compile the required data records and fields from an existing electronic database, review the data, and enter the data via the DPRP Data Portal. CDC also has 1,500 currently recognized organizations that will continue to submit semi-annual evaluation data. The estimated burden per response is modest, since the information requested
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice with comment period.
The Centers for Disease Control and Prevention (CDC), as part of its continuing effort to reduce public burden and maximize the utility of government information, invites the general public and other Federal agencies the opportunity to comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995. This notice invites comment on a proposed information collection project titled Information Collection for Tuberculosis Data from Referring Entities to CureTB. The CureTB program works to prevent the spread of tuberculosis (TB) among people who cross international borders by providing linkage to care for patients with active/suspected TB when they leave the U.S., accurate and up-to-date information for receiving providers, motivation and resources for mobile individuals to continue care, linkage for comorbidities, and facilitation of positive outcomes and communication between partners.
CDC must receive written comments on or before February 13, 2024.
You may submit comments, identified by Docket No. CDC-2023-0099 by either of the following methods:
•
•
To request more information on the proposed project or to obtain a copy of the information collection plan and instruments, contact Jeffrey M. Zirger, Information Collection Review Office, Centers for Disease Control and Prevention, 1600 Clifton Road NE, MS H21-8, Atlanta, Georgia 30329; Telephone: 404-639-7570; Email:
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501-3520), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. In addition, the PRA also requires Federal agencies to provide a 60-day notice in the
The OMB is particularly interested in comments that will help:
1. 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;
2. 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;
3. Enhance the quality, utility, and clarity of the information to be collected;
4. 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,
5. Assess information collection costs.
Information Collection for Tuberculosis Data from Referring Entities to CureTB (OMB Control No. 0920-1186, Exp. 2/29/2024)—Extension—National Center for Emerging and Zoonotic Infectious Diseases (NCEZID), Centers for Disease Control and Prevention (CDC).
The CureTB program at CDC works to prevent the spread of tuberculosis (TB) among people who cross international borders. To reduce disease transmission and the emergence of drug-resistant TB,
CureTB collects the following types of information: (1) referring entities (referring agency and jurisdiction) information including name of referring person, telephone numbers, fax numbers, email addresses; (2) patient's name and last name(s), demographics date of birth, gender, address (U.S. and outside of the U.S), telephone numbers, email address, patient's contact persons including name and telephone number; and (3) TB clinical information, including diagnostic testing (radiology reports, laboratory testing reports, other diagnostic methods used, treatment regimen and information about comorbidities).
CDC is requesting OMB approval for an additional three years. CDC requests approval for an estimated 1,125 annual burden hours. There is not cost to respondents other than their time to participate.
Centers for Medicare & Medicaid Services, Health and Human Services (HHS).
Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing the availability of CMS' revised guidance for the Medicare Part B and Part D Prescription Drug Inflation Rebate Program for the implementation of the Inflation Reduction Act. CMS will be releasing additional Inflation Reduction Act-related guidance; all can be viewed on the dedicated Inflation Reduction Act section of the CMS website.
Inquiries related to the revised guidance should be sent to
The Inflation Reduction Act was signed into law on August 16, 2022. Section 11101 of the Inflation Reduction Act added a new section 1847A(i) to the Social Security Act (the Act), which establishes a requirement for manufacturers to pay Medicare Part B rebates for single source drugs and biological products with prices that increase faster than the rate of inflation for a calendar quarter to the Federal Supplementary Medical Insurance Trust Fund, and provides for lower Part B beneficiary cost sharing on these drugs and biologicals. Section 11102 of the Inflation Reduction Act added a new section 1860D-14B to the Act, which establishes a requirement for manufacturers to pay rebates to the Federal Supplementary Medical Insurance Trust Fund for certain Part D drugs when prices increase faster than the rate of inflation for each 12-month applicable period. Collectively, this program to implement these rebates is referred to as the Medicare Prescription Drug Inflation Rebate Program, or the Inflation Rebate Program.
To obtain copies of the revised guidance and the responses to comments from the initial guidance, as well as other Inflation Reduction Act-related documents, please access the CMS Inflation Reduction Act website by copying and pasting the following web address into your web browser:
The Administrator of the Centers for Medicare & Medicaid Services (CMS), Chiquita Brooks-LaSure, having reviewed and approved this document, authorizes Vanessa Garcia, who is the Federal Register Liaison, to electronically sign this document for
Centers for Medicare & Medicaid Services, Health and Human Services (HHS).
Notice.
The Centers for Medicare & Medicaid Services (CMS) is announcing an opportunity for the public to comment on CMS' intention to collect information from the public. Under the Paperwork Reduction Act of 1995 (PRA), Federal agencies are required to publish notice in the
Comments must be received by February 13, 2024.
When commenting, please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be submitted in any one of the following ways:
1.
2.
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, please access the CMS PRA website by copying and pasting the following web address into your web browser:
William N. Parham at (410) 786-4669.
This notice sets out a summary of the use and burden associated with the following information collections. More detailed information can be found in each collection's supporting statement and associated materials (see
Under the PRA (44 U.S.C. 3501-3520), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. The term “collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA requires Federal agencies to publish a 60-day notice in the
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Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is issuing an order under the Federal Food, Drug, and Cosmetic Act (the FD&C Act) debarring Adam Michael Nagy for a period of 15 years from importing or offering for import any drug into the United States. FDA bases this order on a finding that Mr. Nagy was convicted of three relevant felony counts under Federal law. The factual basis supporting Mr. Nagy's conviction, as described below, is conduct relating to the importation into the United States of a drug or controlled substance. Mr. Nagy was given notice of the proposed debarment and was given an opportunity to request a hearing to show why he should not be debarred. As of October 22, 2023 (30 days after receipt of the notice), Mr. Nagy had not responded. Mr. Nagy's failure to respond and request a hearing constitutes a waiver of his right to a hearing concerning this matter.
This order is effective December 15, 2023.
Any application by Mr. Nagy for termination of debarment under section 306(d)(1) of the FD&C Act (21 U.S.C. 335a(d)(1)) may be submitted as follows:
•
• If you want to submit an application with confidential information that you do not wish to be made available to the public, submit the application as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
• Mail/Hand Delivery/Courier (for written/paper submissions): Dockets Management Staff (HFA-305), Food and Drug Administration, 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852.
• For a written/paper application submitted to the Dockets Management Staff, FDA will post your application, as well as any attachments, except for information submitted, marked, and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit an application with confidential information that you do not wish to be made publicly available, submit your application 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.” The Agency will review this copy, including the claimed confidential information, in its consideration of your application. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Jaime Espinosa, Division of Compliance and Enforcement, Office of Policy, Compliance, and Enforcement, Office of Regulatory Affairs, Food and Drug Administration, at 240-402-8743, or
Section 306(b)(1)(D) of the FD&C Act (21 U.S.C. 335a(b)(1)(D)) permits debarment of an individual from importing or offering for import any drug into the United States if the FDA finds, as required by section 306(b)(3)(C) of the FD&C Act, that the individual has been convicted of a felony for conduct relating to the importation into the United States of any drug or controlled substance.
On May 1, 2023, Mr. Nagy was convicted, as defined in section 306(l)(1) of FD&C Act, in the U.S. District Court for the Western District of Pennsylvania, when the court entered judgment against him for multiple
As contained in the superseding indictment, filed on March 22, 2018, the Defendant's motion for downward variance, filed on April 24, 2023, and the Government's sentencing memorandum, filed April 24, 2023, from Mr. Nagy's case, Mr. Nagy was the owner and operator of Prescription Nutrition, Prescription Protein, and N.O.B. Industries located in Pennsylvania. From on or about June 2014 to on or about September 2014, Mr. Nagy imported various types of controlled substances which he then capsuled and distributed to clients. Specifically, from on or about June 2014 to on or about July 2014, Mr. Nagy illegally imported ethylone. In July 2014, he also illegally imported TURINABOL and DIANABOL. In addition, from June 2014 until on or about September 2014, Mr. Nagy illegally imported alpha-PVP, ethylone, TURINABOL, and DIANABOL. All the controlled substances Mr. Nagy imported and smuggled into the country came from China.
As a result of this conviction, FDA sent Mr. Nagy, by certified mail, on September 20, 2023, a notice proposing to debar him for a 15-year period from importing or offering for import any drug into the United States. The proposal was based on a finding under section 306(b)(3)(C) of the FD&C Act that Mr. Nagy's three felony convictions that included: (1) importation into the United States a quantity of ethylone, a Schedule I Controlled Substance in violation of 21 U.S.C. 952(a) and 960(a)(1); (2) importation into the United States quantities of TURINABOL and DIANABOL, anabolic steroids and Schedule III Controlled Substances in violation of 21 U.S.C. 952(b) and 960(a)(1); and (3) smuggling goods into the United States, that is, alpha-PVP ethylone, Schedule I Controlled Substances, and TURINBOL, DIANABOL, Schedule III Controlled Substances in violation of 18 U.S.C. 545, were for conduct relating to the importation into the United States of any drug or controlled substance because he imported controlled substances into the United States in order to capsule portions of the drugs to sell to clients. In proposing a debarment period, FDA weighed the considerations set forth in section 306(c)(3) of the FD&C Act that it considered applicable to Mr. Nagy's offenses and concluded that each offense warranted the imposition of a 5-year period of debarment, to run consecutively, for a total of a 15-year period of debarment.
The proposal informed Mr. Nagy of the proposed debarment and offered him an opportunity to request a hearing, providing him 30 days from the date of receipt of the letter in which to file the request, and advised him that failure to request a hearing constituted a waiver of the opportunity for a hearing and of any contentions concerning this action. Mr. Nagy received the proposal and notice of opportunity for a hearing on September 22, 2023. Mr. Nagy failed to request a hearing within the timeframe prescribed by regulation and has, therefore, waived his opportunity for a hearing and waived any contentions concerning his debarment (21 CFR part 12).
Therefore, the Assistant Commissioner, Office of Human and Animal Food Operations, under section 306(b)(3)(C) of the FD&C Act, under authority delegated to the Assistant Commissioner, finds that Adam Michael Nagy been convicted of three felonies under federal law for conduct relating to the importation into the United States of any drug or controlled substance. FDA finds that the offense should be accorded a debarment period of 15 years as provided by section 306(c)(2)(A)(iii) of the FD&C Act.
As a result of the foregoing finding, Mr. Nagy is debarred for a period of 15 years from importing or offering for import any drug into the United States, effective (see DATES). Pursuant to section 301(cc) of the FD&C Act (21 U.S.C. 331(cc)), the importing or offering for import into the United States of any drug by, with the assistance of, or at the direction of Mr. Nagy is a prohibited act.
Health Resources and Services Administration, Department of Health and Human Services.
Notice.
In accordance with the Federal Advisory Committee Act, this notice announces that the National Advisory Council on Nurse Education and Practice (NACNEP) will hold public meetings for the 2024 calendar year (CY). Information about NACNEP, agendas, and materials for these meetings can be found on the NACNEP website at
NACNEP meetings will be on (all in Eastern Time):
• March 14, 2024, 10 a.m.-4 p.m. and March 15, 2024, 10 a.m.-4 p.m.;
• May 9, 2024, 10 a.m.-4 p.m.;
• August 7, 2024, 10 a.m.-4 p.m. and August 8, 2024, 10 a.m.-4 p.m.; and
• December 5, 2024, 8 a.m.-5 p.m. and December 6, 2024, 8 a.m.-2 p.m.
Meetings may be held in person, via teleconference, and/or video conference. In-person meetings will be held at 5600 Fishers Lane, Rockville, Maryland 20857. For updates on how the meeting will be held and instructions for joining meetings, visit the NACNEP website at
Justin Bala-Hampton, Designated Federal Official, NACNEP, Bureau of Health Workforce, Division of Nursing and Public Health, Health Resources and Services Administration, 5600 Fishers Lane, 11N100D, Rockville, Maryland 20857; 301-443-5260; or
NACNEP provides advice and recommendations to the Secretary of Health and Human Services on policy, program development, and other matters of significance concerning the activities under title VIII of the Public Health Service Act, including the range of issues relating to the nurse workforce, education, and practice improvement. NACNEP also prepares and submits an annual report to the Secretary of Health and Human Services and Congress describing its activities, including
Since priorities dictate meeting times, be advised that times and agenda items are subject to change. For CY 2024 meetings, agenda items may include, but are not limited to, the nursing workforce (
Members of the public will have the opportunity to provide comments. Public participants may submit written statements in advance of the scheduled meeting(s). Oral comments will be honored in the order they are requested and may be limited as time allows. Requests to submit a written statement or make oral comments to NACNEP should be sent to Justin Bala-Hampton using the contact information above at least 5 business days before the meeting.
Individuals who need special assistance or another reasonable accommodation should notify Justin Bala-Hampton at the email address and phone number listed above at least 10 business days before the meeting(s) they wish to attend. In-person meetings occur in a federal government building, and attendees must pass a security check to enter the building. Non-U.S. citizen attendees must notify Justin Bala-Hampton of their planned attendance at least 20 business days prior to the meeting to facilitate their entry into the building. All attendees are required to present government-issued identification prior to entry.
Health Resources and Services Administration (HRSA), Department of Health and Human Services (HHS).
Notice.
In accordance with the Federal Advisory Committee Act, this notice announces that the Council on Graduate Medical Education (COGME or Council) will hold public meetings for the 2024 calendar year (CY). Information about COGME, agendas, and materials for these meetings can be found on the COGME website at
COGME meetings will be held on:
• March 4, 2024, 9:00 a.m.-5:00 p.m. Eastern Time (ET) and March 5, 2024, 9:00 a.m.-2:00 p.m. ET; and
• September 12, 2024, 10:00 a.m.-5:00 p.m. ET and September 13, 2024, 10:00 a.m.-3:00 p.m. ET.
The meeting scheduled for March 2024 will be held in-person at 5600 Fishers Lane, Rockville, Maryland 20857. The meeting scheduled for September 2024 will be held remotely by teleconference/webinar. The meeting format is subject to change as needed. For any updates on how the meetings will be held, visit the COGME website 30 business days before the date of the meeting, where instructions for joining meetings will be posted. For meeting information updates, go to the COGME website meeting page at
Dr. Curi Kim, Designated Federal Official, Division of Medicine and Dentistry, Bureau of Health Workforce, HRSA, 5600 Fishers Lane, Room 15N35, Rockville, Maryland 20857; 301-945-5827; or
COGME provides advice and recommendations to the Secretary of HHS and Congress on policy, program development, and other matters of significance regarding the issues listed in section 762(a)(1) of the Public Health Service Act. Issues addressed by the COGME include the supply and distribution of the physician workforce in the United States, including any projected shortages or excesses; international medical graduates; the nature and financing of undergraduate and graduate medical education; appropriation levels for certain programs under Title VII of the Public Health Service Act; and deficiencies in databases concerning the supply and distribution of the physician workforce and postgraduate programs for training physicians. COGME submits reports to the Secretary of HHS; the Senate Committee on Health, Education, Labor and Pensions; and the House of Representatives Committee on Energy and Commerce. Additionally, COGME encourages entities providing graduate medical education to conduct activities to voluntarily achieve the recommendations of the Council related to appropriate efforts to be carried out by hospitals, schools of medicine, schools of osteopathic medicine, and accrediting bodies with respect to the supply and distribution of physicians in the United States; current and future shortages or excesses of physicians in medical and surgical specialties and subspecialties; and issues relating to international medical graduates, including efforts for changes in undergraduate and graduate medical education programs.
Since priorities dictate meeting times, be advised that start times, end times, and agenda items are subject to change. For CY 2024 meetings, agenda items may include, but are not limited to, discussions on team-based care, graduate medical education data, and the topic areas listed above. Refer to the COGME website listed above for all current and updated information concerning the CY 2024 COGME meetings, including draft agendas and meeting materials that will be posted 30 calendar days before the meeting.
Members of the public will have the opportunity to provide comments. Public participants may submit written statements in advance of the scheduled meeting(s). Oral comments will be honored in the order they are requested and may be limited as time allows. Requests to submit a written statement or make oral comments to COGME should be sent to Dr. Kim using the contact information above at least 5 business days before the meeting date(s).
Individuals who need special assistance or another reasonable accommodation should notify Dr. Kim using the contact information listed above at least 10 business days before the meeting(s) they wish to attend. Since all in-person meetings occur in a federal government building, attendees must go through a security check to enter the building. Non-U.S. Citizen attendees must notify HRSA of their planned attendance at least 20 business days prior to the meeting in order to facilitate their entry into the building. All attendees are required to present government-issued identification prior to entry.
Health Resources and Services Administration, Department of Health and Human Services.
Notice.
In accordance with the Federal Advisory Committee Act, this notice announces that the Advisory Committee on Training in Primary Care Medicine and Dentistry (ACTPCMD) will hold public meetings for the 2024 calendar year (CY). Information about ACTPCMD, agendas, and materials for these meetings can be found on the ACTPCMD website at
ACTPCMD meetings will be held on:
• March 25, 2024, 8 a.m.-5 p.m. Eastern Time (ET) and March 26, 2024, 8 a.m.-4 p.m. ET; and
• August 2, 2024, 10 a.m.-5 p.m. ET.
Meetings will be held in-person, by teleconference, and/or on a video conference. In-person meetings will be held at 5600 Fishers Lane, Rockville, Maryland 20857, and broadcast virtually on a video conference platform. For updates on how the meetings will be held and instructions for joining the meetings, visit the ACTPCMD website at
Shane Rogers, Designated Federal Officer, Division of Medicine and Dentistry, Bureau of Health Workforce, Health Resources and Services Administration, 5600 Fishers Lane, Room 15N102, Rockville, Maryland 20857; 301-443-5260; or
ACTPCMD provides advice and recommendations to the Secretary of Health and Human Services on policy, program development, and other matters of significance concerning the activities under section 747 of title VII of the Public Health Service (PHS) Act, as it existed upon the enactment of section 749 of the PHS Act in 1998. ACTPCMD prepares an annual report describing the activities of the committee, including findings and recommendations made by the committee concerning the activities under section 747, as well as training programs in oral health and dentistry. The annual report is submitted to the Secretary of Health and Human Services as well as the Chair and ranking members of the Senate Committee on Health, Education, Labor and Pensions and the House of Representatives Committee on Energy and Commerce. ACTPCMD also develops, publishes, and implements performance measures and guidelines for longitudinal evaluations of programs authorized under title VII, part C of the PHS Act, and recommends appropriation levels for programs under this part.
Since priorities dictate meeting times, be advised that start times, end times, and agenda items are subject to change. For CY 2024 meetings, agenda items may include, but are not limited to, upskilling clinicians to serve in underserved areas; diversity, equity, and inclusion; integrated medical and dental training models; and matters pertaining to policy, program development, and other matters of significance concerning medicine and dentistry activities authorized under the relevant sections of the PHS Act. Refer to the ACTPCMD website listed above for all current and updated information concerning the CY 2024 ACTPCMD meetings. Agendas and meeting materials will be posted 30 calendar days before the meeting.
Members of the public will have the opportunity to provide comments. Public participants may submit written statements in advance of the scheduled meeting(s). Oral comments will be honored in the order they are requested and may be limited as time allows. Requests to submit a written statement or make oral comments to ACTPCMD should be sent to Shane Rogers using the contact information above at least 5 business days before the meeting date(s).
Individuals who need special assistance or another reasonable accommodation should notify Shane Rogers using the contact information listed above at least 10 business days before the meeting(s) they wish to attend. Since all in-person meetings will occur in a federal government building, attendees must go through a security check to enter the building. Members of the public must notify Shane Rogers of their intent to attend the in-person meeting 10 business days before the meeting. Non-U.S. Citizen attendees must notify the Designated Federal Officer of their planned attendance at least 20 business days prior to the meeting to facilitate their entry into the building. All attendees are required to present government-issued identification prior to entry.
Health Resources and Services Administration, Department of Health and Human Services.
Notice.
In accordance with the Federal Advisory Committee Act, this notice announces that the National Advisory Council on the National Health Service Corps (NACNHSC) will hold public meetings for the 2024 calendar year (CY). Information about NACNHSC, agendas, and materials for these meetings can be found on the NACNHSC website at
NACNHSC meetings will be on (all in Eastern Time):
• March 19, 2024, 9 a.m.-5 p.m. and March 20, 2024, 9 a.m.-2 p.m.;
• June 25, 2024, 9 a.m.-5 p.m. and June 26, 2024, 9 a.m.-2 p.m.; and
• November 19, 2024, 9 a.m.-5 p.m. and November 20, 2024, 9 a.m.-2 p.m.
Meetings may be held in person, by teleconference, and/or video conference. In-person meetings will be held at 5600 Fishers Lane, Rockville, Maryland 20857. For updates on how the meeting will be held and instructions for joining the meeting, visit the NACNHSC website at
Diane Fabiyi-King, Designated Federal Official, Division of National Health Service Corps, HRSA, 5600 Fishers Lane, Rockville, Maryland 20857; phone (301) 443-3609; or
NACNHSC consults with, advises, and makes recommendations to the Secretary of Health and Human Services with respect to the Secretary's
Since priorities dictate meeting times, be advised that start times, end times, and agenda items are subject to change. For CY 2024 meetings, agenda items may include, but are not limited to, the identification of NHSC priorities for future program issues and concerns; proposed policy changes by using the varying levels of expertise represented on the NACNHSC to advise on specific program areas; updates from clinician workforce experts; and education and practice improvement in the training development of primary care clinicians. More general items may include presentations and discussions on the current and emerging needs of the health workforce, public health priorities, health care access and evaluation, NHSC-approved sites, HRSA priorities, and other federal health workforce and education programs that impact the NHSC. Refer to the NACNHSC website listed above for all current and updated information concerning the CY 2024 NACNHSC meetings. Agendas and meeting materials will be posted 30 calendar days before the meeting.
Members of the public will have the opportunity to provide comments. Public participants may submit written statements in advance of the scheduled meeting(s). Oral comments will be honored in the order they are requested and may be limited as time allows. Requests to submit a written statement or make oral comments to NACNHSC should be sent to Diane Fabiyi-King using the contact information above at least 5 business days before the meeting date(s).
Individuals who need special assistance or another reasonable accommodation should notify Diane Fabiyi-King using the contact information listed above at least 10 business days before the meeting(s) they wish to attend. In-person meetings will occur in a federal government building, and attendees must go through a security check to enter the building. Non-U.S. Citizen attendees must notify Diane Fabiyi-King of their planned attendance at an in-person meeting at least 20 business days prior to the meeting to facilitate their entry into the building. All attendees are required to present government-issued identification prior to entry.
Health Resources and Services Administration (HRSA), Department of Health and Human Services.
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 January 16, 2024.
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 Joella Roland, the HRSA Information Collection Clearance Officer, at
1. The State Maternal Health Innovation Program,
2. The Alliance for Innovation on Maternal Health Program,
3. The Alliance for Innovation on Maternal Health—Community Care Initiative,
4. The Rural Maternity and Obstetrics Management Strategies Program, and
5. The Supporting Maternal Health Innovation Program.
HRSA's Maternal and Child Health Bureau is conducting a portfolio-wide evaluation of HRSA-supported maternal health programs with a primary focus on reducing maternal mortality. Through this evaluation, HRSA seeks to identify individual and/or collective strategies, interrelated activities, and common themes within and across the maternal health programs that may be contributing to or driving improvements in key maternal health outcomes. HRSA seeks to ascertain which components should be elevated and replicated to the national level, as well as inform future investments to reduce rates of maternal mortality and severe maternal morbidity.
A 60-day notice published in the
Pursuant to section 1009 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 1009 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 1009 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.
This meeting is to evaluate an application that needed to be deferred from a prior review meeting. The timing of that deferral and the need to have this review completed in the same council round has resulted in an accelerated timeline.
This is a review meeting for 3 deferred applications from this council round. The applications could not be discussed at the original meeting because one of the assigned reviewers was not present.
U.S. Customs and Border Protection; U.S Department of Homeland Security.
General notice.
U.S. Customs and Border Protection (CBP) is conducting a test to allow for the payment of certain commercial vessel taxes and fees with electronic methods, including credit cards. Payment can be made through the existing Mobile Collections & Receipts (MCR) system's payment portal at eCBP (
The test will begin no earlier than January 16, 2024 and will continue for two years. Comments concerning this notice and all aspects of the test may be submitted at any time during the test to the address set forth below.
Written comments concerning any aspect of the test should be submitted to the CBP Revenue Modernization Office at
Clint Kiehl, Rev Mod Program Manager, Office of Finance, U.S. Customs and Border Protection, via email at
U.S. Customs and Border Protection (CBP) is committed to modernizing the payment and processing of various taxes and fees paid by the public. In furtherance of this goal, CBP developed the Mobile Collections & Receipts (MCR) system.
The MCR system also allows the public to pay applicable taxes and fees through electronic methods, such as online or through Europay, Mastercard and Visa (EMV) card readers, which enables contactless payments through various methods, including credit cards and digital wallets. For online payment, MCR's public-facing payment website is located at the eCBP portal (
The MCR system largely replaced what is a paper-based, manual, and burdensome process for the calculation and processing of payments. Under the manual process, CBP officers (CBPOs) and other authorized CBP employees are required to manually calculate the amount due for a particular transaction, manually complete a paper version of CBP Forms 368 and 1002 (if applicable), and manually enter the payment information in CBP's systems after collecting payment.
Phase One of the MCR test, the Mobile Collections and Receipts (MCR) Pilot, was announced on December 8, 2017, in the
The 2017 MCR Pilot was limited to commercial vessels arriving at one of four designated ports of entry: Los Angeles-Long Beach, California; New Orleans, Louisiana; Gulfport, Mississippi; and, Mobile, Alabama.
CBP is now able to accept online payments and is implementing Phase Two of the MCR test, which will authorize entities to pay commercial vessel taxes and fees online, in order to allow these entities to fully benefit from the efficiencies of the MCR system.
CBP regulations currently restrict the payment methods available for various taxes and fees. For example, in general, CBP will accept payment of Customs duties, taxes, fees, interest, and other charges with cash or check only.
Phase Two of the MCR test will allow CBP to test the feasibility of accepting electronic payment options for five categories of commercial vessel taxes and fees that cannot be paid electronically under CBP's current regulations. The five categories of commercial vessel taxes and fees are: tonnage tax (regular and special) and light money (19 CFR 4.20), Consolidated Omnibus Budget Reconciliation Act (COBRA) user fees (19 CFR 24.22(b)), Agriculture Quarantine and Inspection (AQI) fees (7 CFR 354.3(b)), and navigation fees (19 CFR 4.98). By CBP's allowing for electronic payments of these commercial vessel taxes and fees, vessel owners/operators and vessel agents will be able to take full advantage of the MCR system. This will provide numerous benefits for CBP and the trade. For example, the MCR system reduces the number of mistakes in the calculation of taxes and fees due because the MCR system can implement any changes to the fee calculations quickly and efficiently for all ports. Additionally, the MCR system eliminates the need for CBP employees to manually enter information into CBP's systems or to perform other tasks necessary to maintain the security or inventory of the paper versions of CBP Forms 368 and 1002. This enables CBP employees to spend less time on administrative tasks and more time focusing on higher priority mission support activities.
Phase Two of the MCR test will allow for the electronic payment of certain vessel maritime taxes and fees for commercial vessels. Payment through electronic methods will be voluntary and CBP will continue to accept cash or check payments consistent with current requirements and practice. The collection of payments under Phase Two will operate largely the same as described in the initial 2017 MCR Pilot, except that Phase Two will allow for electronic payments for vessels arriving at any maritime port of entry (as opposed to the four ports of entry designated in the 2017 MCR Pilot) and will include online payments and using an EMV card reader at the port. Details of Phase Two of the MCR test are provided below.
Any commercial vessel agent or other entity responsible for payment of commercial vessel taxes and fees may participate in the test. No application is required to participate. However, in order to receive notification emails from the MCR system, a commercial vessel agent or other entity submitting payment must register an email address with the CBPO or other authorized CBP employee processing the vessel arrival in the MCR system. When a commercial vessel arrives at a port of entry, the vessel's agent or other entity wishing to receive email notifications or receive the electronic Form 368/1002 will be able to confirm any email addresses with an authorized CBP employee and provide additional email addresses for receipt of electronic receipts.
Phase Two allows for the electronic payment of the following commercial vessel taxes and fees: tonnage tax (regular and special) and light money (19 CFR 4.20), Consolidated Omnibus Budget Reconciliation Act (COBRA) user fees (19 CFR 24.22(b)), Agriculture Quarantine and Inspection (AQI) fees (7 CFR 354.3(b)), and navigation fees (19 CFR 4.98).
Additionally, CBPOs and other authorized CBP employees, at the time of inspection, will have the option to
CBP may further expand the MCR test in the future to allow for the electronic payment of additional commercial taxes and fees. Any expansion of Phase Two of the MCR test will be announced in the
The MCR system will automatically identify the commercial vessels that are due to arrive at the designated ports of entry. The CBPO or other authorized CBP employee will use the MCR system to then determine whether the arrival information submitted to CBP through approved electronic data interchange systems is sufficient to calculate the applicable maritime taxes and fees due for each commercial vessel. If there is not sufficient information, the CBPO or other authorized CBP employee can obtain the necessary information at the time of inspection or payment.
Once the CBPO has sufficient information, the vessel agent or carrier will be asked whether the agent or carrier wants to pay online or with the EMV card reader, which accepts various forms of payment, including credit cards and digital wallet payments at the point of collection. If online payment is selected, CBP will send a notification email to the relevant carrier or vessel agent at the email address they registered with eCBP. The notification email will state that the applicable taxes and fees have been calculated for a specific commercial vessel and payment can now be made on the eCBP payment portal. The entity responsible for payment will then have the opportunity to log on to the MCR system's customer-facing eCBP payment portal, review the calculated amount of taxes and fees due, and, through eCBP's interface with
After payment is accepted, the MCR system will send an electronic Form 368/1002 to the email address/addresses provided by the entity that made the payment. Electronic payments will be accepted up to the time the vessel is cleared by CBP. Payments required for CBP clearance must be made before clearance is granted. In all situations, CBPOs and other authorized CBP employees will have the ability to review, amend, or add data as needed to accurately calculate applicable taxes and fees prior to entering or clearing a vessel.
Payment though electronic methods, including credit cards, is voluntary. Throughout the test, commercial vessel agents and other entities responsible for payment for commercial vessel taxes and fees will continue to be able to pay by cash or check in accordance with current requirements. CBP will provide the electronic Form 368/1002 as a receipt for all payments made by test participants, regardless of whether payment was made in person by cash or check, online, or in-person using a card reader. However, the port office will provide paper copies of electronic Form 368/1002 upon request.
This test will not affect the amount of taxes and fees due or the requirement that all applicable fees must be paid prior to CBP issuing a clearance certificate. Additionally, vessel operators will continue to be required to present paper copies of Forms 368 and 1002 as proof of payment at subsequent ports and entries. This means that vessel owners/operators must print out the electronic Form 368/1002 to present it to CBP.
Phase Two of the MCR test allows for electronic payments for commercial vessels arriving at any of the U.S. maritime ports of entry.
The test will begin no earlier than January 16, 2024 and will continue for two years.
CBP will ensure that all Privacy Act requirements and applicable policies are adhered to during the implementation of this test.
The Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3507(d)) requires that CBP consider the impact of paperwork and other information collection burdens imposed on the public. An agency may not conduct, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number assigned by the Office of Management and Budget. There is no information collection associated with this test, so the provisions of the PRA do not apply.
This test is being conducted in accordance with 19 CFR 101.9(a), which authorizes the Commissioner to impose requirements different from those specified in the CBP regulations for the purposes of conducting a test program or procedure designed to evaluate the effectiveness of new technology or operational procedures regarding the processing of passengers, vessels, or merchandise. Consequently, the regulatory provisions set forth in chapter 1 of title 19 of the CFR will be suspended to the extent that they conflict with the terms of this test. Such regulatory suspension will remain in effect for the duration of this test and will only apply to test participants; the regulatory provisions remain in effect for all non-test participants.
As explained above, for participants in this test, CBP will waive the requirements to pay commercial vessel taxes and fees with cash or check, as required by 19 CFR 24.1, at the time of arrival or when the applicable service is provided, if the participant has paid all applicable taxes and fees electronically pursuant the procedures of this test and prior to the time the vessel is cleared by CBP. The test also permits CBPOs to process the payment of over $100 made by check, money order, online, or through the EMV card reader without
Federal Emergency Management Agency, Department of Homeland Security.
Notice.
This notice lists communities where the addition or modification of Base Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, or the regulatory floodway (hereinafter referred to as flood hazard determinations), as shown on the Flood Insurance Rate Maps (FIRMs), and where applicable, in the supporting Flood Insurance Study (FIS) reports, prepared by the Federal Emergency Management Agency (FEMA) for each community, is appropriate because of new scientific or technical data. The FIRM, and where applicable, portions of the FIS report, have been revised to reflect these flood hazard determinations through issuance of a Letter of Map Revision (LOMR), in accordance with Federal Regulations. The currently effective community number is shown in the table below and must be used for all new policies and renewals.
These flood hazard determinations will be finalized on the dates listed in the table below and revise the FIRM panels and FIS report in effect prior to this determination for the listed communities.
From the date of the second publication of notification of these changes in a newspaper of local circulation, any person has 90 days in which to request through the community that the Deputy Associate Administrator for Insurance and Mitigation reconsider the changes. The flood hazard determination information may be changed during the 90-day period.
The affected communities are listed in the table below. Revised flood hazard information for each community is available for inspection at both the online location and the respective community map repository address listed in the table below. Additionally, the current effective FIRM and FIS report for each community are accessible online through the FEMA Map Service Center at
Submit comments and/or appeals to the Chief Executive Officer of the community as listed in the table below.
Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
The specific flood hazard determinations are not described for each community in this notice. However, the online location and local community map repository address where the flood hazard determination information is available for inspection is provided.
Any request for reconsideration of flood hazard determinations must be submitted to the Chief Executive Officer of the community as listed in the table below.
The modifications are made pursuant to section 201 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001
The FIRM and FIS report are the basis of the floodplain management measures that the community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in the National Flood Insurance Program (NFIP).
These flood hazard determinations, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any existing ordinances that are more stringent in their floodplain management requirements. The community may at any time enact stricter requirements of its own or pursuant to policies established by other Federal, State, or regional entities. The flood hazard determinations are in accordance with 44 CFR 65.4.
The affected communities are listed in the following table. Flood hazard determination information for each community is available for inspection at both the online location and the respective community map repository address listed in the table below. Additionally, the current effective FIRM and FIS report for each community are accessible online through the FEMA Map Service Center at
Federal Emergency Management Agency, Department of Homeland Security.
Notice.
This notice lists communities where the addition or modification of Base Flood Elevations (BFEs), base flood depths, Special Flood Hazard Area (SFHA) boundaries or zone designations, or the regulatory floodway (hereinafter referred to as flood hazard determinations), as shown on the Flood Insurance Rate Maps (FIRMs), and where applicable, in the supporting Flood Insurance Study (FIS) reports, prepared by the Federal Emergency Management Agency (FEMA) for each community, is appropriate because of new scientific or technical data. The FIRM, and where applicable, portions of the FIS report, have been revised to reflect these flood hazard determinations through issuance of a Letter of Map Revision (LOMR), in accordance with Federal Regulations. The currently effective community number is shown in the table below and must be used for all new policies and renewals.
These flood hazard determinations will be finalized on the dates listed in the table below and revise the FIRM panels and FIS report in effect prior to this determination for the listed communities.
From the date of the second publication of notification of these changes in a newspaper of local circulation, any person has 90 days in which to request through the community that the Deputy Associate Administrator for Insurance and Mitigation reconsider the changes. The flood hazard determination information may be changed during the 90-day period.
The affected communities are listed in the table below. Revised flood hazard information for each community is available for inspection at both the online location and the respective community map repository address listed in the table below. Additionally, the current effective FIRM and FIS report for each community are accessible online through the FEMA Map Service Center at
Submit comments and/or appeals to the Chief Executive Officer of the community as listed in the table below.
Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
The specific flood hazard determinations are not described for each community in this notice. However, the online location and local community map repository address where the flood hazard determination information is available for inspection is provided.
Any request for reconsideration of flood hazard determinations must be submitted to the Chief Executive Officer of the community as listed in the table below.
The modifications are made pursuant to section 201 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4105, and are in accordance with the National Flood Insurance Act of 1968, 42 U.S.C. 4001
The FIRM and FIS report are the basis of the floodplain management measures that the community is required either to adopt or to show evidence of having in effect in order to qualify or remain qualified for participation in the National Flood Insurance Program (NFIP).
These flood hazard determinations, together with the floodplain management criteria required by 44 CFR 60.3, are the minimum that are required. They should not be construed to mean that the community must change any
The affected communities are listed in the following table. Flood hazard determination information for each community is available for inspection at both the online location and the respective community map repository address listed in the table below. Additionally, the current effective FIRM and FIS report for each community are accessible online through the FEMA Map Service Center at
U.S. Citizenship and Immigration Services, Department of Homeland Security.
60-Day notice.
The Department of Homeland Security (DHS), U.S. Citizenship and Immigration (USCIS) invites the general public and other Federal agencies to comment upon this proposed extension of a currently approved collection of information. In accordance with the Paperwork Reduction Act (PRA) of 1995, the information collection notice is published in the
Comments are encouraged and will be accepted for 60 days until February 13, 2024.
All submissions received must include the OMB Control Number 1615-0106 in the body of the letter, the agency name and Docket ID USCIS-2009-0010. Comments must be submitted in English, or an English translation must be provided. Submit comments via the Federal eRulemaking Portal website at
USCIS, Office of Policy and Strategy, Regulatory Coordination Division, Samantha Deshommes, Chief, telephone number (240) 721-3000 (This is not a toll-free number. Comments are not accepted via telephone message). Please note contact information provided here is solely for questions regarding this notice. It is not for individual case status inquiries. Applicants seeking information about the status of their individual cases can check Case Status Online, available at the USCIS website at
You may access the information collection instrument with instructions, or additional information by visiting the Federal eRulemaking Portal site at:
Written comments and suggestions from the public and affected agencies should address one or more of the following four points:
(1) 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;
(2) 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;
(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 through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
(1)
(2)
(3)
(4)
(5)
(6)
(7)
U.S. Citizenship and Immigration Services, Department of Homeland Security.
60-Day notice.
The Department of Homeland Security (DHS), U.S. Citizenship and Immigration
(USCIS) invites the general public and other Federal agencies to comment upon this proposed extension of a currently approved collection of information. In accordance with the Paperwork Reduction Act (PRA) of 1995, the information collection notice is published in the
Comments are encouraged and will be accepted for 60 days until February 13, 2024.
All submissions received must include the OMB Control Number 1615-0135 in the body of the letter, the agency name and Docket ID USCIS-2015-0004. Comments must be submitted in English, or an English translation must be provided. Submit comments via the Federal eRulemaking Portal website at
USCIS, Office of Policy and Strategy, Regulatory Coordination Division, Samantha Deshommes, Chief, telephone number (240) 721-3000 (This is not a toll-free number. Comments are not accepted via telephone message). Please note contact information provided here is solely for questions regarding this notice. It is not for individual case status inquiries. Applicants seeking information about the status of their individual cases can check Case Status Online, available at the USCIS website at
You may access the information collection instrument with instructions, or additional information by visiting the Federal eRulemaking Portal site at:
Written comments and suggestions from the public and affected agencies should address one or more of the following four points:
(1) 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;
(2) 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;
(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 through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Office of the Assistant Secretary for Public and Indian Housing (PIH), HUD.
Notice.
HUD is seeking approval from the Office of Management and Budget (OMB) for the information collection described below. In accordance with the Paperwork Reduction Act, HUD is requesting comment from all interested parties on the proposed collection of information. The purpose of this notice is to allow for 60 days of public comment.
Interested persons are invited to submit comments regarding this proposal. Written comments and recommendations for the proposed information collection can be submitted within 60 days of publication of this notice to
Danielle Miller, Department of Housing and Urban Development, 451 7th Street SW, Washington, DC 20410, telephone 202-402-3689. This is not a toll-free number. HUD welcomes and is prepared to receive calls from individuals who are deaf or hard of hearing, as well as individuals with speech or communication disabilities. To learn more about how to make an accessible telephone call, please visit
This notice informs the public that HUD is seeking approval from OMB for the information collection described in Section A.
The Standard MTW Agreement was developed in 2007 and was transmitted to the existing MTW agencies in January 2008. As additional MTW PHAs were selected they too were provided with the Standard MTW Agreement. 39 MTW PHAs (known as the “Initial” MTW PHAs) currently operate under this agreement. In 2016, HUD extended the term of the Standard Agreement to the end of each agency's 2028 Fiscal Year (FY).
The HUD Form 50900 is a required element as part of the Standard MTW Agreement and contains important information regarding the MTW PHA's upcoming FY activities and a retrospective look back at the MTW PHA's preceding FY. HUD collects the information in this form in order to evaluate the impacts of MTW activities, accurately and timely respond to congressional and other inquiries regarding outcome measures, and identify promising practices learned through the MTW demonstration.
Revisions are being made to the HUD Form 50900 to reduce the reporting and administrative burden on MTW PHAs. All standard metrics within the HUD Form 50900 that were previously required for MTW activities will be eliminated, though they will remain optional for MTW PHAs to report. In addition to eliminating previously required standard metrics, MTW PHAs will now have the option to share an annual narrative, self-reported PHA data, and participant success stories. In lieu of the agency-reported standard metrics, HUD will pull data already reported by the agencies through required HUD systems. This will reduce burden on the agencies.
Through the Annual MTW Plan and Report, each MTW PHA will continue to inform HUD, its residents and the public of the PHA's mission for serving the needs of low-income and very low-income families, and the PHA's strategy for addressing those needs. The Annual MTW Plan, like the Annual PHA Plan, provides an easily identifiable source by which residents, participants in tenant-based programs, and other members of the public may locate policies, rules, and requirements concerning the PHA's operations, programs, and services.
The appropriations act in 2016 authorized an additional 100 MTW slots
This notice is soliciting comments from members of the public and affected parties concerning the collection of information described in Section A on the following:
(1) 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;
(2) The accuracy of the agency's estimate of the burden of the proposed collection of information;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) Ways to minimize the burden of the collection of information on those who are to respond; including annual reporting based on the activities performance as related to the MTW program statutory objectives and through the use of appropriate automated collection techniques or other forms of information technology,
Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35.
Bureau of Indian Affairs, Interior.
Notice.
This notice announces the extension of the Class III gaming compacts between two Tribes in California and the State of California.
The extension takes effect on December 15, 2023.
Ms. Paula L. Hart, Director, Office of Indian Gaming, Office of the Assistant Secretary—Indian Affairs, Washington, DC 20240,
An extension to an existing Tribal-State Class III gaming compact does not require approval by the Secretary if the extension does not modify any other terms of the compact. 25 CFR 293.5. The
Bureau of Land Management, Interior.
Notice of availability.
In compliance with the National Environmental Policy Act of 1969, as amended (NEPA), and the Federal Land Policy and Management Act of 1976, as amended (FLPMA), the Bureau of Land Management (BLM) announces the availability of the Draft ANCSA 17(d)(1) Withdrawals Environmental Impact Statement.
To afford the BLM the opportunity to consider comments in the Final EIS, please ensure that the BLM receives your comments within 60 days following the date the Environmental Protection Agency (EPA) publishes its Notice of Availability (NOA) of the Draft EIS in the
The Draft EIS is available for review on the BLM ePlanning project website at
Written comments related to the Draft ANCSA 17(d)(1) Withdrawals EIS may be submitted by any of the following methods:
•
•
•
Documents pertinent to this proposal may be examined online at
Racheal Jones, BLM Project Manager, telephone (907) 290-0307; address ANCSA 17(d)(1) EIS, BLM Anchorage District Office, Attn: Racheal Jones, 4700 BLM Road. Anchorage, Alaska 99507; email
Full or partial revocation of the ANCSA 17(d)(1) withdrawals may result in changes to land use that could affect local residents, wildlife, vegetation, cultural resources, subsistence, and recreation across up to 28 million acres of BLM-administered land in Alaska.
The input of Alaska Native Tribes and Corporations is of critical importance to this EIS. Therefore, during the NEPA process, the BLM will continue to consult with potentially affected Tribal Nations on a government-to-government basis, and with affected Alaska Native Corporations in accordance with Executive Order 13175, as well as Public Law 108-199, Div. H, sec. 161, 118 Stat. 452, as amended by Public Law 108-447, Div. H, sec. 518, 118 Stat. 3267, and other Department and Bureau policies. The BLM respectfully requests participation in consultation by Alaska Native Tribes and Alaska Native Corporations to provide their views and recommendations on the analysis, including effects from the proposed activities. The BLM will hold individual consultation meetings upon request.
It is important that reviewers provide their comments at such times and in such manner as are useful to the agency's preparation of the Final EIS. Therefore, comments should be provided prior to the close of the comment period and should clearly articulate the reviewer's concerns and contentions.
Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
Bureau of Land Management, Fish and Wildlife Service, Interior.
Notice of Intent; correction.
This notice corrects the scoping comment period of the Notice of Intent to Prepare a Supplemental Environmental Impact Statement to Reconsider a Highway Right-of-Way Application and Associated Amendment of an Incidental Take Permit, Washington County, Utah, published in the
Dawna Ferris-Rowley, NCA Manager, Red Cliffs and Beaver Dam Wash NCAs, telephone (435) 688-3200; address 345 East Riverside Drive, St. George, UT 84790; email
In the
National Park Service, Interior.
Notice of Information Collection; request for comment.
In accordance with the Paperwork Reduction Act of 1995, we, the National Park Service (NPS) are proposing a new information collection.
Interested persons are invited to submit your comment on or before February 13, 2024.
Please provide a copy of your comments to the NPS Information Collection Clearance Officer (ADIR-ICCO), 13461 Sunrise Valley Drive (MS-244) Reston, VA 20192 (mail); or
To request additional information about
In accordance with the Paperwork Reduction Act of 1995 (PRA, 44 U.S.C. 3501
As part of our continuing effort to reduce paperwork and respondent burdens, we invite the public and other Federal agencies to comment on new, proposed, revised, and continuing collections of information. This helps us assess the impact of our information collection requirements and minimize the public's reporting burden. It also helps the public understand our information collection requirements and provide the requested data in the desired format.
We are especially interested in public comment addressing the following:
(1) Whether or not the collection of information is necessary for the proper performance of the functions of the agency, including whether or not the information will have practical utility;
(2) The accuracy of our estimate of the burden for this collection of information, including the validity of the methodology and assumptions used;
(3) Ways to enhance the quality, utility, and clarity of the information to be collected; and
(4) How might the agency 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 that you submit in response to this notice are a matter of public record. We will include or summarize each comment in our request to OMB to approve this ICR. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so.
Creel surveys are a common fishery management technique designed to determine the angler's catch of each species and the fishing time required to catch the fish. The information collected describes angler use, fishing pressure, fish harvest, and distribution of several important species of fish.
An agency may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.
The authority for this action is the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Bureau of Ocean Energy Management, Interior.
Notice of availability; final environmental impact statement.
The Bureau of Ocean Energy Management (BOEM) announces the availability of the final environmental impact statement (FEIS) on Sunrise Wind, LLC's (Sunrise Wind) construction and operations plan (COP) for its proposed Sunrise Wind Farm Project (Project) offshore New York, Massachusetts, and Rhode Island. The FEIS analyzes the potential environmental impacts of the Project as described in the COP (the proposed action) and the alternatives to the proposed action, including the no action alternative. The FEIS will inform BOEM's decision whether to approve, approve with modifications, or disapprove the COP.
The FEIS and detailed information about the Project, including the COP, can be found on BOEM's website at:
Jessica Stromberg, BOEM Office of Renewable Energy Programs, 45600 Woodland Road, Sterling, Virginia 20166, (703) 787-1730 or
The Project as proposed in the COP would include up to 94 wind turbine generators (WTGs) within 102 potential locations, one offshore converter station, inter-array cables linking the individual WTGs to the offshore substation, one offshore export cable, one onshore converter station, one fiber optic cable co-located with the onshore transmission route, and onshore interconnection cables connecting to the existing electrical grid in New York. The WTGs, offshore substation, and inter-array cables would be located on the OCS approximately 16.4 nautical miles (nm) (18.9 statute miles (mi)) south of Martha's Vineyard, Massachusetts, approximately 26.5 nm (30.5 mi) east of Montauk, New York, and 14.5 nm (16.7 mi) from Block Island, Rhode Island, within the area defined by Renewable Energy Lease OCS-A 0487. The offshore export cables would be buried below the seabed surface on the U.S. OCS and State of New York-owned submerged lands. The onshore export cables, substation, and grid connection would be located in Holbrook, New York.
United States International Trade Commission.
Schedule for 2024 report and opportunity to submit information.
The Commission has prepared and published annual reports in this series since 1996 under the investigation title
All Commission offices, including the Commission's hearing rooms, are located in the U.S. International Trade Commission Building, 500 E Street SW, Washington, DC. All written submissions should be addressed to the Secretary, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. The public record for this investigation may be viewed on the Commission's electronic docket information system (EDIS) at
Information specific to this investigation may be obtained from George Serletis, Project Leader, Office of Industry and Competitiveness Analysis, Services Division (202-205-3315;
The initial notice of institution of this series of investigations was published in the
The Commission intends to prepare only a public report in this investigation. The report that the Commission makes available to the public will not contain CBI. However, all information, including CBI, submitted in this investigation may be disclosed to and used: (i) by the Commission, its employees and Offices, and contract personnel (a) for developing or maintaining the records of this or a related proceeding, or (b) in internal investigations, audits, reviews, and evaluations relating to the programs, personnel, and operations of the Commission including under 5 U.S.C. appendix 3; or (ii) by U.S. Government employees and contract personnel for cybersecurity or other security purposes. The Commission will not otherwise disclose any CBI in a manner that would reveal the operations of the firm supplying the information.
By order of the Commission.
Notice is hereby given that, on October 3, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and RISE intends to file additional written notifications disclosing all changes in membership.
On July 2, 2021, RISE filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 7, 2023. A notice was published in the
Notice is hereby given that, on October 9, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Bowler Pons Solutions Consultants LLC, Annapolis, MD; BlackSky Geospatial Solutions, Inc., Herndon, VA; Kemp Proteins LLC, Frederick, MD; KRI at Northeastern University LLC, Burlington, MA; Peerless Technologies Corp., Fairborn, OH; Resilience Government Services, Inc., Alachua, FL; and Tetramer Technologies LLC, Pendleton, SC have been added as parties to this venture.
Also, Decon7 Systems LLC, Scottsdale, AZ; Fire Safety International, Inc., Sheffield Lake, OH; Firefly Photonics LLC, Coralville, IA; Luna Labs USA LLC, Charlottesville, VA; Paratek Pharmaceuticals, King of Prussia, PA; Quantitative Scientific Solutions LLC, Arlington, VA; Re:Build CR LLC, Rock Hill, SC; Saint-Gobain Crystals, Hiram, OH; Shipcom Federal Solutions LLC, Arlington, VA; and Veritech LLC, Glendale, AZ have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and CWMD intends to file additional written notifications disclosing all changes in membership.
On January 31, 2018, CWMD filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 10, 2023. A notice was published in the
Notice is hereby given that, on October 5, 2023, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and SHIC intends to file additional written notifications disclosing all changes in membership.
On November 02, 2022, SHIC filed its original notification pursuant to Section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 11, 2023. A notice was published in the
Notice is hereby given that, on August 30, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Crown Castle Fiber LLC, Houston, TX; and DartPoints Operating Company LLC, Greenville, SC, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and OGA intends to file additional written notifications disclosing all changes in membership.
On March 31, 2022, OGA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on June 16, 2023. A notice was published in the
Notice is hereby given that, on August 29, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and EVESE intends to file additional written notifications disclosing all changes in membership.
On September 24, 2020, EVESE filed its original notification pursuant to section6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on June 15, 2023. A notice was published in the
Notice is hereby given that, on October 10, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Altio Labs LLC, Frisco, TX; Amazon Web Services Seattle, WA; Anactisis LLC, Pittsburgh, PA; Applied Technology Solutions, Inc., Huntsville, AL; Castelion Corporation, El Segundo, CA; Concordia Technologies, Inc. Huntsville, AL; Critical Communications, Controls and Instruments, LLC dba C3I, Exeter, NH; Dayton T. Brown, Bohemia, NY; DRS Training & Control Systems, LLC, Fort Walton Beach, FL; E.O. Solutions LLC, Kula, HI; Global Tungsten and Powders Corp., Towanda, PA; Goldbelt Hawk LLC, Newport News, VA; Lightforce USA, Inc. dba Nightforce Optics, Orofino, ID; Lynas USA LLC, San Antonio, TX; MetalTek International, Waukesha, WI; MP Mine Operations LLC, Mountain Pass, CA; Northrop Grumman Advanced Weapons Business Unit (AWBU), Northridge, CA; NWI Defense LLC, Albany, OR; OToole Tek, LLC, Rocky Hill, CT; Poplicus, Inc., Arlington, VA; Powdermet, Inc., Euclid, OH; PR Tactical Corporation Incorporated, Pearland, TX; Royce Geospatial Consultants, Arlington, VA; Safety Management Services, Inc., West Jordan, UT; SCHOTT North America, Duryea, PA; Sentenai Inc., Cambridge, MA; SIG SAUER, Inc., Newington, NH; SPAARK, Inc., Chambersburg, PA; TeraSense, Inc., Baltimore, MD; The Barnes Global Advisors, Sewickley, PA; Triverus, LLC, Palmer, AK; VideoRay, LLC, Pottstown, VA; Winkelmann Flowform Technology, LP, Auburn, AL; and Wyzkyds Consulting, LLC, Tucson, AZ have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and NAC intends to file additional written notifications disclosing all changes in membership.
On May 2, 2000, NAC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 7, 2023. A notice was published in the
Notice is hereby given that, on October 26, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and AIIA intends to file additional written notifications disclosing all changes in membership.
On January 5, 2022, AIIA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 3, 2023. A notice was published in the
Notice is hereby given that, on October 17, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and DSAA intends to file additional written notifications disclosing all changes in membership.
On August 1, 2023, DSAA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
Notice is hereby given that, on October 13, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, the following members have changed their names: T-Mobile Netherlands BV to Odido Netherlands B.V., Den Haag, NETHERLANDS; Telekom Malaysia Berhad (TM) to TM Technology Services Sdn Bhd, Kuala Lumpur, MALAYSIA; StarHub to StarHub Ltd, Singapore, SINGAPORE; Epam Systems, Inc. to Epam Systems Ltd, Newtown, PA; Claro El Salvador to Claro El Salvador (CTE Telecom Personal, SA de CV), San Salvador, EL SALVADOR; Indra Brasil to Minsait Brasil LTDA, São Paulo, BRAZIL; Kratos RT Logic, Inc. to Kratos, Colorado Springs, CO; ITgma DOO Skopje to ITgma, Skopje, MACEDONIA.
In addition, the following parties have withdrawn as parties to this venture: Alepo Technologies Inc, Austin, TX; Celcom Axiata Berhad, Kuala Lumpur, MALAYSIA; Circles Life Asia Technology Pte. Ltd., Singapore, SINGAPORE; Civity, Zeist, THE NETHERLANDS; Dotlines Pte Ltd., Singapore, SINGAPORE; Fibrasil infraestrutura e fibra otica S.A., São Paulo, BRAZIL; KCOM Group Limited, Hull, UK; Nae Costa Rica Business and Services S.R.L, San Jose, COSTA RICA; Nexign, St.Petersburg, RUSSIA; Shaanxi Fast Gear Co., LTD, Xi'an, CHINA; Soaint Peru SAC, Lima, PERU; TIBCO Software Inc., Palo Alto, CA; Universidad Argentina de la Empresa, Ciudad Autonoma de Buenos Aires, ARGENTINA; Universitat der Bundeswehr, Neubiberg, GERMANY; University of Bonn, Bonn, GERMANY; VETRO FiberMap, Portland, ME; VMware, Inc., Palo Alto, CA.
No other changes have been made to either the membership or planned activity of the group research project. Membership in this group research project remains open, and The Forum intends to file additional written notifications disclosing all changes in membership.
On October 21, 1988, The Forum filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 13, 2023. A notice was published in the
Notice is hereby given that, on October 2, 2023, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Bionica Labs LLC, Richmond, VA, has withdrawn as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and MTEC intends to file additional written notifications disclosing all changes in membership.
On May 9, 2014, MTEC filed its original notification pursuant to Section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 5, 2023. A notice was published in the
Notice is hereby given that, on September 28, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and Open Source Imaging Consortium intends to file additional written notifications disclosing all changes in membership.
On March 20, 2019, Open Source Imaging Consortium filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on May 23, 2023. A notice was published in the
Notice is hereby given that, on November 1, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Institute of Digital Guangdong, Guangzhou, PEOPLE'S REPUBLIC OF CHINA; Versa Wireless Inc., Surrey, CANADA; Omar Abed Alkarim Darwish, Ypsilanti, MI; and Trident IoT LLC, Carlsbad, CA have joined as parties to the venture.
Also, Technicolor Connected Home Rennes, Cesson-Sevigne Cedex, FRANCE; Technicolor Connected Home USA, LLC, Lawrenceville, GA; Control & More, Riyadh, SAUDI ARABIA; Smart AT For You, Teneriffe, AUSTRALIA; Namron AS, Oslo, NORWAY; Takacs Milan EV, Szigetmonostor, HUNGARY; and Octo Telematics SpA, Rome, ITALY have withdrawn as parties to the venture.
In addition, an existing member, Allterco Robotics EOOD, has changed its name to Shelly Europe Ltd., Sofia, BULGARIA.
No other changes have been made in either the membership or the planned activity of the venture. Membership in this venture remains open, and the Joint Venture intends to file additional written notifications disclosing all changes in membership.
On November 19, 2020, the Joint Venture filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on August 4, 2023. A notice was published in the
Notice is hereby given that, on October 23, 2023, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Beacon Industries, Inc., Newington, CT; Blue Technology LLC, Lindenhurst, NY; Capitol Integration, Bradenton, FL; Corinne Young LLC, Duxbury, MA; Cornerstone Government Affairs, Washington, DC; Creative Engineers, Inc., New Freedom, PA; GE Chaplin, Flemington, NJ; Infinite Elements, El Paso, TX; Los Alamos National Lab, Los Alamos, NM; Montana Technological University, Butte, MT; Naval Research Laboratory, Washington, DC; Rare Earth Technologies, Inc., Cincinnati, OH; Raytheon Technologies, Cambridge, MA; ReElement Technologies, Fishers, IN; South Dakota School of Mines and Technology, Rapid City, SD; Tetramer Technologies, Pendleton, SC; and, The Process Group LLC, Chesterfield, MO have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and CREaTe intends to file additional written notifications disclosing all changes in membership.
On April 22, 2022, CREaTe filed its original notification pursuant to Section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on May 1, 2023. A notice was published in the
Notice is hereby given that, on October 11, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Altus Technical Solutions LLC, Hanover, MD; Astro Machine Holdings dba Astro Machine Works, Ephrata, PA; Azure Summit Technology, Inc., Fairfax, VA; Breault Research Organization, Inc., Tucson, AZ; C3I, Exeter, NH; Core4ce LLC, Reston, VA; DRS Training & Control Systems LLC, Fort Walton Beach, FL; Elevan LLC dba Elevate Systems, San Antonia, TX; Flexible Concepts, Inc., Elkhart, IN; FN America LLC, Columbia, SC; Goldbelt Hawk LLC, Newport News, VA; Luna Labs USA LLC, Charlottesville, VA; MetalTek International, Inc., Waukesha, WI; Michael Fry Defense LLC, Dutton, VA; Mistral, Inc., Bethesda, MD; Oceanit Laboratories, Inc., Honolulu, HI; Optowares, Inc., Woburn, MA; OToole Tek LLC, Rocky Hill, CT; Purdue Applied Research Institute LLC, West Lafayette, IN; Smart Shooter, Inc., Herndon, VA; Titan Diversified Holdings, Inc., Charlotte, NC; and TMGcore, Inc., Plano, TX, have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and NSTIC intends to file additional written notifications disclosing all changes in membership.
On October 8, 2019, NSTIC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 7, 2023. A notice was published in the
Notice is hereby given that, on October 5, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Veritech LLC, Glendale, AZ, has withdrawn as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and NSC intends to file additional written notifications disclosing all changes in membership.
On September 23, 2014, NSC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 19, 2023. A notice was published in the
Notice is hereby given that, on October 6, 2023, pursuant to Section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and ADC intends to file additional written notifications disclosing all changes in membership.
On November 11, 2021, ADC filed its original notification pursuant to Section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 13, 2023. A notice was published in the
Notice is hereby given that, on November 17, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and PXI Systems intends to file additional written notifications disclosing all changes in membership.
On November 22, 2000, PXI Systems filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on September 5, 2023. A notice was published in the
Notice is hereby given that on November 9, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, MosoLabs, Sacramento, CA; National Grid, Waltham, MA; CPS Energy, San Antonio, TX; Advantech Co., Ltd., Blue Ash, OH; Dominion Energy, Richmond, VA; ST Microelectronics International N.V., Geneva, SWITZERLAND; and Intel Corporation, Santa Clara, CA have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open and UBBA intends to file additional written notifications disclosing all changes in membership.
On May 4, 2021, UBBA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on August 18, 2023. A notice was published in the
Notice is hereby given that, on October 11, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Della Systems, Inc., Ronkonkoma, NY; Eagle Circuits, Inc., Dallas, TX; Intrinsix Corp., Marlborough, MA; and Northrop Grumman Systems Corp., Linthicum, MD have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and DEC intends to file additional written notifications disclosing all changes in membership.
On April 12, 2023, DEC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 14, 2023. A notice was published in the
Notice is hereby given that, on October 3, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, JFrog Inc., Sunnyvale, CA; Matter Labs, George Town, CAYMAN ISLANDS; Toyota Connected North America, Inc., Plano, TX; and Check Point Software Technologies Ltd., Tel Aviv, ISRAEL, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and Rust Foundation intends to file additional written notifications disclosing all changes in membership.
On April 14, 2022, Rust Foundation filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 19, 2023. A notice was published in the
Notice is hereby given that, on October 6, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and MSTIC intends to file additional written notifications disclosing all changes in membership.
On October 21, 2020, MSTIC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 7, 2023. A notice was published in the
Notice is hereby given that, on October 3, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Suborbital, Ottawa, CANADA, has withdrawn as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and Bytecode Alliance Foundation intends to file additional written notifications disclosing all changes in membership.
On April 20, 2022, Bytecode Alliance Foundation filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 19, 2023. A notice was published in the
Notice is hereby given that, on November 10, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Anne Arundel County Public Schools, Annapolis, MD; Dallas ISD, Dallas, TX; Digival IT Solutions Limited, Dubai, UNITED ARAB EMIRATES; Lennections Inc., Canton, GA; MarkAny Chainverse Inc., Seoul, SOUTH KOREA; Montgomery County Public Schools (MD), Rockville, MD; Navigatr, Leeds, UNITED KINGDOM; Temple University, Philadelphia, PA; Tuscaloosa County Schools, Tuscaloosa, AL; and William Marsh Rice University-
Also, Coins For College, Antioch, CA; Cambridge Assessment, Cambridge, UNITED KINGDOM; and Virtual Arkansas, Plumerville, AR, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and 1EdTech Consortium intends to file additional written notifications disclosing all changes in membership.
On April 7, 2000, 1EdTech Consortium filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on August 25, 2023. A notice was published in the
Notice is hereby given that, on October 2, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
On September 20, 2004, NFPA filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on May 22, 2023. A notice was published in the
Notice is hereby given that, on October 4, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, ARKS Enterprises, Inc., Virginia Beach, VA; Cummings Aerospace, Inc., Huntsville, AL; DeVilliers Technology Solutions, Stafford, VA; GE Flight Efficiency Services, Inc., Auston, TX; HII Technical Solutions Corp., Virginia Beach, VA; Omni Federal, Gainesville, VA; Omnispace LLC, Tysons, VA; Technology Advancement Group, Inc., Dulles, VA; and Unified Experience LLC, Mount Pleasant, SC, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and IWRP intends to file additional written notifications disclosing all changes in membership.
On October 15, 2018, IWRP filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 7, 2023. A notice was published in the
Notice is hereby given that, on October 13, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Alltropic Tech, Halethorpe, MD; California Institute for Biomedical Research, La Jolla, CA; GenArraytion Inc., Rockville, MD; Integrated Biotherapeutics, Inc., Rockville, MD; International Business Machines Corp., Yorktown Heights, NY; Luna Labs USA LLC, Charlottesville, VA; Mesa Tech International, San Diego, CA; Qorvo Biotechnologies LLC, Bend, OR; Sentinel Analytics Software, Inc., Davis, CA; SGSD Partners LLC, Washington, DC; Synthetic Genomics Vaccines, Inc., La Jolla, CA; Unify R&D, Elkridge, MD; and Vector RX LLC, Elkridge, MD, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and MCDC intends to file additional written notifications disclosing all changes in membership.
On November 13, 2015, MCDC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 17, 2023. A notice was published in the
Notice is hereby given that, on October 20, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, ActioNet, Inc, Vienna, VA; Altio Labs LLC, Frisco, TX; Analex Corp. dba Arcfield, Hunstville, AL; Atlantic Diving Supply, Inc. dba ADS, Inc., Virginia Beach, VA; BAE Systems Land & Armaments, L.P., Sterling Heights, MI; Boecore LLC, Colorado Springs, CO; Cornerstone Research Group, Inc., Miamisburg, OH; DAGER Technology LLC, Fairfax, VA; Grove Resource Solutions LLC, Bethesda, MD; Hiller Measurements, Inc., Austin, TX; Industrial Smoke & Mirrors, Inc., Orlando, FL; Joy Lab Consulting LLC dba Mobilize, Arvada, CO; KCG Engineering Group, Inc., Virginia Beach, VA; MATBOCK LLC, Virginia Beach, VA; ObjectSecurity LLC, San Diego, CA; PURVIS Systems, Inc., Middletown, RI; Sensormetrix, Inc., San Diego, CA; Soar Technology, Inc., Ann Arbor, MI; Stratolaunch LLC, Mojave, CA; TMGcore, Inc., Plano, TX; Triton Systems, Inc., Chelmsford, MA; University of Central Florida Board of Trustees, Orlando, FL; Vadum, Inc., Raleigh, NC; Wittenstein Motion Control, Inc., Bartlett, IL; and 910 FACTOR, Inc., Gastonia, NC have been added as parties to this venture.
Also, ARCTOS Technology Solutions LLC, Dayton, OH; Black Source Software LLC, Dayton, OH; Cignal LLC, Reedsville, PA; CyOne, Inc., Aberdeen, MD; Discovery Machine, Inc., Williamsport, PA; DMAero LLC, Byron, GA; dSPACE, Inc., Wixom, MI; EZ-A Consulting LLC, Bel Air, MD; Hiller Measurements, Inc., Austin, TX; Infinity Systems Engineering LLC, Colorado Springs, CO; IntelliGenesis LLC, Columbia, MD; Joint Research & Development, Inc., Stafford, VA; Life Cycle Engineering, Inc., North Charleston, SC; MaXentric Technologies LLC, Fort Lee, NJ; NIRSense LLC dba Bionica Labs LLC, Richmond, VA; Palantir USG, Inc., Palo Alto, CA; Polaris Sensor Technologies, Inc., Huntsville, AL; RDA Technical Services, Fort Meyers, FL; Rocky Mountain Scientific Laboratory, Littleton, CO; SGSD Partners LLC dba Elevate Government Solutions, Washington, DC; Technica Corp., Sterling, VA; The EXPANSIA Group LLC, Nashua, NH; and Uptake Technologies, Inc., Chicago, IL, have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and TReX II intends to file additional written notifications disclosing all changes in membership.
On February 17, 2023, TReX II filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 11, 2023. A notice was published in the
Notice is hereby given that, on October 11, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, Georgia Tech Applied Research Corporation, Atlanta, GA; and Northrop Grumman Systems Corporation, Falls Church, VA, have been added as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and AIM Photonics intends to file additional written notifications disclosing all changes in membership.
On June 16, 2016, AIM Photonics filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on August 1, 2023. A notice was published in the
Notice is hereby given that, on November 2, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Cognitiviti Pty Ltd., West End, AUSTRALIA; Cerebras Systems, Los Altos, CA; Gigantor Technologies, Inc., Melbourne Beach, FL; Huawei Technologies Co., Ltd. (ELO), Shenzhen, PEOPLE'S REPUBLIC OF CHINA; Tetra, Seattle, WA; and Nebuly Societa Benefit S.r.l., Torino, ITALY have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and MLCommons intends to file additional written notifications disclosing all changes in membership.
On September 15, 2020, MLCommons filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on August 17, 2023. A notice was published in the
Notice is hereby given that, on October 6, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Constellation Software Engineering Corp., Annapolis, MD; iArchimedes, Inc., Arlington, VA; KULR Technology Corp., San Diego, CA; Mainstream Engineering Corp., Rockledge, FL; and Sterling Design, Inc., Oceanside, CA have withdrawn as parties to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and UTIC intends to file additional written notifications disclosing all changes in membership.
On October 9, 2018, UTIC filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on July 5, 2023. A notice was published in the
Notice is hereby given that, on October 30, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Pursuant to section 6(b) of the Act, the name and principal place of business of the standards development organization is: Alliance for OpenUSD Series LLC, series of Joint Development Foundation Projects, LLC, Dover, DE. The nature and scope of AOUSD's standards development activities are: standardizing, developing, and evolving Universal Scene Description (USD) in an open forum to promote interoperability of 3D content to empower creators and consumers worldwide. AOUSD will initially focus on standardizing essential features of USD (including technical details or requirements on composition model, file format, data model, and schema) that are stable, understood, implemented and important for 3D authoring and transmission. In the future, AOUSD may also develop additional standards specifications to promote interoperability of 3D content through USD. AOUSD will also develop educational, marketing, and informational materials to facilitate the understanding and adoption of its standards.
Notice is hereby given that, on November 10, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Specifically, GEII, Cambridge, MA, has been added as a party to this venture.
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open and NPSS intends to file additional written notifications disclosing all changes in membership or planned activities.
On December 11, 2013, NPSS filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on April 25, 2022. A notice was published in the
Notice is hereby given that, on September 29, 2023, pursuant to section 6(a) of the National Cooperative Research and Production Act of 1993, 15 U.S.C. 4301
Also, Akridata, Inc., Los Altos, CA; Buurst, Inc., Houston, TX; CommandPrompt, Inc., Bellingham, WA; CRI2M SRL, Brussels, BELGIUM; DeepIQ, LLC, Houston, TX; EnergyVue Services Limited; Aberdeen, UNITED KINGDOM; G42 Cloud Technology L.L.C., Al Reem Island, UNITED ARAB EMIRATES; Galp Exploração e Produção Petrolífera S.A., Lisbon, PORTUGAL; Geopost Consultoria em Geologia e Geofísica Ltda; Rio de Janeiro, BRAZIL; GeoSynergy Pty Ltd, Brisbane, AUSTRALIA; Green Horizon AS, Sandnes, NORWAY; JourneyOne, West Perth, AUSTRALIA; Luxembourg Institute of Science and Technology (LIST), Luxembourg-Kirchberg, LUXEMBOURG; Magseis Fairfield ASA, Lysaker, NORWAY; Midwest Microwave Solutions, Inc., Hiawatha, IA; PAS Global LLC, Houston, TX; PM Expert Group UK LIMITED, Noida, INDIA; Prediktor AS, Fredrikstad, NORWAY; RDRTec, Inc., Roebling, NJ; Ruths Analytics and Innovation, Inc. (d/b/a “Petro.ai”), Houston, TX; Security Compass, Ontario, CANADA; Softeam, Paris, FRANCE; Softserve Inc, Austin, TX; Tech Mahindra Limited, Mumbai, INDIA; The Board of Supervisors of Louisiana State University, Baton Rouge, LA; VMTC—Vincenzo Marchese Training & Consulting, London, UNITED KINGDOM; and Zodiac Data Systems, Alpharetta, GA, have withdrawn as parties to this venture.
Additionally, Koch Industries has changed its name to Koch Capabilities,
No other changes have been made in either the membership or planned activity of the group research project. Membership in this group research project remains open, and TOG intends to file additional written notifications disclosing all changes in membership.
On April 21, 1997, TOG filed its original notification pursuant to section 6(a) of the Act. The Department of Justice published a notice in the
The last notification was filed with the Department on June 29, 2023. A notice was published in the
On August 2, 2022, the Administrator of the Drug Enforcement Administration (DEA or Government) issued an Order to Show Cause and Immediate Suspension of Registration (collectively, OSC) to APEXX Pharmacy, LLC (Respondent), of Hudson, Florida. OSC, at 1, 9. The OSC immediately suspended, and proposes the revocation of, Respondent's DEA registration No. FA5493363, pursuant to 21 U.S.C. 824(d) and (a)(4), and 21 U.S.C. 823(g)(1).
The Federal and state substantive violations alleged in the OSC include 21 U.S.C. 841(a)(2) and 842(a)(1); 21 CFR 1306.04(a) and 1306.06; Fla. Stat. 893.055(3)(a)(3); and Fla. Admin. Code r. 64B16-27.810(1) and (2), Fla. Admin. Code r. 64B16-27.831(1)(b) and (c), (2)(c), and (4), and Fla. Admin. Code r. 64B16-27.1001(4).
The hearing Respondent requested was held on December 13 and 14, 2022. Hearing Transcript. The Recommended Rulings, Findings of Fact, Conclusions of Law, and Decision of the Administrative Law Judge (RD) concludes that Respondent's registration should be revoked. RD, at 27. This Decision and Order, based solely on OSC allegations that Respondent filled controlled substances under the names of three individuals who, at the time, were deceased, agrees.
This Decision is adjudicating only OSC allegations that Respondent filled controlled substance prescriptions issued to individuals who were deceased. Because these allegations alone are sufficient to revoke Respondent's registration, the Agency does not reach the other OSC allegations. The other OSC allegations include various references to conduct observed by and involving undercover officers; the record evidence related to those observations and interactions is periodically referenced herein as relevant to the analysis of Respondent's credibility and trustworthiness.
The OSC alleges, among other things, that Respondent filled controlled substance prescriptions issued to individuals who, at the time, were deceased. OSC, at 9. According to the Government's evidence, Respondent filled at least forty-seven such controlled substance prescriptions.
Respondent does not dispute that it filled the forty-seven Schedule II controlled substance prescriptions.
According to the testimony of Respondent's owner/Pharmacist-in-Charge (PIC), whom the Agency finds to be not credible,
Further, Respondent's owner/PIC testified, for the forty-seven prescriptions, as with all other prescriptions, that “every patient that comes into the pharmacy ha[s] to have an ID,” that he “get[s] their ID,” and that he has “to have an ID that matches the person in front of . . . [him].” Tr. 367. He specifically testified that he “always” makes a copy of the IDs to put in the pharmacy's files, and that those prescriptions were not an exception.
While he acknowledged the Government-sponsored testimony that no copies of IDs presented for the forty-seven prescriptions were found in Respondent's files, the owner/PIC testified that “that is impossible” because “[f]or every patient there ha[s] to be an ID to match the—the patient. They have to fill the information sheet and they have to give me an ID to match them and the prescription that they are filling.”
When asked for his explanation as to how Respondent filled any of the forty-seven Schedule II controlled substance prescriptions issued to deceased
Respondent offered no documentary evidence to support the identity theft theory. Indeed, it should have had evidence to prove or disprove the identity theft theory had Respondent's owner/PIC, as he testified (though not credibly), required the production of an ID that matched the individual presenting any of the forty-seven Schedule II controlled substance prescriptions, copied the ID, and put the copy in the pharmacy's files.
Again, though, instead of acknowledging the possibility that its actions or inactions led, in any way, to there being no copies of IDs in the pharmacy's files for any of the forty-seven prescriptions, Respondent suggested that the Government's seizure of its files was the cause.
Respondent did not, however, successfully develop its suggestions of Government responsibility for Respondent's allegedly missing pharmacy records. Instead, the Special Agent (S/A) testified about the seizure of Respondent's files, the DI testified about the content of those seized files, and the ALJ explicitly invited Respondent to develop its position through the cross-examination of both Government witnesses.
In sum, Respondent is asking the Agency to credit its
After thoroughly reviewing the transmitted record, the Agency concludes that it will afford the testimony of both Government witnesses full credibility, and find that the testimony of Respondent's owner/PIC that conflicts with the Government witnesses' testimonies is not credible or creditable.
Based on the record before it, the Agency finds uncontroverted evidence that Respondent, through Respondent's owner/PIC, filled forty-seven controlled substance prescriptions issued to individuals who, at the time, were deceased.
Further, a violation of the Florida regulation that this Decision is applying, according to the regulation's text, simply occurs when a pharmacy physically “dispenses” a controlled substance to a “third party,” not to the individual in whose name the prescription is written.
The Agency also finds substantial record evidence that Respondent's owner/PIC did not explain credibly why Respondent's seized files do not contain any of the alleged copies of the deceased customers' identifications that its owner/PIC testified he made when filling the forty-seven Schedule II controlled substance prescriptions.
Among its other statutes and regulatory provisions concerning pharmacy standards of practice, Florida prohibits the “dispensing” of controlled
Having thoroughly analyzed all of the record evidence, the Agency finds substantial and undisputed record evidence that Respondent “dispensed” controlled substances, pursuant to prescriptions issued to deceased individuals, to “third parties” at least forty-seven times.
Under Section 304 of the CSA, “[a] registration . . . to . . . distribute[ ] or dispense a controlled substance . . . may be suspended or revoked by the Attorney General upon a finding that the registrant . . . has committed such acts as would render his registration under section 823 of this title inconsistent with the public interest as determined by such section.” 21 U.S.C. 824(a)(4). In the case of a “practitioner,” which is defined in 21 U.S.C. 802(21) to include a “pharmacy,” Congress directed the Attorney General to consider five factors in making the public interest determination. 21 U.S.C. 823(g)(1)(A-E). The five factors are considered in the disjunctive.
According to Agency decisions, the Agency “may rely on any one or a combination of factors and may give each factor the weight [it] deems appropriate in determining whether” to revoke a registration.
According to DEA regulations, “[a]t any hearing for the revocation . . . of a registration, the . . . [Government] shall have the burden of proving that the requirements for such revocation . . . pursuant to . . . 21 U.S.C. 824(a) . . . are satisfied.” 21 CFR 1301.44(e).
In this matter, while all of the 21 U.S.C. 823(g)(1) factors have been considered, the Government's evidence in support of its
Florida regulations explicitly prohibit pharmacies from “dispensing” to “third parties.” Fla. Admin. Code r. 64B16-27.1001(4) (2010);
Accordingly, the Agency finds that Respondent's continued registration is inconsistent with the public interest. 21 U.S.C. 824(a)(4) and 823(g)(1)(B) and (D).
Where, as here, the Government has met its
Regarding these matters, there is no record evidence that Respondent, or its owner/PIC, takes responsibility, let alone unequivocal responsibility, for the founded, egregious violations involving the diversion of 2006 Schedule II controlled substance tablets.
The interests of specific and general deterrence weigh in favor of revocation. Respondent has not convinced the Agency that it understands that its controlled substance prescription filling fell short of the applicable legal standards and that this substandard filling has serious negative ramifications for the health, safety, and medical care of individuals who come to it for medicine.
Further, given the foundational nature and vast number of Respondent's violations, a sanction less than revocation would send a message to the existing and prospective registrant community that compliance with the law is not a condition precedent to maintaining a registration.
The Agency finds that it cannot entrust Respondent with a registration.
Respondent's owner/PIC's testimony regarding those matters further erodes the Agency's trust in the truthfulness of Respondent's owner/PIC and in the ability of Respondent to maintain a registration in compliance with the law.
In sum, the record supports the imposition of a sanction because Respondent did not unequivocally accept responsibility for its egregious and extensive violations, and has not convinced the Agency that it can be entrusted with a registration.
Accordingly, the Agency shall order the sanction the Government requested, as contained in the Order below.
Pursuant to 28 CFR 0.100(b) and the authority vested in me by 21 U.S.C. 824(a)(4), I hereby revoke DEA registration No. FA5493363 issued to APEXX Pharmacy, LLC. Further, pursuant to 28 CFR 0.100(b) and the authority vested in me by 21 U.S.C. 823(g)(1), I hereby deny any pending application of APEXX Pharmacy, LLC, for a DEA Registration in Florida. This Order is effective January 16, 2024.
This document of the Drug Enforcement Administration was signed on December 7, 2023, by Administrator Anne Milgram. That document with the original signature and date is maintained by DEA. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DEA Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of DEA. This administrative process in no way alters the legal effect of this document upon publication in the
On March 1, 2023, the Drug Enforcement Administration (DEA or Government) issued an Order to Show Cause (OSC) to Gary R. Wisner, M.D. (Registrant). Request for Final Agency Action (RFAA), Exhibit (RFAAX) 1, at 1, 3. The OSC proposed the revocation of Registrant's Certificates of Registration (COR) Nos. FW8432471 and AW2971073 at the registered addresses of 621 S. Ham Ln., Ste. A, Lodi, California 95242, and 16246 N. Locust Tree Road, Lodi, California 95240, respectively.
The OSC notified Registrant of his right to file with DEA a written request for hearing, and that if he failed to file such a request, he would be deemed to be in default.
Further, “[i]n the event that a registrant . . . is deemed to be in default . . . DEA may then file a request for final agency action with the Administrator, along with a record to support its request. In such circumstances, the Administrator may enter a default final order pursuant to [21 CFR] 1316.67.”
The Agency finds that, in light of Registrant's default, the factual allegations in the OSC are admitted. According to the OSC, “[e]ffective January 30, 2023, as part of an agreement with the [Medical Board of California] . . . [Registrant] surrendered [his] license to practice medicine in the State of California.” RFAAX 1, at 1-2.
According to California's online records, of which the Agency takes official notice, the status of Registrant's physician and surgeon license (type A) is listed as surrendered, and he is not permitted to practice.
Pursuant to 21 U.S.C. 824(a)(3), the Attorney General is authorized to suspend or revoke a registration issued under 21 U.S.C. 823 “upon a finding that the registrant . . . has had his State license or registration suspended . . . [or] revoked . . . by competent State authority and is no longer authorized by State law to engage in the . . . dispensing of controlled substances.” With respect to a practitioner, DEA has also long held that the possession of authority to dispense controlled substances under the laws of the state in which a practitioner engages in professional practice is a fundamental condition for obtaining and maintaining a practitioner's registration.
According to California statute and relevant to Registrant's COR, “[n]o person other than a physician . . . shall write or issue a prescription.”
Here, the evidence in the record is that Registrant currently lacks authority to handle controlled substances in California because his California physician and surgeon license has been surrendered. As already discussed, a person must hold a valid license to dispense a controlled substance in California. Thus, because Registrant lacks authority to handle controlled substances in California, Registrant is not eligible to maintain a DEA registration. Accordingly, the Agency will order that Registrant's DEA registrations be revoked.
Pursuant to 28 CFR 0.100(b) and the authority vested in me by 21 U.S.C. 824(a), I hereby revoke DEA Certificates of Registration Nos. FW8432471 and AW2971073 issued to Gary R. Wisner, M.D. Further, pursuant to 28 CFR 0.100(b) and the authority vested in me by 21 U.S.C. 823(g)(1), I hereby deny any pending applications of Gary R. Wisner, M.D., to renew or modify these registrations, as well as any other pending application of Gary R. Wisner, M.D., for additional registration in California. This Order is effective January 16, 2024.
This document of the Drug Enforcement Administration was signed on December 7 2023, by Administrator Anne Milgram. That document with the original signature and date is maintained by DEA. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DEA Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of DEA. This administrative process in no way alters the legal effect of this document upon publication in the
Bureau of Labor Statistics (BLS), Department of Labor.
Request for nominations.
The BLS is soliciting new members for the Technical Advisory Committee (TAC) to address four member terms expiring on April 13, 2024, and any additional vacancies that may occur on the TAC between the date of publication of this notice and April 13, 2024.
Nominations for the TAC membership should be transmitted by January 16, 2024.
Nominations for the TAC membership should be emailed to
Jay Stewart, Senior Research Economist, U.S. Bureau of Labor Statistics. Telephone: 202-691-7376. This is not a toll-free number. Email:
The TAC provides advice to the Bureau of Labor Statistics on technical aspects of data collection and the formulation of economic measures and makes recommendations on areas of research. On some technical issues, there are differing views and receiving feedback at public meetings provides BLS with the opportunity to consider all viewpoints.
The Committee consists of approximately 16 members who serve as Special Government Employees. Members are appointed by the BLS and are approved by the Secretary of Labor. Committee members are experts in economics, statistics, data science, and survey design. Members typically have Ph.D.s in their field and have significant experience. They are prominent experts in their fields and recognized for their professional achievements and objectivity. The economic experts will have research experience with technical issues related to BLS data and will be familiar with employment and unemployment statistics, price index numbers, compensation measures, productivity measures, occupational and health statistics, or other topics relevant to BLS data series. The statistical experts will have experience with sample design, data analysis,
BLS invites persons interested in serving on the TAC to submit their names for consideration for committee membership. Typically, TAC members are appointed to three-year terms, and serve as unpaid Special Government Employees.
The Bureau often faces highly technical issues while developing and maintaining the accuracy and relevancy of its data on employment and unemployment, prices, productivity, and compensation and working conditions. These issues range from how to develop new measures to how to make sure that existing measures account for the ever-changing economy. BLS presents issues and then draws on the specialized expertise of Committee members representing specialized fields within the academic disciplines of economics, statistics and data science, and survey design. Committee members are also invited to bring to the attention of BLS issues that have been identified in the academic literature or in their own research.
The TAC was established to provide advice to the Commissioner of Labor Statistics on technical topics selected by the BLS. Responsibilities include, but are not limited to providing comments on papers and presentations developed by BLS research and program staff, conducting research on issues identified by BLS on which an objective technical opinion or recommendation from outside of BLS would be valuable, recommending BLS conduct internal research projects to address technical problems with BLS statistics that have been identified in the academic literature, participating in discussions of areas where the types or coverage of economic statistics could be expanded or improved and areas where statistics are no longer relevant, and establishing working relationships with professional associations with an interest in BLS statistics, such as the American Statistical Association and the American Economic Association.
U.S. Copyright Office, Library of Congress.
Public notice.
The U.S. Copyright Office is announcing receipt of a notice of intent to conduct an audit pursuant to the section 115 blanket license.
Rhea Efthimiadis, Assistant to the General Counsel, by email at
The Orrin G. Hatch-Bob Goodlatte Music Modernization Act (the “MMA”) substantially modified the compulsory “mechanical” license for reproducing and distributing phonorecords of nondramatic musical works under 17 U.S.C. 115.
In connection with the new blanket license, the MMA also provides for certain audit rights. Under the MMA, the MLC may periodically audit DMPs operating under the blanket license to verify the accuracy of royalty payments made by DMPs to the MLC.
On November 9, 2023, the Office received a notice of intent to conduct an audit of the MLC from Bridgeport
Networking and Information Technology Research and Development (NITRD) National Coordination Office (NCO), National Science Foundation.
Notice of public meetings.
The NITRD Joint Engineering Team (JET) and Middleware And Grid Interagency Coordination (MAGIC) Team hold meetings that are open to the public to attend. The JET and the MAGIC Team provide an opportunity for the public to engage and participate in information sharing with Federal agencies. The JET and MAGIC Team report to the NITRD Large Scale Networking Interagency Working Group.
January 2024-December 2024.
Paul Love for the JET and Mallory Hinks for the MAGIC Team at
The Joint Engineering Team (JET), established in 1997, provides an opportunity for information sharing among Federal agencies and non-Federal participants who have an interest in high-performance research and engineering or research and education networking (REN) and networking to support science applications.
The MAGIC Team, established in 2002, provides an opportunity for information sharing among Federal agencies and non-Federal participants involved in middleware, grid, and cloud research and infrastructure; implementing or operating grids and clouds; or the use of grids, clouds, and middleware.
The JET and MAGIC Team meetings are hosted by the NITRD NCO with Zoom participation available for each meeting.
Submitted by the National Science Foundation in support of the Networking and Information Technology Research and Development National Coordination Office on December 12, 2023.
In accordance with the Federal Advisory Committee Act (Pub. L. 92-463, as amended), the National Science Foundation (NSF) announces the following meeting:
Nuclear Regulatory Commission.
Renewal of existing information collection; request for comment.
The U.S. Nuclear Regulatory Commission (NRC) invites public comment on the renewal of Office of Management and Budget (OMB) approval for an existing collection of information. The information collection is entitled, “NRC Form 149, OCFO Invitational Traveler Request Form.”
Submit comments by February 13, 2024. Comments received after this date will be considered if it is practical to do so, but the Commission is able to ensure consideration only for comments received on or before this date.
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
David C. Cullison, Office of the Chief Information Officer, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-2084; email:
Please refer to Docket ID NRC-2023-0108 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 in comment submissions that you do not want to be publicly disclosed in your comment submission. All comment submissions are posted 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 comment submissions are not routinely edited to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the NRC is requesting public comment on its intention to request the OMB's approval for the information collection summarized below.
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The NRC is seeking comments that address the following questions:
1. Is the proposed collection of information necessary for the NRC to properly perform its functions? Does the information have practical utility? Please explain your answer.
2. Is the estimate of the burden of the information collection accurate? Please explain your answer.
3. Is there a way to enhance the quality, utility, and clarity of the information to be collected?
4. How can the burden of the information collection on respondents be minimized, including the use of automated collection techniques or other forms of information technology?
For the Nuclear Regulatory Commission.
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning a negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the Market Dominant or the Competitive product list, or the modification of an existing product currently appearing on the Market Dominant or the Competitive product list.
Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request's acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request.
The public portions of the Postal Service's request(s) can be accessed via the Commission's website (
The Commission invites comments on whether the Postal Service's request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern Market Dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3030, and 39 CFR part 3040, subpart B. For request(s) that the Postal Service states concern Competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3035, and 39 CFR part 3040, subpart B. Comment deadline(s) for each request appear in section II.
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This Notice will be published in the
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning a negotiated service agreement. This notice informs the public of the filing, invites public comment, and takes other administrative steps.
Submit comments electronically via the Commission's Filing Online system at
David A. Trissell, General Counsel, at 202-789-6820.
The Commission gives notice that the Postal Service filed request(s) for the Commission to consider matters related to negotiated service agreement(s). The request(s) may propose the addition or removal of a negotiated service agreement from the Market Dominant or the Competitive product list, or the modification of an existing product currently appearing on the Market Dominant or the Competitive product list.
Section II identifies the docket number(s) associated with each Postal Service request, the title of each Postal Service request, the request's acceptance date, and the authority cited by the Postal Service for each request. For each request, the Commission appoints an officer of the Commission to represent the interests of the general public in the proceeding, pursuant to 39 U.S.C. 505 (Public Representative). Section II also establishes comment deadline(s) pertaining to each request.
The public portions of the Postal Service's request(s) can be accessed via the Commission's website (
The Commission invites comments on whether the Postal Service's request(s) in the captioned docket(s) are consistent with the policies of title 39. For request(s) that the Postal Service states concern Market Dominant product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3622, 39 U.S.C. 3642, 39 CFR part 3030, and 39 CFR part 3040, subpart B. For request(s) that the Postal Service states concern Competitive product(s), applicable statutory and regulatory requirements include 39 U.S.C. 3632, 39 U.S.C. 3633, 39 U.S.C. 3642, 39 CFR part 3035, and 39 CFR part 3040, subpart B. Comment deadline(s) for each request appear in section II.
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This Notice will be published in the
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 350l
The Investment Company Act of 1940 (the “Act”)
If the board's counsel has represented the fund's investment adviser, principal underwriter, administrator (collectively, “management organizations”) or their “control persons”
Any fund that relies on one of the exemptive rules must comply with the requirements in the definition of “independent legal counsel” under rule 0-1. We assume that approximately 2,909 funds rely on at least one of the exemptive rules annually.
The estimates of average burden hours are made solely for the purposes of the Paperwork Reduction Act. These estimates are not derived from a comprehensive or even a representative survey or study of the costs of Commission rules.
Compliance with the collection of information requirements of the rule is mandatory and is necessary to comply with the requirements of the rule in general. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The public may view background documentation for this information collection at the following website:
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 Options Exchange Fee Schedule (the “Fee Schedule”) to amend certain connectivity and port fees.
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.
The Exchange proposes to amend the Fee Schedule as follows: (1) increase the fees for a 10 gigabit (“Gb”) ultra-low latency (“ULL”) fiber connection for Members
Beginning in late January 2023, the Exchange also recently determined a substantial operational need to no longer operate 10Gb ULL connectivity on a single shared network with MIAX. The Exchange bifurcated 10Gb ULL connectivity due to ever-increasing capacity constraints and to enable it to continue to satisfy the anticipated access needs for Members and other market participants.
Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection with nanosecond granularity, and continuous improvements in network performance with the goal of improving the subscriber's experience. The costs associated with maintaining and enhancing a state-of-the-art network is a significant expense for the Exchange, and thus the Exchange believes that it is reasonable and appropriate to help offset those increased costs by amending fees for connectivity services. Subscribers expect the Exchange to provide this level of support so they continue to receive the performance they expect. This differentiates the Exchange from its competitors.
The Exchange now proposes to amend the Fee Schedule to amend the fees for 10Gb ULL connectivity and Full Service MEO Ports (Bulk and Single) in order to recoup cost related to bifurcating 10Gb connectivity to the Exchange and MIAX as well as the ongoing costs and increase in expenses set forth below in the Exchange's cost analysis.
The Exchange previously included a cost analysis in the Initial, Second, Third, Fourth, Fifth, and Sixth Proposals. As described more fully below, the Exchange provides an updated cost analysis that includes, among other things, additional descriptions of how the Exchange allocated costs among it and its affiliated exchanges (separately among MIAX Pearl Options and MIAX Pearl Equities, MIAX and MIAX Emerald
Starting in 2017, following the United States Court of Appeals for the District of Columbia's
While the above appeal to the D.C. Circuit was pending, on March 29, 2019, the Commission issued an order disapproving a proposed fee change by BOX Exchange LLC (“BOX”) to establish connectivity fees (the “BOX Order”), which significantly increased the level of information needed for the Commission to believe that an exchange's filing satisfied its obligations under the Act with respect to changing a fee.
Also while the above appeal was pending, on May 21, 2019, the Commission Staff issued guidance “to assist the national securities exchanges and FINRA . . . in preparing Fee Filings that meet their burden to demonstrate that proposed fees are consistent with the requirements of the Securities Exchange Act.”
Following the BOX Order and Staff Guidance, on August 6, 2020, the D.C. Circuit vacated the Commission's SIFMA Decision in
As a result of the Commission's loss of the
While the Exchange appreciates that the Staff Guidance articulates an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, the practical effect of the Revised Review Process, Staff Guidance, and the Commission's related practice of continuous suspension of new fee filings, is anti-competitive, discriminatory, and has put in place an un-level playing field, which has negatively impacted smaller, nascent, non-legacy exchanges (“non-legacy exchanges”), while favoring larger, incumbent, entrenched, legacy exchanges (“legacy exchanges”).
The net result is that the non-legacy exchanges are effectively now blocked by the Commission Staff from adopting or increasing fees to amounts comparable to the legacy exchanges (which were not subject to the Revised Review Process and Staff Guidance), despite providing enhanced disclosures and rationale to support their proposed fee changes that far exceed any such support provided by legacy exchanges. Simply put, legacy exchanges were able to increase their non-transaction fees during an extended period in which the Commission applied a “market-based” test that only relied upon the assumed presence of significant competitive forces, while exchanges today are subject to a cost-based test requiring extensive cost and revenue disclosures, a process that is complex, inconsistently applied, and rarely results in a successful outcome,
Commission Staff now require exchange filings, including from non-legacy exchanges such as MIAX Pearl, to provide detailed cost-based analysis in place of competition-based arguments to support such changes. However, even with the added detailed cost and expense disclosures, the Commission
The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages. First, legacy exchanges are able to use their additional non-transaction revenue for investments in infrastructure, vast marketing and advertising on major media outlets,
While the Commission has clearly noted that the Staff Guidance is merely guidance and “is not a rule, regulation or statement of the . . . Commission . . . the Commission has neither approved nor disapproved its content . . .”,
Because of the un-level playing field created by the Revised Review Process and Staff Guidance, the Exchange believes that the Commission Staff, at this point, should either (a) provide sufficient clarity on how its cost-based standard can be met, including a clear and exhaustive articulation of required data and its views on acceptable margins,
In light of the above, disapproval of this would not meet the fairness standard under the Act, would be discriminatory and place a substantial burden on competition. The Exchange would be uniquely disadvantaged by not being able to increase its access fees to comparable levels (or lower levels than current market rates) to those of other options exchanges for connectivity. If the Commission Staff were to disapprove this proposal, that action, and not market forces, would substantially affect whether the Exchange can be successful in its competition with other options exchanges. Disapproval of this filing could also be viewed as an arbitrary and capricious decision should the Commission Staff continue to ignore its past treatment of non-transaction fee filings before implementation of the Revised Review Process and Staff Guidance and refuse to allow such filings to be approved despite significantly enhanced arguments and cost disclosures.
MIAX Pearl Options filed a proposal to no longer operate 10Gb connectivity to MIAX Pearl Options on a single shared network with its affiliate, MIAX. This change is an operational necessity due to ever-increasing capacity constraints and to accommodate anticipated access needs for Members and other market participants.
MIAX Pearl Options bifurcated the MIAX Pearl Options and MIAX 10Gb ULL networks in the first quarter of 2023, which change became effective on January 23, 2023. The Exchange issued an alert on August 12, 2022 publicly announcing the planned network change and implementation plan and dates to provide market participants adequate time to prepare.
The Exchange, therefore, proposes to amend the Fee Schedule to increase the fees for Members and non-Members to access the Exchange's system networks
The Exchange proposes to make the following changes to reflect the bifurcated 10Gb ULL network for the Exchange and MIAX. First, in the Definitions section of the Fee Schedule, the Exchange proposes to amend the last sentence in the definition of “MENI” to specify that the MENI can be configured to provide network connectivity to the trading platforms, market data systems, test systems, and disaster recovery facilities of the Exchange's affiliate, MIAX, via a single, shared 1Gb connection. Next, the Exchange proposes to amend the explanatory paragraphs below the network connectivity fee tables in Sections 5)a)-b) of the Fee Schedule to specify that, with the bifurcated 10Gb ULL network,
The Exchange will continue to assess monthly Member and non-Member network connectivity fees for connectivity to the primary and secondary facilities in any month the Member or non-Member is credentialed to use any of the Exchange APIs or market data feeds in the production environment. The Exchange will continue to pro-rate the fees when a 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 Member or non-Member has been credentialed to utilize any of the Exchange 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.
The Exchange also proposes to amend Section 5)d) of the Fee Schedule to amend the calculation and amount of fees for Full Service MEO Ports. The Exchange currently offers different types of MEO Ports depending on the services required by the Member, including a Full Service MEO Port-Bulk,
Currently, the Exchange assesses Members Full Service MEO Port Fees, either for a Full Service MEO Port—Bulk and/or for a Full Service MEO Port—Single, based upon the monthly total volume executed by a Member and its Affiliates
(i) if its volume falls within the parameters of Tier 1 of the Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $3,000;
(ii) if its volume falls within the parameters of Tier 2 of the Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 0.60%, $4,500; and
(iii) if its volume falls within the parameters of Tier 3 of the Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $5,000.
Specifically, the Exchange proposes to adopt the following Full Service MEO Port (Bulk) fees for Market Makers: (i) $5,000 for Market Maker registrations in up to 10 option classes or up to 20% of option classes by national ADV; (ii) $7,500 for Market Maker registrations in up to 40 option classes or up to 35% of option classes by ADV; (iii) $10,000 for Market Maker registrations in up to 100 option classes or up to 50% of option
With the proposed changes, a Market Maker would be determined to be registered in a class if that Market Maker has been registered in one or more series in that class.
The Exchange also proposes to adopt an alternative lower Full Service MEO Port (Bulk) fee for Market Makers who fall within the 2nd, 3rd and 4th levels of the proposed Market Maker Full Service MEO Port (Bulk) fee table: (i) Market Maker registrations in up to 40 option classes or up to 35% of option classes by volume; (ii) Market Maker registrations in up to 100 option classes or up to 50% of option classes by volume; and (iii) Market Maker registrations in over 100 option classes or over 50% of option classes by volume up to all option classes listed on MIAX Pearl Options. In particular, the Exchange proposes to adopt footnote “**” following the Market Maker Full Service MEO Port (Bulk) fee table for these Monthly Full Service MEO Port (Bulk) tier levels. New proposed footnote “**” will provide that if the Market Maker's total monthly executed volume during the relevant month is less than 0.040% of the total monthly TCV for MIAX Pearl-listed option classes for that month, then the fee will be $6,000 instead of the fee otherwise applicable to such level.
The purpose of the alternative lower fee designated in proposed footnote “**” is to provide a lower fixed fee to those Market Makers who are willing to quote the entire Exchange market (or substantial amount of the Exchange market), as objectively measured by either number of classes assigned or national ADV, but who do not otherwise execute a significant amount of volume on the Exchange. The Exchange believes that, by offering lower fixed fees to Market Makers that execute less volume, the Exchange will retain and attract smaller-scale Market Makers, which are an integral component of the option marketplace, but have been decreasing in number in recent years, due to industry consolidation. Since these smaller-scale Market Makers utilize less Exchange capacity due to lower overall volume executed, the Exchange believes it is reasonable and equitable to offer such Market Makers a lower fixed fee. The Exchange notes that the Exchange's affiliates, MIAX and MIAX Emerald, also provide lower MIAX Express Interface (“MEI”) Port fees (the comparable ports on those exchanges) for Market Makers who quote the entire MIAX and MIAX Emerald markets (or substantial amount of those markets), as objectively measured by either number of classes assigned or national ADV, but who do not otherwise execute a significant amount of volume on MIAX or MIAX Emerald.
Unlike other options exchanges that provide similar port functionality and charge fees on a per port basis,
(i) if its volume falls within the parameters of Tier 1 of the Non-Transaction Fees Volume-Based Tiers, or volume up to 0.30%, $2,000;
(ii) if its volume falls within the parameters of Tier 2 of the Non-Transaction Fees Volume-Based Tiers, or volume above 0.30% up to 0.60%, $3,375; and
(iii) if its volume falls within the parameters of Tier 3 of the Non-Transaction Fees Volume-Based Tiers, or volume above 0.60%, $3,750.
The Exchange offers various types of ports with differing prices because each port accomplishes different tasks, are suited to different types of Members, and consume varying capacity amounts of the network. For instance, MEO ports allow for a higher throughput and can handle much higher quote/order rates than FIX ports. 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. Certain Members 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 the System has to assess. Those Members account for the vast majority of network capacity utilization and volume executed on the Exchange, as discussed throughout. For example, three (3) Members account for 64% of all 10Gb ULL connections and Full Service MEO Ports purchased.
The Exchange proposes to increase its monthly Full Service MEO Port fees since it has not done so since the fees were adopted in 2018,
The proposed fee changes are immediately effective.
The Exchange believes that the proposed fees are consistent with Section 6(b) of the Act
The Exchange believes that the information provided to justify the proposed fees meets or exceeds the amount of detail required in respect of proposed fee changes under the Revised Review Process and as set forth in recent Staff Guidance. Based on both the BOX Order
The Exchange believes that exchanges, in setting fees of all types, should meet high standards of transparency to demonstrate why each new fee or fee amendment meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among market participants. The Exchange believes this high standard is especially important when an exchange imposes various fees for market participants to access an exchange's marketplace.
In the Staff Guidance, the Commission Staff states that, “[a]s an initial step in assessing the reasonableness of a fee, staff considers whether the fee is constrained by significant competitive forces.”
The proposed fees are reasonable because they promote parity among exchange pricing for access, which promotes competition, including in the Exchanges' ability to competitively price transaction fees, invest in infrastructure, new products and other innovations, all while allowing the Exchange to recover its costs to provide dedicated access via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL network) and Full Service MEO Ports. As discussed above, the Revised Review Process and Staff Guidance have created an uneven playing field between legacy and non-legacy exchanges by severely restricting non-legacy exchanges from being able to increase non-transaction related fees to provide them with additional necessary revenue to better compete with legacy exchanges, which largely set fees prior to the Revised Review Process. The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages: (i) additional non-transaction revenue that may be used to fund areas other than the non-transaction service related to the fee, such as investments in infrastructure, advertising, new products and other innovations; and (ii) greater flexibility to lower their transaction fees by using the revenue from the higher non-transaction fees to subsidize transaction fee rates. The latter is more immediately impactful in competition for order flow and market share, given the variable nature of this cost on Member firms. The absence of a reasonable path forward to increase non-transaction fees to comparable (or lower rates) limits the Exchange's flexibility to, among other things, make additional investments in infrastructure and advertising, diminishes the ability to remain competitive on transaction fees, and hinders the ability to compete for order flow and market share. Again, there is little doubt that subjecting one exchange to a materially different standard than that applied to other exchanges for non-transaction fees leaves that exchange at a disadvantage in its ability to compete with its pricing of transaction fees.
The Exchange commenced operations in February 2017
Later in 2018, as the Exchange's market share increased,
The proposed changes to the Fee Schedule are reasonable in several
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.' ”
The Exchange believes the competing exchanges' 10Gb connectivity and port fees are useful examples of alternative approaches to providing and charging for access and demonstrating how such fees are competitively set and constrained. To that end, the Exchange believes the proposed fees are competitive and reasonable because the proposed fees are similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with comparable market shares. As such, the Exchange believes that denying its ability to institute fees that allow the Exchange to recoup its costs with a reasonable margin in a manner that is closer to parity with legacy exchanges, in effect, impedes its ability to compete, including in its pricing of transaction fees and ability to invest in competitive infrastructure and other offerings.
The following table shows how the Exchange's proposed fees remain similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with similar market share. Each of the connectivity and port rates in place at competing options exchanges were filed with the Commission for immediate effectiveness and remain in place today.
The Exchange acknowledges that, without additional contextual information, the above table may lead someone to believe that the Exchange's proposed fees for Full Service MEO Ports is higher than other exchanges when in fact, that is not true. The Exchange provides each Member or non-Member access to two (2) ports on all twelve (12) matching engines for a single fee and a vast majority choose to connect to all twelve (12) matching engines and utilize both ports for a total of 24 ports. Other exchanges charge on a per port basis and require firms to connect to multiple matching engines, thereby multiplying the cost to access their full market.
There is no requirement, regulatory or otherwise, that any broker-dealer connect to and access any (or all of) the available options exchanges. Market participants may choose to become a member of one or more options exchanges based on the market participant's assessment of the business opportunity relative to the costs of the Exchange. With this, there is elasticity of demand for exchange membership. As an example, one Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes proposed by MIAX Pearl Options.
It is not a requirement for market participants to become members of all options exchanges; in fact, certain market participants conduct an options business as a member of only one options market.
One other exchange recently noted in a proposal to amend their own trading permit fees that of the 62 market making firms that are registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access only one of the three exchanges.
Not only is there not an actual regulatory requirement to connect to every options exchange, the Exchange believes there is also no “de facto” or practical requirement as well, as further evidenced by the broker-dealer membership analysis of the options exchanges discussed above. As noted above, this is evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options. Indeed, broker-dealers choose if and how to access a
In lieu of becoming a member at each options exchange, a market participant may join one exchange and elect to have their orders routed in the event that a better price is available on an away market. Nothing in the Order Protection Rule requires a firm to become a Member at—or establish connectivity to—the Exchange.
With respect to the submission of orders, Members may also choose not to purchase any connection from the Exchange, and instead rely on the port of a third party to submit an order. For example, a third-party broker-dealer Member of the Exchange may be utilized by a retail investor to submit orders into an exchange. An institutional investor may utilize a broker-dealer, a service bureau,
Non-Member third-parties, such as service bureaus and extranets, resell the Exchange's connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange's connectivity fees), which alternative is already being used by non-Members and further constrains the price that the Exchange is able to charge for connectivity and other access fees to its market. The Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. Unlike other exchanges, the Exchange also does not currently assess fees on third-party resellers on a per customer basis (
The Exchange is obligated to regulate its Members and secure access to its environment. In order to properly regulate its Members and secure the trading environment, the Exchange takes measures to ensure access is monitored and maintained with various controls. Connectivity and ports are methods utilized by the Exchange to grant Members secure access to communicate with the Exchange and exercise trading rights. When a market participant elects to be a Member, and is approved for membership by the Exchange, the Member is granted trading rights to enter orders and/or quotes into Exchange through secure connections.
Again, there is no legal or regulatory requirement that a market participant become a Member of the Exchange. This is again evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options. If a market participant chooses to become a Member, they may then choose to purchase connectivity beyond the one connection that is necessary to quote or submit orders on the Exchange. Members may freely choose to rely on one or many connections, depending on their business model.
The Exchange began to operate on a single shared network with MIAX when MIAX Pearl Options commenced operations as a national securities exchange on February 7, 2017.
The Exchange stresses that bifurcating the 10Gb ULL connectivity between the Exchange and MIAX was not designed with the objective to generate an overall increase in access fee revenue. Rather, the proposed change was necessitated by 10Gb ULL connectivity experiencing a significant decrease in port availability mostly driven by connectivity demands of latency sensitive Members that seek to maintain multiple 10Gb ULL connections on every switch in the network. Operating two separate national securities exchanges on a single shared network provided certain benefits, such as streamlined connectivity to multiple exchanges, and simplified exchange infrastructure. However, doing so was no longer sustainable due to ever-increasing capacity constraints and current system limitations. The network is not an unlimited resource. As described more fully in the proposal to bifurcate the 10Gb ULL network,
As stated above, the shared network is not an unlimited resource and its expansion was constrained by MIAX's and MIAX Pearl Options' ability to provide fair and equitable access to all market participants of both markets. Due to the ever-increasing connectivity demands, the Exchange found it necessary to bifurcate 10Gb ULL connectivity to the Exchange's and MIAX's Systems and networks to be able to continue to meet ongoing and future 10Gb ULL connectivity and access demands.
Unlike the switches that provide 1Gb connectivity, the availability for additional 10Gb ULL connections on each switch had significantly decreased. This was mostly driven by the connectivity demands of latency sensitive Members (
Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX continued to add switches to meet ongoing demand for 10Gb ULL connectivity. That was no longer sustainable because simply adding additional switches to expand the current shared 10Gb ULL network would not adequately alleviate the issue of limited available port connectivity. While it would have resulted in a gain in overall port availability, the existing switches on the shared 10Gb ULL network in use would have continued to suffer from lack of port headroom given many latency sensitive Members' needs for a presence on each switch to reach both the Exchange and MIAX. This was because those latency sensitive Members sought to have a presence on each switch to maximize the probability of experiencing the best network performance. Those Members routinely decide to rebalance orders and/or messages over their various connections to ensure each connection is operating with maximum efficiency. Simply adding switches to the extranet would not have resolved the port availability needs on the shared 10Gb ULL network since many of the latency sensitive Members were unwilling to relocate their connections to a new switch due to the potential detrimental performance impact. As such, the impact of adding new switches and rebalancing ports would not have been effective or responsive to customer needs. The Exchange has found that ongoing and continued rebalancing once additional switches are added has had, and would have continued to have had, a diminishing return on increasing available 10Gb ULL connectivity.
Based on its experience and expertise, the Exchange found the most practical way to increase connectivity availability on its switches was to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX by migrating the exchanges' connections from the shared network onto their own set of switches. Such changes accordingly necessitated a review of the Exchange's previous 10Gb ULL connectivity fees and related costs. The proposed fees necessary to allow the Exchange to cover ongoing costs related to providing and maintaining such connectivity, described more fully below. The ever increasing connectivity demands that necessitated this change further support that the proposed fees are reasonable because this demand reflects that Members and non-Members believe they are getting value from the 10Gb ULL connections they purchase.
The Exchange announced on August 12, 2022 the planned network change and January 23, 2023 implementation date to provide market participants adequate time to prepare.
Should the Commission Staff disapprove such fees, it would effectively dictate how an exchange manages its technology and would hamper the Exchange's ability to continue to invest in and fund access services in a manner that allows it to meet existing and anticipated access demands of market participants. Disapproval could also have the adverse effect of discouraging an exchange from optimizing its operations and deploying innovative technology to the benefit of market participants if it believes the Commission would later prevent that exchange from covering its costs and monetizing its operational enhancements, thus adversely
In general, 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 Exchange Act requirements that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among members and markets. In particular, the Exchange believes that each exchange should take extra care to be able to demonstrate that these fees are based on its costs and reasonable business needs.
In proposing to charge fees for connectivity and port services, the Exchange is especially diligent in assessing those fees in a transparent way against its own aggregate costs of providing the related service, and in carefully and transparently assessing the impact on Members—both generally and in relation to other Members,
As detailed below, the Exchange recently calculated its aggregate annual costs for providing physical 10Gb ULL connectivity to the Exchange at $11,567,509 (or approximately $963,959 per month, rounded to the nearest dollar when dividing the annual cost by 12 months) and its aggregate annual costs for providing Full Service MEO Ports at $1,644,132 (or approximately $137,012 per month, rounded to the nearest dollar when dividing the annual cost by 12 months). In order to cover the aggregate costs of providing connectivity to its users (both Members and non-Members
In 2019, the Exchange completed a study of its aggregate costs to produce market data and connectivity (the “Cost Analysis”).
As an initial step, the Exchange determined the total cost for the Exchange and the affiliated markets for each cost driver as part of its 2023 budget review process. The 2023 budget review is a company-wide process that occurs over the course of many months, includes meetings among senior management, department heads, and the Finance Team. Each department head is required to send a “bottom up” budget to the Finance Team allocating costs at the profit and loss account and vendor levels for the Exchange and its affiliated markets based on a number of factors, including server counts, additional hardware and software utilization, current or anticipated functional or non-functional development projects, capacity needs, end-of-life or end-of-service intervals, number of members, market model (
The next step involves determining what portion of the cost allocated to the Exchange pursuant to the above methodology is to be allocated to each core service,
By allocating segmented costs to each core service, the Exchange was able to estimate by core service the potential margin it might earn based on different fee models. The Exchange notes that as a non-listing venue it has five primary sources of revenue that it can potentially use to fund its operations: transaction fees, fees for connectivity and port services, membership fees, regulatory fees, and market data fees. Accordingly, the Exchange must cover its expenses from these five primary sources of revenue. The Exchange also notes that as a general matter each of these sources of revenue is based on services that are interdependent. For instance, the Exchange's system for executing transactions is dependent on physical hardware and connectivity; only Members and parties that they sponsor to participate directly on the Exchange may submit orders to the Exchange; many Members (but not all) consume market data from the Exchange in order to trade on the Exchange; and the Exchange consumes market data from external sources in order to comply with regulatory obligations. Accordingly, given this interdependence, the allocation of costs to each service or revenue source required judgment of the Exchange and was weighted based on estimates of the Exchange that the Exchange believes are reasonable, as set forth below. While there is no standardized and generally accepted methodology for the allocation of an exchange's costs, the Exchange's methodology is the result of an extensive review and analysis and will be consistently applied going forward for any other potential fee proposals. In the absence of the Commission attempting to specify a methodology for the allocation of exchanges' interdependent costs, the Exchange will continue to be left with its best efforts to attempt to conduct such an allocation in a thoughtful and reasonable manner.
Through the Exchange's extensive updated Cost Analysis, which was again recently further refined, the Exchange analyzed every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the provision of connectivity and port services, and, if such expense did so relate, what portion (or percentage) of such expense actually supports the provision of connectivity and port services, and thus bears a relationship that is, “in nature and closeness,” directly related to network connectivity and port services. In turn, the Exchange allocated certain costs more to physical connectivity and others to ports, while certain costs were only allocated to such services at a very low percentage or not at all, using consistent allocation methodologies as described above. Based on this analysis, the Exchange estimates that the aggregate monthly cost to provide 10Gb ULL connectivity and Full Service MEO Port services, is $1,106,971 (utilizing the rounded numbers when dividing the annual cost for 10Gb ULL connectivity and annual cost for Full Service MEO Ports by 12 months, then adding both numbers together), as further detailed below.
Lastly, the Exchange notes that, based on: (i) the total expense amounts contained in this filing (which are 2023 projected expenses), and (ii) the total expense amounts contained in the related MIAX Pearl Equities filing (also 2023 projected expenses), MIAX PEARL, LLC's total costs have increased at a greater rate over the last three years than the total costs of MIAX PEARL, LLC's affiliated exchanges, MIAX and MIAX Emerald. This is also reflected in the total costs reported in MIAX PEARL, LLC's Form 1 filings over the last three years, when comparing MIAX PEARL, LLC to MIAX PEARL, LLC's affiliated exchanges, MIAX and MIAX Emerald. This is primarily because that MIAX PEARL, LLC operates two markets, one for options and one for equities, while MIAX and MIAX Emerald each operate only one market. This is also due to higher current expense for MIAX PEARL, LLC for 2022 and 2023, due to a hardware refresh (
The following chart details the individual line-item costs considered by the Exchange to be related to offering physical dedicated 10Gb ULL connectivity via an unshared network as well as the percentage of the Exchange's overall costs that such costs represent for each cost driver (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering physical 10Gb ULL connectivity. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers for the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because MIAX Pearl Options' cost allocation methodology utilizes the actual projected costs of MIAX Pearl Options (which are specific to MIAX Pearl Options, and are independent of the costs projected and utilized by MIAX Pearl Options' affiliated markets) to determine its actual costs, which may vary across the Exchange and its affiliated markets based on factors that are unique to each marketplace. MIAX Pearl Options provides additional explanation below (including the reason for the deviation) for the significant differences.
The Exchange notes that it and its affiliated markets have 184 employees (excluding employees at non-options/equities exchange subsidiaries of Miami International Holdings, Inc. (“MIH”), the holding company of the Exchange and its affiliated markets), and each department leader has direct knowledge of the time spent by each employee with respect to the various tasks necessary to operate the Exchange. Specifically, twice a year, and as needed with additional new hires and new project initiatives, in consultation with employees as needed, managers and department heads assign a percentage of time to every employee and then allocate that time amongst the Exchange and its affiliated markets to determine each market's individual Human Resources expense. Then, managers and department heads assign a percentage of each employee's time allocated to the Exchange into buckets including network connectivity, ports, market data, and other exchange services. This process ensures that every employee is 100% allocated, ensuring there is no double counting between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an allocation of employee time for employees whose functions include providing and maintaining physical connectivity and performance thereof (primarily the Exchange's network infrastructure team, which spends most of their time performing functions necessary to provide physical connectivity). As described more fully above, the Exchange's parent company allocates costs to the Exchange and its affiliated markets and then a portion of the Human Resources costs allocated to the Exchange is then allocated to connectivity. From that portion allocated to the Exchange that applied to connectivity, the Exchange then allocated a weighted average of 42.9% of each employee's time from the above group. The Exchange also allocated Human Resources costs to provide physical connectivity to a limited subset of personnel with ancillary functions related to establishing and maintaining such connectivity (such as information security, sales, membership, and finance personnel). The Exchange allocated cost on an employee-by-employee basis (
The estimates of Human Resources cost were therefore determined by consulting with such department leaders, determining which employees are involved in tasks related to providing physical connectivity, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of time such employees devote to those tasks. This includes personnel from the Exchange departments that are predominately involved in providing 1Gb and 10Gb ULL connectivity: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring,
Lastly, the Exchange notes that senior level executives' time was only allocated to the 10Gb ULL connectivity related Human Resources costs to the extent that they are involved in overseeing tasks related to providing physical connectivity. The Human Resources cost was calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.
The Connectivity cost driver includes external fees paid to connect to other exchanges and third parties, cabling and switches required to operate the Exchange. The Connectivity cost driver is more narrowly focused on technology used to complete connections to the Exchange and to connect to external markets. The Exchange notes that its connectivity to external markets is required in order to receive market data to run the Exchange's matching engine and basic operations compliant with existing regulations, primarily Regulation NMS.
The Exchange relies on various connectivity providers for connectivity to the entire U.S. options industry, and infrastructure services for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes connectivity providers to connect to other national securities exchanges and the Options Price Reporting Authority (“OPRA”). The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Connectivity provided by these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to connect to other national securities exchanges, market data providers or OPRA and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its connectivity expense and recoups that expense, in part, by charging for 10Gb ULL connectivity.
The next cost driver consists of internet Services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami.
External market data includes fees paid to third parties, including other exchanges, to receive market data. The Exchange includes external market data fee costs towards the provision of 10Gb ULL connectivity because such market data is necessary for certain services related to connectivity, including pre-trade risk checks and checks for other conditions (
The Exchange relies on content service providers for data feeds for the entire U.S. options industry, as well as content for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes content service providers to receive market data from OPRA, other exchanges and market data providers. The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Market data provided these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to receive market data and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its content service provider expense and recoups that expense, in part, by charging for 10Gb ULL connectivity.
Lastly, the Exchange notes that the actual dollar amounts allocated as part of the second step of the 2023 budget process differ among the Exchange and its affiliated markets for the internet Services and External Market Data cost driver, even though, but for MIAX Emerald, the allocation percentages are generally consistent across markets (
Data Center costs includes an allocation of the costs the Exchange incurs to provide physical connectivity in the third-party data centers where it maintains its equipment (such as dedicated space, security services, cooling and power). The Exchange notes that it does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties. The Exchange has allocated a high percentage of the Data Center cost (60.6%) to physical 10Gb ULL connectivity because the third-party data centers and the Exchange's physical equipment contained therein is the most direct cost in providing physical access to the Exchange. In other words, for the Exchange to operate in a dedicated space with connectivity by market participants to a physical trading platform, the data centers are a very tangible cost, and in turn, if the Exchange did not maintain such a presence then physical connectivity would be of no value to market participants.
Hardware and Software Licenses includes hardware and software licenses used to operate and monitor physical assets necessary to offer physical connectivity to the Exchange.
All physical assets, software and hardware used to provide 10Gb ULL connectivity, which also includes assets used for testing and monitoring of Exchange infrastructure, were valued at cost, and depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which are owned by the Exchange and some of which are leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange also included in the Depreciation cost driver certain budgeted improvements that the Exchange intends to capitalize and depreciate with respect to 10Gb ULL connectivity in the near-term. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost was therefore narrowly tailored to depreciation related to 10Gb ULL connectivity. As noted above, the Exchange allocated 58.2% of its allocated depreciation costs to providing physical 10Gb ULL connectivity.
The Exchange also notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
Finally, as with other exchange products and services, a portion of general shared expenses was allocated to overall physical connectivity costs. These general shared costs are integral to exchange operations, including its ability to provide physical connectivity. Costs included in general shared expenses include office space and office expenses (
The Exchange employed a process to determine a reasonable percentage to allocate general shared expenses to 10Gb ULL connectivity pursuant to its multi-layered allocation process. First, general expenses were allocated among the Exchange and affiliated markets as
Again, a portion of all shared expenses were allocated to the Exchange (and its affiliated markets) which, in turn, allocated a portion of that overall allocation to all physical connectivity on the Exchange. The Exchange then allocated 49.2% of the portion allocated to physical connectivity to 10Gb ULL connectivity. The Exchange believes this allocation percentage is reasonable because, while the overall dollar amount may be higher than other cost drivers, the 49.2% is based on and in line with the percentage allocations of each of the Exchange's other cost drivers. The percentage allocated to 10Gb ULL connectivity also reflects its importance to the Exchange's strategy and necessity towards the nature of the Exchange's overall operations, which is to provide a resilient, highly deterministic trading system that relies on faster 10Gb ULL connectivity than the Exchange's competitors to maintain premium performance. This allocation reflects the Exchange's focus on providing and maintaining high performance network connectivity, of which 10Gb ULL connectivity is a main contributor. The Exchange differentiates itself by offering a “premium-product” network experience, as an operator of a high performance, ultra-low latency network with unparalleled system throughput, which system networks can support access to three distinct options markets and multiple competing market-makers having affirmative obligations to continuously quote over 1,100,000 distinct trading products (per exchange), and the capacity to handle approximately 38 million quote messages per second. The “premium-product” network experience enables users of 10Gb ULL connections to receive the network monitoring and reporting services for those approximately 1,100,000 distinct trading products. These value add services are part of the Exchange's strategy for offering a high performance trading system, which utilizes 10Gb ULL connectivity.
The Exchange notes that the 49.2% allocation of general shared expenses for physical 10Gb ULL connectivity is higher than that allocated to general shared expenses for Full Service MEO Ports. This is based on its allocation methodology that weighted costs attributable to each core service. While physical connectivity has several areas where certain tangible costs are heavily weighted towards providing such service (
After determining the approximate allocated monthly cost related to 10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of $963,959 was divided by the number of physical 10Gb ULL connections the Exchange maintained at the time that proposed pricing was determined (108), to arrive at a cost of approximately $8,925 per month, per physical 10Gb ULL connection. Due to the nature of this particular cost, this allocation methodology results in an allocation among the Exchange and its affiliated markets based on set quantifiable criteria,
The following chart details the individual line-item costs considered by the Exchange to be related to offering Full Service MEO Ports as well as the percentage of the Exchange's overall costs such costs represent for such area (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering Full Service MEO Ports. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers for the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because the Exchange's cost allocation methodology utilizes the actual projected costs of the Exchange (which are specific to the Exchange, and are independent of the costs projected
With respect to Full Service MEO Ports, the Exchange calculated Human Resources cost by taking an allocation of employee time for employees whose functions include providing Full Service MEO Ports and maintaining performance thereof (including a broader range of employees such as technical operations personnel, market operations personnel, and software engineering personnel) as well as a limited subset of personnel with ancillary functions related to maintaining such connectivity (such as sales, membership, and finance personnel). Just as described above for 10Gb ULL connectivity, the estimates of Human Resources cost were again determined by consulting with department leaders, determining which employees are involved in tasks related to providing Full Service MEO Ports and maintaining performance thereof, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of their time such employees devote to tasks related to providing Full Service MEO Ports and maintaining performance thereof. This includes personnel from the following Exchange departments that are predominately involved in providing Full Service MEO Ports: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. The Exchange notes that senior level executives were allocated Human Resources costs to the extent they are involved in overseeing tasks specifically related to providing Full Service MEO Ports. Senior level executives were only allocated Human Resources costs to the extent that they are involved in managing personnel responsible for tasks integral to providing Full Service MEO Ports. The Human Resources cost was again calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.
The Connectivity cost includes external fees paid to connect to other exchanges and cabling and switches, as described above.
The next cost driver consists of internet services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami. For purposes of Full Service MEO Ports, the Exchange also includes a portion of its costs related to external market data. External market data includes fees paid to third parties, including other exchanges, to receive and consume market data from other markets. The Exchange includes external market data costs towards the provision of Full Service MEO Ports because such market data is necessary (in addition to physical connectivity) to offer certain services related to such ports, such as validating orders on entry against the NBBO and checking for other conditions (
The Exchange notes that the allocation for the internet Services and External Market Data cost driver is lower than that of its affiliate, MIAX, as MIAX allocated 7.2% of its internet Services and External Market Data expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports for the same cost driver. The allocation percentages set forth above differ because they directly correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI Ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure and internet Service), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options, which has a lower port count.
Data Center costs includes an allocation of the costs the Exchange incurs to provide Full Service MEO Ports in the third-party data centers where it maintains its equipment as well as related costs for market data to then enter the Exchange's system via Full Service MEO Ports (the Exchange does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties).
Hardware and Software Licenses includes hardware and software licenses used to monitor the health of the order entry services provided by the Exchange, as described above.
The Exchange notes that this allocation is less than its affiliate, MIAX, as MIAX allocated 7.2% of its Hardware and Software Maintenance and License expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI Ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options, which has a lower port count.
The vast majority of the software the Exchange uses to provide Full Service MEO Ports has been developed in-house and the cost of such development, which takes place over an extended period of time and includes not just development work, but also quality assurance and testing to ensure the software works as intended, is depreciated over time once the software is activated in the production environment. Hardware used to provide Full Service MEO Ports includes equipment used for testing and monitoring of order entry infrastructure and other physical equipment the Exchange purchased and is also depreciated over time.
All hardware and software, which also includes assets used for testing and monitoring of order entry infrastructure, were valued at cost, depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which is owned by the Exchange and some of which is leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange allocated 3.9% of all depreciation costs to providing Full Service MEO Ports. The Exchange allocated depreciation costs for depreciated software necessary to operate the Exchange to Full Service MEO Ports because such software is related to the provision of Full Service MEO Ports. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost driver was therefore narrowly tailored to depreciation related to Full Service MEO Ports.
The Exchange notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
For example, the Exchange notes that the percentage it allocated to the depreciation cost driver for Full Service MEO Ports and the percentage its affiliate, MIAX, allocated to the depreciation cost driver for MIAX's Limited Service MEI Ports, differ by only 2.4%. However, MIAX's approximate dollar amount is greater than that of MIAX Pearl Options by approximately $9,000 per month. This is due to two primary factors. First, MIAX has under gone a technology refresh since the time MIAX Pearl Options launched in 2017, leading to it having more hardware that software that is subject to depreciation. Second, MIAX maintains 24 matching engines while MIAX Pearl Options maintains only 12 matching engines. This also results in more of MIAX's hardware and software being subject to depreciation than MIAX Pearl Options' hardware and software due to the greater amount of equipment and software necessary to support the greater number of matching engines on MIAX.
Finally, a portion of general shared expenses was allocated to overall Full Service MEO Ports costs as without these general shared costs the Exchange would not be able to operate in the manner that it does and provide application sessions. The costs included in general shared expenses include general expenses of the Exchange, including office space and office expenses (
Lastly, the Exchange notes that this allocation is less than its affiliate, MIAX, as MIAX allocated 9.8% of its Allocated Shared Expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 3.6% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI Ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options which has a lower port count.
Based on May 2023 data, the total monthly cost allocated to Full Service MEO Ports of $137,012 was divided by the number of chargeable Full Service MEO Ports the Exchange maintained at the time that proposed pricing was determined (25 total; 25 Full Service MEO Port, Bulk, and 0 Full Service MEO Port, Single), to arrive at a cost of approximately $5,480 per month, per charged Full Service MEO Port.
In conducting its Cost Analysis, the Exchange did not allocate any of its expenses in full to any core services (including physical connectivity or Full Service MEO Ports) and did not double- count any expenses. Instead, as described above, the Exchange allocated applicable cost drivers across its core services and used the same Cost Analysis to form the basis of this proposal and the filings the Exchange submitted proposing fees for proprietary data feeds offered by the Exchange. For instance, in calculating the Human Resources expenses to be allocated to physical connections based upon the above described methodology, the Exchange has a team of employees dedicated to network infrastructure and with respect to such employees the Exchange allocated network infrastructure personnel with a high percentage of the cost of such personnel (42.9%) given their focus on functions necessary to provide physical connections. The salaries of those same personnel were allocated only 12.3% to Full Service MEO Ports and the remaining 44.8% was allocated to 1Gb
In total, the Exchange allocated 26.9% of its personnel costs to providing 10Gb ULL and 1Gb ULL connectivity and 8.3% of its personnel costs to providing Full Service MEO Ports, for a total allocation of 35.2% Human Resources expense to provide these specific connectivity and port services. In turn, the Exchange allocated the remaining 64.8% of its Human Resources expense to membership services, transaction services, other port services and market data. Thus, again, the Exchange's allocations of cost across core services were based on real costs of operating the Exchange and were not double-counted across the core services or their associated revenue streams.
As another example, the Exchange allocated depreciation expense to all core services, including physical connections and Full Service MEO Ports, but in different amounts. The Exchange believes it is reasonable to allocate the identified portion of such 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 connectivity services to its Members and non-Members and their customers. However, the Exchange did not allocate all of the depreciation and amortization expense toward the cost of providing connectivity services, but instead allocated approximately 62.1% of the Exchange's overall depreciation and amortization expense to connectivity services (58.2% attributed to 10Gb ULL physical connections and 3.9% to Full Service MEO Ports). The Exchange allocated the remaining depreciation and amortization expense (approximately 37.9%) toward the cost of providing transaction services, membership services, other port services and market data.
The Exchange notes that its revenue estimates are based on projections across all potential revenue streams and will only be realized to the extent such revenue streams actually produce the revenue estimated. The Exchange does not yet know whether such expectations will be realized. For instance, in order to generate the revenue expected from connectivity, the Exchange will have to be successful in retaining existing clients that wish to maintain physical connectivity and/or Full Service MEO Ports or in obtaining new clients that will purchase such services. Similarly, the Exchange will have to be successful in retaining a positive net capture on transaction fees in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the Exchange's 2023 fiscal year of operations and projections. It is possible, however, that actual costs may be higher or lower. To the extent the Exchange sees growth in use of connectivity services it will receive additional revenue to offset future cost increases.
However, if use of connectivity services is static or decreases, the Exchange might not realize the revenue that it anticipates or needs in order to cover applicable costs. Accordingly, the Exchange is committing to conduct a one-year review after implementation of these fees. The Exchange expects that it may propose to adjust fees at that time, to increase fees in the event that revenues fail to cover costs and a reasonable mark-up of such costs. Similarly, the Exchange may propose to decrease fees in the event that revenue materially exceeds our current projections. In addition, the Exchange will periodically conduct a review to inform its decision making on whether a fee change is appropriate (
The proposed fees will allow the Exchange to cover certain costs incurred by the Exchange associated with providing and maintaining necessary hardware and other network infrastructure as well as network monitoring and support services; without such hardware, infrastructure, monitoring and support the Exchange would be unable to provide the connectivity and port services. Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection(s). The above cost, namely those associated with hardware, software, and human capital, enable the Exchange to measure network performance with nanosecond granularity. These same costs are also associated with time and money spent seeking to continuously improve the network performance, improving the subscriber's experience, based on monitoring and analysis activity. The Exchange routinely works to improve the performance of the network's hardware and software. The costs associated with maintaining and enhancing a state-of-the-art exchange network is a significant expense for the Exchange, and thus the Exchange believes that it is reasonable and appropriate to help offset those costs by amending fees for connectivity services. Subscribers, particularly those of 10Gb ULL connectivity, expect the Exchange to provide this level of support to connectivity so they continue to receive the performance they expect. This differentiates the Exchange from its competitors. As detailed above, the Exchange has five primary sources of revenue that it can potentially use to fund its operations: transaction fees, fees for connectivity services, membership and regulatory fees, and market data fees. Accordingly, the Exchange must cover its expenses from these five primary sources of revenue.
The Exchange's Cost Analysis estimates the annual cost to provide 10Gb ULL connectivity services will equal $11,567,509. Based on current 10Gb ULL connectivity services usage, the Exchange would generate annual revenue of approximately $17,496,000. The Exchange believes this represents a modest profit of 34% when compared to the cost of providing 10Gb ULL connectivity services, which could decrease over time.
The Exchange's Cost Analysis estimates the annual cost to provide Full Service MEO Port services will equal $1,644,132. Based on current Full Service MEO Port services usage, the Exchange would generate annual revenue of approximately $1,644,000. The Exchange believes this would result in a small negative margin after calculating the cost of providing Full Service MEO Port services, which could decrease further over time.
Based on the above discussion, even if the Exchange earns the above revenue or incrementally more or less, the proposed fees are fair and reasonable because they will not result in excessive pricing that deviates from that of other exchanges or a supra-competitive profit, when comparing the total expense of the Exchange associated with providing 10Gb ULL connectivity and Full Service MEO Port services versus the total projected revenue of the Exchange associated with network 10Gb ULL connectivity and Full Service MEO Port services.
The Exchange also notes that this the resultant profit margin differs slightly from the profit margins set forth in similar fee filings by its affiliated markets. This is not atypical among exchanges and is due to a number of factors that differ between these four markets, including: different market models, market structures, and product offerings (equities, options, price-time, pro-rata, simple, and complex); different pricing models; different number of market participants and connectivity subscribers; different maintenance and operations costs, as described in the cost allocation methodology above; different technical architecture (
Further, the Exchange proposes to charge rates that are comparable to, or lower than, similar fees for similar products charged by competing exchanges. For example, for 10Gb ULL connectivity, the Exchange proposes a lower fee than the fee charged by Nasdaq for its comparable 10Gb Ultra fiber connection ($13,500 per month for the Exchange vs. $15,000 per month for Nasdaq).
The Exchange has operated at a cumulative net annual loss since it launched operations in 2017.
The Exchange notes that its revenue estimate is based on projections and will only be realized to the extent customer activity produces the revenue estimated. As a competitor in the hyper-competitive exchange environment, and an exchange focused on driving competition, the Exchange does not yet know whether such projections will be realized. For instance, in order to generate the revenue expected from 10Gb ULL connectivity and Full Service MEO Ports, the Exchange will have to be successful in retaining existing clients that wish to utilize 10Gb ULL connectivity and Full Service MEO Ports and/or obtaining new clients that will purchase such access. To the extent the Exchange is successful in encouraging new clients to utilize 10Gb ULL connectivity and Full Service MEO Ports, the Exchange does not believe it should be penalized for such success. To the extent the Exchange has mispriced and experiences a net loss in connectivity clients or in transaction activity, the Exchange could experience a net reduction in revenue. While the Exchange is supportive of transparency around costs and potential margins (applied across all exchanges), as well as periodic review of revenues and applicable costs (as discussed below), the Exchange does not believe that these estimates should form the sole basis of whether or not a proposed fee is reasonable or can be adopted. Instead, the Exchange believes that the information should be used solely to confirm that an Exchange is not earning—or seeking to earn—supra-competitive profits. The Exchange believes the Cost Analysis and related projections in this filing demonstrate this fact.
The Exchange is owned by a holding company that is the parent company of four exchange markets and, therefore, the Exchange and its affiliated markets must allocate shared costs across all of those markets accordingly, pursuant to the above-described allocation methodology. In contrast, the Investors Exchange LLC (“IEX”) and MEMX, which are currently each operating only one exchange, in their recent non-transaction fee filings allocate the entire
Further, as is reflected in the proposal, the Exchange continuously and aggressively works to control its costs as a matter of good business practice. A potential profit margin should not be evaluated solely on its size; that assessment should also consider cost management and whether the ultimate fee reflects the value of the services provided. For example, a profit margin on one exchange should not be deemed excessive where that exchange has been successful in controlling its costs, but not excessive on another exchange where that exchange is charging comparable fees but has a lower profit margin due to higher costs. Doing so could have the perverse effect of not incentivizing cost control where higher costs alone could be used to justify fees increases.
The Exchange believes that the proposed fees are reasonable, fair, equitable, and not unfairly discriminatory because they are designed to align fees with services provided and will apply equally to all subscribers.
The Exchange believes that the proposed fees are equitably allocated among users of the network connectivity and port alternatives, as the users of 10Gb ULL connections consume substantially more bandwidth and network resources than users of 1Gb ULL connection. Specifically, the Exchange notes that 10Gb ULL connection users account for more than 99% of message traffic over the network, driving other costs that are linked to capacity utilization, as described above, while the users of the 1Gb ULL connections account for less than 1% of message traffic over the network. In the Exchange's experience, users of the 1Gb connections do not have the same business needs for the high-performance network as 10Gb ULL users.
The Exchange's high-performance network and supporting infrastructure (including employee support), provides unparalleled system throughput with the network ability to support access to several distinct options markets. To achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate requirements of its most heavy network consumers. These billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. The Exchange must also purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages to satisfy its record keeping requirements under the Exchange Act.
The tiered pricing structure for Full Service MEO Ports has been in effect since 2018.
To achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate requirements of its most heavy network consumers during anticipated peak market conditions. The need to support billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. The Exchange must also purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages as part of it surveillance program and to satisfy its record keeping requirements under the Exchange Act.
The Exchange further believes that the proposed fees are reasonable, equitably allocated and not unfairly discriminatory because, for the flat fee,
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 believes the proposed fees will not result in any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed fees will allow the Exchange to recoup some of its costs in providing 10Gb ULL connectivity and Full Service MEO Ports at below market rates to market participants since the Exchange launched operations. As described above, the Exchange has operated at a cumulative net annual loss since it launched operations in 2017
Further, the Exchange does not believe that the proposed fee increase for the 10Gb ULL connection change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. As is the case with the current proposed flat fee, the proposed fee would apply uniformly to all market participants regardless of the number of connections they choose to purchase. The proposed fee does not favor certain categories of market participants in a manner that would impose an undue burden on competition.
The Exchange does not believe that the proposed rule change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. In particular, Exchange personnel has been informally discussing potential fees for connectivity services with a diverse group of market participants that are connected to the Exchange (including large and small firms, firms with large connectivity service footprints and small connectivity service footprints, as well as extranets and service bureaus) for several months leading up to that time. The Exchange does not believe the proposed fees for connectivity services would negatively impact the ability of Members, non-Members (extranets or service bureaus), third-parties that purchase the Exchange's connectivity and resell it, and customers of those resellers to compete with other market participants or that they are placed at a disadvantage.
The Exchange does anticipate, however, that some market participants may reduce or discontinue use of connectivity services provided directly by the Exchange in response to the proposed fees. In fact, as mentioned above, one MIAX Pearl Options Market Maker terminated their membership on January 1, 2023 as a direct result of the proposed fee changes.
The Exchange also does not believe that the proposed rule change and price increase will result in any burden on inter-market competition that is not necessary or appropriate in furtherance of the purposes of the Act. As this is a fee increase, arguably if set too high, this fee would make it easier for other exchanges to compete with the Exchange. Only if this were a substantial fee decrease could this be considered a form of predatory pricing. In contrast, the Exchange believes that, without this fee increase, we are potentially at a competitive disadvantage to certain other exchanges that have in place higher fees for similar services. As we have noted, the Exchange believes that connectivity fees can be used to foster more competitive transaction pricing and additional infrastructure investment and there are other options markets of which market participants may connect to trade options at higher rates than the Exchange's. Accordingly, the Exchange does not believe its proposed fee changes impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange also believes that the proposed fees for 10Gb connectivity are appropriate and warranted and would not impose any burden on competition. This is a technology driven change designed to meet customer needs. The proposed fees would assist the Exchange in recovering costs related to providing dedicated 10Gb connectivity to the Exchange while enabling it to continue to meet current and anticipated demands for connectivity by its Members and other market participants. Separating its 10Gb network from MIAX enables the Exchange to better compete with other exchanges by ensuring it can continue to provide adequate connectivity to existing and new Members, which may increase in ability to compete for order flow and deepen its liquidity pool, improving the overall quality of its market. The proposed rates for 10Gb ULL connectivity are structured to enable the Exchange to bifurcate its 10Gb ULL network shared with MIAX so that it can continue to meet current and anticipated connectivity demands of all market participants.
Similarly, and also in connection with a technology change, Cboe Exchange, Inc. (“Cboe”) amended its access and connectivity fees, including port fees.
The rule structure for options exchanges are also fundamentally different from those of equities exchanges. In particular, options market participants are not forced to connect to (and purchase market data from) all options exchanges. For example, there are many order types that are available in the equities markets that are not utilized in the options markets, which relate to mid-point pricing and pegged pricing which require connection to the SIPs and each of the equities exchanges in order to properly execute those orders in compliance with best execution obligations. Additionally, in the options markets, the linkage routing and trade through protection are handled by the exchanges, not by the individual members. Thus not connecting to an options exchange or disconnecting from an options exchange does not potentially subject a broker-dealer to violate order protection requirements. Gone are the days when the retail brokerage firms (such as Fidelity, Schwab, and eTrade) were members of the options exchanges—they are not members of the Exchange or its affiliates, they do not purchase connectivity to the Exchange, and they do not purchase market data from the Exchange. Accordingly, not only is there not an actual regulatory requirement to connect to every options exchange, the Exchange believes there is also no “de facto” or practical requirement as well, as further evidenced by the recent significant reduction in the number of broker-dealers that are members of all options exchanges.
The Cboe proposal also referenced the National Market System Plan Governing the Consolidated Audit Trail (“CAT NMS Plan”),
Cboe also filed to establish a monthly fee for Certification Logical Ports of $250 per Certification Logical Port.
In its statutory basis, Cboe justified the new port fee by stating that it believed the Certification Logical Port fee were reasonable because while such ports were no longer completely free, TPHs and non-TPHs would continue to be entitled to receive free of charge one Certification Logical Port for each type of logical port that is currently offered in the production environment.
The Cboe fee proposals described herein were filed subsequent to the D.C. Circuit decision in
In conclusion, as discussed thoroughly above, the Exchange regrettably believes that the application of the Revised Review Process and Staff Guidance has adversely affected inter-market competition among legacy and non-legacy exchanges by impeding the ability of non-legacy exchanges to adopt or increase fees for their market data and access services (including connectivity and port products and services) that are on parity or commensurate with fee levels previously established by legacy exchanges. Since the adoption of the Revised Review Process and Staff Guidance, and even more so recently, it has become extraordinarily difficult to adopt or increase fees to generate revenue necessary to invest in systems, provide innovative trading products and solutions, and improve competitive standing to the benefit of non-legacy exchanges' market participants. Although the Staff Guidance served an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, it has also negatively impacted non-legacy exchanges in particular in their efforts to adopt or increase fees that would enable them to more fairly compete with legacy exchanges, despite providing enhanced disclosures and rationale under both competitive and cost basis approaches provided for by the Revised Review Process and Staff Guidance to support their proposed fee changes.
The Exchange received one comment letter on the Initial Proposal, one comment letter on the Second Proposal, one comment letter on the Third Proposal, one comment letter on the Fourth Proposal, one comment letter on the Fifth Proposal, and one comment letter on the Sixth Proposal, all from the same commenter.
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.
Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Form N-17f-1 (17 CFR 274.219) is entitled “Certificate of Accounting of Securities and Similar Investments of a Management Investment Company in the Custody of Members of National Securities Exchanges.” The form serves as a cover sheet to the accountant's certificate that is required to be filed periodically with the Commission pursuant to rule 17f-1 (17 CFR 270.17f-1) under the Act, entitled “Custody of Securities with Members of National Securities Exchanges,” which sets forth the conditions under which a fund may place its assets in the custody of a member of a national securities exchange. Rule 17f-1 requires, among other things, that an independent public accountant verify the fund's assets at the end of every annual and semi-annual fiscal period, and at least one other time during the fiscal year as chosen by the independent accountant. Requiring an independent accountant to examine the fund's assets in the custody of a member of a national securities exchange assists Commission staff in its inspection program and helps to ensure that the fund assets are subject to proper auditing procedures. The accountant's certificate stating that it has made an examination, and describing the nature and the extent of the examination, must be attached to Form N-17f-1 and filed with the Commission promptly after each examination. The form facilitates the filing of the accountant's certificates, and increases the accessibility of the certificates to both Commission staff and interested investors.
Commission staff estimates that it takes: (i) 1 hour of clerical time to prepare and file Form N-17f-1; and (ii) 0.5 hour for the fund's chief compliance officer to review Form N-17f-1 prior to filing with the Commission, for a total of 1.5 hours. Each fund is required to make 3 filings annually, for a total annual burden per fund of approximately 4.5 hours.
The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act, and is not derived from a comprehensive or even a representative survey or study of the costs of Commission rules. Compliance with the collections of information required by Form N-17f-1 is mandatory for funds that place their assets in the custody of a national securities exchange member. Responses will not be kept confidential. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid control number.
The public may view background documentation for this information collection at the following website:
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the Exchange's GPS antenna fees at General 8, Section 1, as described further below. 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.
The Exchange offers a GPS antenna, which allows co-location customers
GPS network time is the atomic time scale implemented by the atomic clocks in the GPS ground control stations and GPS satellites. Each GPS satellite contains multiple atomic clocks that contribute precise time data to the GPS signals. GPS receivers decode these signals, synchronizing the receivers to the atomic clocks. A GPS antenna serves as a time signal receiver and feeds a primary clock device the GPS network time using precise time data. Firms can use the precise time data provided by the GPS antenna to time-stamp transactional information.
Time synchronization services are well established in the U.S. and utilized in many areas of the U.S. economy and infrastructure. The Service is not novel to the securities markets, or to the Exchange.
The Exchange offers connectivity to a GPS antenna via two options, over shared infrastructure or a dedicated antenna. If a firm wishes to connect via a dedicated connection, it must supply the antenna hardware.
The Exchange currently charges a monthly fee of $200 for the Service, which applies to both the shared infrastructure option and the dedicated antenna option. The Exchange proposes to increase the monthly fee to $600 for the Service, which would apply to both the shared infrastructure option and the dedicated antenna option. As such, the Exchange proposes to amend its fee schedule at General 8, Section 1(d) to reflect the increased monthly fee for the GPS antenna. The Exchange has not raised such price since the monthly fee of $200 was adopted.
In addition, the Exchange's fee schedule at General 8, Section 1(d) currently states that the installation fee for the GPS antenna is installation specific. The Exchange proposes to add specific installation amounts for the Service within the fee schedule, providing greater transparency to market participants. Specifically, the Exchange proposes to charge an installation fee of $900 for connectivity to a GPS antenna over shared infrastructure and $1,500 for connectivity to a GPS antenna over a dedicated antenna.
The Service is an optional product available to any firm that chooses to subscribe. Firms may cancel their subscription at any time. The Service simply provides time synchronization that may be utilized by firms to adjust their own time systems and time-stamp transactional information. The GPS antenna is offered on a completely voluntary basis. No customer is required to purchase the GPS antenna. Potential subscribers may subscribe to the Service only if they voluntarily choose to do so. It is a business decision of each firm whether to subscribe to the Service or not. Furthermore, firms have an array of options for time synchronization. Firms may purchase the Service (or enhanced time synchronization services) from other vendors.
In addition to cost, a firm's decision regarding which, if any, time synchronization option to purchase may depend, among other factors, on whether it wants to build or buy a time feed as well as the design of a firm's systems. A firm may prefer to build out its own time feed using GPS network time (as provided by the Exchange or a third-party vendor) or purchase a time synchronization service that handles the time feed for them. Examples of enhanced time synchronization include Precision Time Protocol (“PTP”), Pulse Per Second Time Synchronization Protocol (“PPS”), and Network Time Protocol (“NTP”), each of which are feeds that a client can consume rather than creating a feed itself. Such a choice may depend on a firm's desire for control of the feed, time sensitivity, and trade strategy, including whether a firm uses such time information to trigger trading decisions, as well as other considerations such as cost and convenience. In addition, with respect to the design of a firm's systems, a firm may choose to have its time synchronization equipment centralized or in multiple locations. Third-party vendors may be situated in Carteret or other New York metro financial data centers. Clients and vendors alike can produce a time feed in Carteret or any of the other locations.
Approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the shared option. The fact that approximately 41% of the Exchange's co-location customers do not subscribe to the Service demonstrate that there are alternative options available.
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
The proposed change to the pricing schedule is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for order flow, which constrains its pricing determinations. The fact that the market for order flow is competitive has long been recognized by the courts. In
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.'”
The proposed fees are reasonable and unlikely to burden the market because the purchase of the Service is optional for all categories of co-location customers. No firms are required to purchase the Service. Though many firms use GPS network time to synchronize their internal primary clock devices, firms can purchase time sync services from third-party vendors. Firms are also free to utilize other services that may assist them in enhanced time synchronization of their systems by consuming time feeds, such as PTP, PPS, and NTP. As noted above, approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the shared option. The fact that approximately 41% of the Exchange's co-location customers do not subscribe to the Service demonstrate that there are alternative options available. Firms may choose to purchase multiple time synchronization services for resiliency or otherwise.
The Exchange offers the Service as a convenience to firms to provide them with the ability to synchronize their own primary clock devices to the GPS network time and time-stamp transactional information.
The optional Service is available to all co-location customers that choose to subscribe. The proposed fees would apply to all co-location customers on a non-discriminatory basis, and therefore are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
The Exchange also believes that the proposed changes to include specific installation fees promote just and equitable principles of trade and remove
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
In terms of inter-market competition (the competition among self-regulatory organizations), the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Approval of the proposal does not impose any burden on the ability of other exchanges to compete. As noted above, time synchronization services are offered by other vendors and any exchange has the ability to offer such services if it so chooses.
Nothing in the proposal burdens intra-market competition (the competition among consumers of exchange data) because the GPS antenna is available to any co-location customer under the same fees as any other co-location customer, and any co-location customer that wishes to purchase a GPS antenna can do so on a non-discriminatory basis.
No written comments were either solicited or 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.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Rule 6e-2 (17 CFR 270.6e-2) under the Investment Company Act of 1940 (“Act”)
(15 U.S.C. 80a) is an exemptive rule that provides separate accounts formed by life insurance companies to fund certain variable life insurance products, exemptions from certain provisions of the Act, subject to conditions set forth in the rule.
Rule 6e-2 provides a separate account with an exemption from the registration provisions of section 8(a) of the Act if the account files with the Commission
Form N-6EI-1 (17 CFR 274.301), a notification of claim of exemption.
The rule also exempts a separate account from a number of other sections
Since 2008, there have been no filings of Form N-6EI-1 by separate accounts. Therefore, there has been no cost or burden to the industry since that time. The Commission requests authorization to maintain an inventory of one burden hour for administrative purposes.
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The public may view background documentation for this information collection at the following website:
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the MIAX Options Exchange Fee Schedule (the “Fee Schedule”) to amend certain connectivity and port fees.
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.
The Exchange proposes to amend the Fee Schedule as follows: (1) increase the fees for a 10 gigabit (“Gb”) ultra-low latency (“ULL”) fiber connection for Members
Beginning in late January 2023, the Exchange also recently determined a substantial operational need to no longer operate 10Gb ULL connectivity on a single shared network with MIAX Pearl. The Exchange bifurcated 10Gb ULL connectivity due to ever-increasing capacity constraints and to enable it to continue to satisfy the anticipated access needs for Members and other market participants.
Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection with nanosecond granularity, and continuous improvements in network performance with the goal of improving the subscriber's experience. The costs associated with maintaining and enhancing a state-of-the-art network is a significant expense for the Exchange, and thus the Exchange believes that it is reasonable and appropriate to help offset those increased costs by amending fees for connectivity services. Subscribers expect the Exchange to provide this level of support so they continue to receive the performance they expect. This differentiates the Exchange from its competitors.
The Exchange now proposes to amend the Fee Schedule to amend the fees for 10Gb ULL connectivity and Limited Service MEI Ports in order to recoup cost related to bifurcating 10Gb connectivity to the Exchange and MIAX Pearl as well as the ongoing costs and increase in expenses set forth below in the Exchange's cost analysis.
The Exchange previously included a cost analysis in the Initial, Second, Third, Fourth, Fifth, and Sixth Proposals. As described more fully below, the Exchange provides an updated cost analysis that includes, among other things, additional descriptions of how the Exchange allocated costs among it and its affiliated exchanges (MIAX Pearl (separately among MIAX Pearl Options and MIAX Pearl Equities) and MIAX Emerald
Starting in 2017, following the United States Court of Appeals for the District of Columbia's
While the above appeal to the D.C. Circuit was pending, on March 29, 2019, the Commission issued an order
Also while the above appeal was pending, on May 21, 2019, the Commission Staff issued guidance “to assist the national securities exchanges and FINRA . . . in preparing Fee Filings that meet their burden to demonstrate that proposed fees are consistent with the requirements of the Securities Exchange Act.”
Following the BOX Order and Staff Guidance, on August 6, 2020, the D.C. Circuit vacated the Commission's SIFMA Decision in
As a result of the Commission's loss of the
While the Exchange appreciates that the Staff Guidance articulates an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, the practical effect of the Revised Review Process, Staff Guidance, and the Commission's related practice of continuous suspension of new fee filings, is anti-competitive, discriminatory, and has put in place an un-level playing field, which has negatively impacted smaller, nascent, non-legacy exchanges (“non-legacy exchanges”), while favoring larger, incumbent, entrenched, legacy exchanges (“legacy exchanges”).
The net result is that the non-legacy exchanges are effectively now blocked by the Commission Staff from adopting or increasing fees to amounts comparable to the legacy exchanges (which were not subject to the Revised Review Process and Staff Guidance), despite providing enhanced disclosures and rationale to support their proposed fee changes that far exceed any such support provided by legacy exchanges. Simply put, legacy exchanges were able to increase their non-transaction fees during an extended period in which the Commission applied a “market-based” test that only relied upon the assumed presence of significant competitive forces, while exchanges today are subject to a cost-based test requiring extensive cost and revenue disclosures, a process that is complex, inconsistently applied, and rarely results in a successful outcome,
Commission Staff now require exchange filings, including from non-legacy exchanges such as the Exchange, to provide detailed cost-based analysis in place of competition-based arguments to support such changes. However, even with the added detailed cost and expense disclosures, the Commission Staff continues to either suspend such filings and institute disapproval proceedings, or put the exchanges in the unenviable position of having to repeatedly withdraw and re-file with additional detail in order to continue to charge those fees.
The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages. First, legacy exchanges are able to use their additional non-transaction revenue for investments in infrastructure, vast marketing and advertising on major media outlets,
While the Commission has clearly noted that the Staff Guidance is merely
Because of the un-level playing field created by the Revised Review Process and Staff Guidance, the Exchange believes that the Commission Staff, at this point, should either (a) provide sufficient clarity on how its cost-based standard can be met, including a clear and exhaustive articulation of required data and its views on acceptable margins,
In light of the above, disapproval of this would not meet the fairness standard under the Act, would be discriminatory and places a substantial burden on competition. The Exchange would be uniquely disadvantaged by not being able to increase its access fees to comparable levels (or lower levels than current market rates) to those of other options exchanges for connectivity. If the Commission Staff were to disapprove this proposal, that action, and not market forces, would substantially affect whether the Exchange can be successful in its competition with other options exchanges. Disapproval of this filing could also be viewed as an arbitrary and capricious decision should the Commission Staff continue to ignore its past treatment of non-transaction fee filings before implementation of the Revised Review Process and Staff Guidance and refuse to allow such filings to be approved despite significantly enhanced arguments and cost disclosures.
The Exchange filed a proposal to no longer operate 10Gb connectivity to the Exchange on a single shared network with its affiliate, MIAX Pearl Options. This change is an operational necessity due to ever-increasing capacity constraints and to accommodate anticipated access needs for Members and other market participants.
The Exchange bifurcated the Exchange and MIAX Pearl Options 10Gb ULL networks on January 23, 2023. The Exchange issued an alert on August 12, 2022 publicly announcing the planned network change and implementation plan and dates to provide market participants adequate time to prepare.
The Exchange, therefore, proposes to amend the Fee Schedule to increase the fees for Members and non-Members to
The Exchange proposes to make the following changes to reflect the bifurcated 10Gb ULL network for the Exchange and MIAX Pearl Options. The Exchange proposes to amend the explanatory paragraphs below the network connectivity fee tables in Sections 5)a)-b) of the Fee Schedule to specify that, with the bifurcated 10Gb ULL network, Members (and non-Members) utilizing the MENI to connect to the trading platforms, market data systems, test systems, and disaster recovery facilities of the Exchange and MIAX Pearl Options via a single, can only do so via a shared 1Gb connection.
The Exchange will continue to assess monthly Member and non-Member network connectivity fees for connectivity to the primary and secondary facilities in any month the Member or non-Member is credentialed to use any of the Exchange APIs or market data feeds in the production environment. The Exchange will continue to pro-rate the fees when a 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 Member or non-Member has been credentialed to utilize any of the Exchange 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.
The Exchange also proposes to amend Section 5)d) of the Fee Schedule to amend the monthly port fee for Limited Service MEI Ports available to Market Makers.
The Exchange now proposes to amend the monthly fee per Limited Service MEI Port and increase the number of free Limited Service MEI Ports per matching engine from two (2) to four (4). Specifically, the Exchange will now provide the first, second, third, and fourth Limited Service MEI Ports for each matching engine free of charge. For additional Limited Service MEI Ports after the first four ports per matching engine that are provided for free (
Market Makers that elect to purchase more than the number of Limited Service Ports that are provide for free do so due to the nature of their business and their perceived need for numerous ports to access the Exchange. Meanwhile, Market Makers who utilize the free Limited Service MEI Ports do so based on their business needs.
The Exchange notes that it last proposed to increase its monthly Limited Service MEI Port fees in 2016 (other than the prior proposals to adopt a tiered fee structure for Limited Service MEI Ports),
The proposed fee changes are immediately effective.
The Exchange believes that the proposed fees are consistent with Section 6(b) of the Act
The Exchange believes that the information provided to justify the proposed fees meets or exceeds the amount of detail required in respect of proposed fee changes under the Revised Review Process and as set forth in recent Staff Guidance. Based on both the BOX Order
The Exchange believes that exchanges, in setting fees of all types, should meet high standards of transparency to demonstrate why each new fee or fee amendment meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among market participants. The Exchange believes this high standard is especially important when an exchange imposes various fees for market participants to access an exchange's marketplace.
In the Staff Guidance, the Commission Staff states that, “[a]s an initial step in assessing the reasonableness of a fee, staff considers whether the fee is constrained by significant competitive forces.”
The proposed fees are reasonable because they promote parity among exchange pricing for access, which promotes competition, including in the Exchanges' ability to competitively price transaction fees, invest in infrastructure, new products and other innovations, all while allowing the Exchange to recover its costs to provide dedicated access via 10Gb ULL connectivity (driven by the bifurcation of the 10Gb ULL network) and Limited Service MEI Ports. As discussed above, the Revised Review Process and Staff Guidance have created an uneven playing field between legacy and non-legacy exchanges by severely restricting non-legacy exchanges from being able to increase non-transaction related fees to provide them with additional necessary revenue to better compete with legacy exchanges, which largely set fees prior to the Revised Review Process. The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages: (i) additional non-transaction revenue that may be used to fund areas other than the non-transaction service related to the fee, such as investments in infrastructure, advertising, new products and other innovations; and (ii) greater flexibility to lower their transaction fees by using the revenue from the higher non-transaction fees to subsidize transaction fee rates. The latter is more immediately impactful in competition for order flow and market share, given the variable nature of this cost on Member firms. The absence of a reasonable path forward to increase non-transaction fees to comparable (or lower rates) limits the Exchange's flexibility to, among other things, make additional investments in infrastructure and advertising, diminishes the ability to remain competitive on transaction fees, and hinders the ability to compete for order flow and market share. Again, there is little doubt that subjecting one exchange to a materially different standard than that applied to other exchanges for non-transaction fees leaves that exchange at a disadvantage in its ability to compete with its pricing of transaction fees.
The Exchange commenced operations in 2012 and adopted its initial fee schedule, with all connectivity and port fees set at $0.00 (the Exchange originally had a non-ULL 10Gb connectivity option, which it has since removed).
Later in 2013, as the Exchange's market share increased,
The proposed changes to the Fee Schedule are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces, which constrains its pricing determinations for transaction fees as well as non-transaction fees. The fact that the market for order flow is competitive has long been recognized by the courts. In
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.' ”
The Exchange believes the competing exchanges' 10Gb connectivity and port fees are useful examples of alternative approaches to providing and charging for access and demonstrating how such fees are competitively set and constrained. To that end, the Exchange believes the proposed fees are competitive and reasonable because the proposed fees are similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with comparable market shares. As such, the Exchange believes that denying its ability to institute fees that allow the Exchange to recoup its costs with a reasonable margin in a manner that is closer to parity with legacy exchanges, in effect, impedes its ability to compete, including in its pricing of transaction fees and ability to invest in competitive infrastructure and other offerings.
The following table shows how the Exchange's proposed fees remain similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with similar market share. Each of the connectivity or port rates in place at competing options exchanges were filed with the Commission for immediate effectiveness and remain in place today.
There is no requirement, regulatory or otherwise, that any broker-dealer connect to and access any (or all of) the available options exchanges. Market participants may choose to become a member of one or more options exchanges based on the market participant's assessment of the business opportunity relative to the costs of the Exchange. With this, there is elasticity of demand for exchange membership. As an example, the Exchange's affiliate, MIAX Pearl Options, experienced a decrease in membership as the result of similar fees proposed herein. One MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023, as a direct result of the proposed connectivity and port fee changes proposed by MIAX Pearl Options.
It is not a requirement for market participants to become members of all options exchanges; in fact, certain market participants conduct an options business as a member of only one options market.
One other exchange recently noted in a proposal to amend their own trading permit fees that of the 62 market making firms that are registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access only one of the three exchanges.
Not only is there not an actual regulatory requirement to connect to every options exchange, the Exchange believes there is also no “de facto” or practical requirement as well, as further evidenced by the broker-dealer membership analysis of the options exchanges discussed above. As noted above, this is evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options (which are similar to the changes proposed herein). Indeed, broker-dealers choose if and how to access a particular exchange and because it is a choice, the Exchange must set reasonable pricing, otherwise prospective members would not connect and existing members would disconnect from the Exchange. The decision to become a member of an exchange, particularly for registered market makers, is complex, and not solely based on the non-transactional costs assessed by an exchange. As noted herein, specific factors include, but are not limited to: (i) an exchange's available liquidity in options series; (ii) trading functionality offered on a particular market; (iii) product offerings; (iv) customer service on an exchange; and (v) transactional pricing. Becoming a member of the exchange does not “lock” a potential member into a market or diminish the overall competition for exchange services.
In lieu of becoming a member at each options exchange, a market participant may join one exchange and elect to have their orders routed in the event that a better price is available on an away market. Nothing in the Order Protection Rule requires a firm to become a Member at—or establish connectivity to—the Exchange.
With respect to the submission of orders, Members may also choose not to purchase any connection from the Exchange, and instead rely on the port of a third party to submit an order. For example, a third-party broker-dealer Member of the Exchange may be utilized by a retail investor to submit orders into an exchange. An institutional investor may utilize a broker-dealer, a service bureau,
Non-Member third-parties, such as service bureaus and extranets, resell the Exchange's connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange's connectivity fees), which alternative is already being used by non-Members and further constrains the price that the Exchange is able to charge for connectivity and other access fees to its market. The Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. Unlike other exchanges, the Exchange also does not currently assess fees on third-party resellers on a per customer basis (
The Exchange is obligated to regulate its Members and secure access to its environment. In order to properly regulate its Members and secure the trading environment, the Exchange takes measures to ensure access is monitored and maintained with various controls. Connectivity and ports are methods utilized by the Exchange to grant Members secure access to communicate with the Exchange and exercise trading rights. When a market participant elects to be a Member, and is approved for membership by the Exchange, the Member is granted trading rights to enter orders and/or quotes into Exchange through secure connections.
Again, there is no legal or regulatory requirement that a market participant become a Member of the Exchange. This is again evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options. If a market participant chooses to become a Member, they may then choose to purchase connectivity beyond the one connection that is necessary to quote or submit orders on the Exchange. Members may freely choose to rely on one or many connections, depending on their business model.
The Exchange began to operate on a single shared network with MIAX Pearl Options when MIAX Pearl commenced operations as a national securities exchange on February 7, 2017.
The Exchange stresses that bifurcating the 10Gb ULL connectivity between the Exchange and MIAX Pearl Options was not designed with the objective to generate an overall increase in access fee revenue. Rather, the proposed change was necessitated by 10Gb ULL connectivity experiencing a significant decrease in port availability mostly driven by connectivity demands of latency sensitive Members that seek to maintain multiple 10Gb ULL connections on every switch in the network. Operating two separate national securities exchanges on a single shared network provided certain benefits, such as streamlined connectivity to multiple exchanges, and simplified exchange infrastructure. However, doing so was no longer sustainable due to ever-increasing capacity constraints and current system limitations. The network is not an unlimited resource. As described more fully in the proposal to bifurcate the 10Gb ULL network,
As stated above, the shared network is not an unlimited resource and its expansion was constrained by MIAX's and MIAX Pearl Options' ability to provide fair and equitable access to all market participants of both markets. Due to the ever-increasing connectivity demands, the Exchange found it necessary to bifurcate 10Gb ULL connectivity to the Exchange's and MIAX Pearl Options' Systems and networks to be able to continue to meet ongoing and future 10Gb ULL connectivity and access demands.
Unlike the switches that provide 1Gb connectivity, the availability for additional 10Gb ULL connections on each switch had significantly decreased. This was mostly driven by the connectivity demands of latency sensitive Members (
Prior to bifurcating the 10Gb ULL network, the Exchange and MIAX Pearl Options continued to add switches to meet ongoing demand for 10Gb ULL connectivity. That was no longer sustainable because simply adding additional switches to expand the current shared 10Gb ULL network would not adequately alleviate the issue of limited available port connectivity. While it would have resulted in a gain in overall port availability, the existing switches on the shared 10Gb ULL network in use would have continued to suffer from lack of port headroom given many latency sensitive Members' needs for a presence on each switch to reach both the Exchange and MIAX Pearl Options. This was because those latency sensitive Members sought to have a presence on each switch to maximize the probability of experiencing the best network performance. Those Members routinely decide to rebalance orders and/or messages over their various connections to ensure each connection is operating with maximum efficiency. Simply adding switches to the extranet would not have resolved the port availability needs on the shared 10Gb ULL network since many of the latency sensitive Members were unwilling to relocate their connections to a new switch due to the potential detrimental performance impact. As such, the impact of adding new switches and rebalancing ports would not have been effective or responsive to customer needs. The Exchange has found that ongoing and continued rebalancing once additional switches are added has had, and would have continued to have had, a diminishing return on increasing available 10Gb ULL connectivity.
Based on its experience and expertise, the Exchange found the most practical way to increase connectivity availability on its switches was to bifurcate the existing 10Gb ULL networks for the Exchange and MIAX Pearl Options by migrating the exchanges' connections from the shared network onto their own set of switches. Such changes accordingly necessitated a review of the Exchange's previous 10Gb ULL connectivity fees and related costs. The proposed fees are necessary to allow the Exchange to cover ongoing costs related to providing and maintaining such connectivity, described more fully below. The ever increasing connectivity demands that necessitated this change further support that the proposed fees are reasonable because this demand reflects that Members and non-Members believe they are getting value from the 10Gb ULL connections they purchase.
The Exchange announced on August 12, 2022 the planned network change and the January 23, 2023 implementation date to provide market participants adequate time to prepare.
Should the Commission Staff disapprove such fees, it would effectively dictate how an exchange manages its technology and would hamper the Exchange's ability to continue to invest in and fund access services in a manner that allows it to meet existing and anticipated access demands of market participants. Disapproval could also have the adverse effect of discouraging an exchange from optimizing its operations and deploying innovative technology to the benefit of market participants if it believes the Commission would later prevent that exchange from covering its costs and monetizing operational enhancements, thus adversely impacting competition. Also, as noted above, the economic consequences of not being able to better establish fee parity with other exchanges for non-transaction fees hampers the Exchange's ability to compete on transaction fees.
In general, 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 Exchange Act requirements that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among members and markets. In particular, the Exchange believes that each exchange should take extra care to be able to demonstrate that these fees are based on its costs and reasonable business needs.
In proposing to charge fees for connectivity and port services, the Exchange is especially diligent in assessing those fees in a transparent way against its own aggregate costs of providing the related service, and in carefully and transparently assessing the impact on Members—both generally and in relation to other Members,
As detailed below, the Exchange recently calculated its aggregate annual costs for providing physical 10Gb ULL connectivity to the Exchange at $12,034,554 (or approximately $1,002,880 per month, rounded up to the nearest dollar when dividing the annual cost by 12 months) and its aggregate annual costs for providing Limited Service MEI Ports at $2,157,178 (or approximately $179,765 per month, rounded down to the nearest dollar when dividing the annual cost by 12 months). In order to cover the aggregate costs of providing connectivity to its users (both Members and non-Members
In 2019, the Exchange completed a study of its aggregate costs to produce market data and connectivity (the “Cost Analysis”).
As an initial step, the Exchange determined the total cost for the Exchange and the affiliated markets for each cost driver as part of its 2023 budget review process. The 2023 budget review is a company-wide process that occurs over the course of many months, includes meetings among senior management, department heads, and the Finance Team. Each department head is required to send a “bottom up” budget to the Finance Team allocating costs at the profit and loss account and vendor levels for the Exchange and its affiliated markets based on a number of factors, including server counts, additional hardware and software utilization, current or anticipated functional or non-functional development projects, capacity needs, end-of-life or end-of-service intervals, number of members, market model (
The next step involves determining what portion of the cost allocated to the Exchange pursuant to the above methodology is to be allocated to each core service,
By allocating segmented costs to each core service, the Exchange was able to estimate by core service the potential margin it might earn based on different fee models. The Exchange notes that as a non-listing venue it has five primary sources of revenue that it can potentially use to fund its operations:
Through the Exchange's extensive updated Cost Analysis, which was again recently further refined, the Exchange analyzed every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the provision of connectivity and port services, and, if such expense did so relate, what portion (or percentage) of such expense actually supports the provision of connectivity and port services, and thus bears a relationship that is, “in nature and closeness,” directly related to network connectivity and port services. In turn, the Exchange allocated certain costs more to physical connectivity and others to ports, while certain costs were only allocated to such services at a very low percentage or not at all, using consistent allocation methodologies as described above. Based on this analysis, the Exchange estimates that the aggregate monthly cost to provide 10Gb ULL connectivity and Limited Service MEI Port services, including both physical 10Gb connections and Limited Service MEI Ports, is $1,182,645 (utilizing the rounded numbers when dividing the annual cost for 10Gb ULL connectivity and annual cost for Limited Service MEI Ports by 12 months, then adding both numbers together), as further detailed below.
The following chart details the individual line-item costs considered by the Exchange to be related to offering physical dedicated 10Gb ULL connectivity via an unshared network as well as the percentage of the Exchange's overall costs that such costs represent for each cost driver (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering physical 10Gb ULL connectivity. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers for the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because the Exchange's cost allocation methodology utilizes the actual projected costs of the Exchange (which are specific to the Exchange and are independent of the costs projected and utilized by the Exchange's affiliated markets) to determine its actual costs, which may vary across the Exchange and its affiliated markets based on factors that are unique to each marketplace. The Exchange provides additional explanation below (including the reason for the deviation) for the significant differences.
The Exchange notes that it and its affiliated markets have 184 employees (excluding employees at non-options/equities exchange subsidiaries of Miami International Holdings, Inc. (“MIH”), the holding company of the Exchange and its affiliated markets), and each department leader has direct knowledge of the time spent by each employee with respect to the various tasks necessary to operate the Exchange. Specifically, twice a year, and as needed with additional new hires and new project initiatives, in consultation with employees as needed, managers and department heads assign a percentage of time to every employee and then allocate that time amongst the Exchange and its affiliated markets to determine each market's individual Human Resources expense. Then, managers and department heads assign a percentage of each employee's time allocated to the Exchange into buckets including network connectivity, ports, market data, and other exchange services. This process ensures that every employee is 100% allocated, ensuring there is no double counting between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an allocation of employee time for
The Exchange also allocated Human Resources costs to provide physical connectivity to a limited subset of personnel with ancillary functions related to establishing and maintaining such connectivity (such as information security, sales, membership, and finance personnel). The Exchange allocated cost on an employee-by-employee basis (
The estimates of Human Resources cost were therefore determined by consulting with such department leaders, determining which employees are involved in tasks related to providing physical connectivity, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of time such employees devote to those tasks. This includes personnel from the Exchange departments that are predominately involved in providing 1Gb and 10Gb ULL connectivity: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. Again, the Exchange allocated 42% of each of their employee's time assigned to the Exchange for 10Gb ULL connectivity, as stated above. Employees from these departments perform numerous functions to support 10Gb ULL connectivity, such as the installation, re-location, configuration, and maintenance of 10Gb ULL connections and the hardware they access. This hardware includes servers, routers, switches, firewalls, and monitoring devices. These employees also perform software upgrades, vulnerability assessments, remediation and patch installs, equipment configuration and hardening, as well as performance and capacity management. These employees also engage in research and development analysis for equipment and software supporting 10Gb ULL connectivity and design, and support the development and on-going maintenance of internally-developed applications as well as data capture and analysis, and Member and internal Exchange reports related to network and system performance. The above list of employee functions is not exhaustive of all the functions performed by Exchange employees to support 10Gb ULL connectivity, but illustrates the breath of functions those employees perform in support of the above cost and time allocations.
Lastly, the Exchange notes that senior level executives' time was only allocated to the 10Gb ULL connectivity related Human Resources costs to the extent that they are involved in overseeing tasks related to providing physical connectivity. The Human Resources cost was calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.
The Connectivity cost driver includes external fees paid to connect to other exchanges and third parties, cabling and switches required to operate the Exchange. The Connectivity cost driver is more narrowly focused on technology used to complete connections to the Exchange and to connect to external markets. The Exchange notes that its connectivity to external markets is required in order to receive market data to run the Exchange's matching engine and basic operations compliant with existing regulations, primarily Regulation NMS.
The Exchange relies on various connectivity providers for connectivity to the entire U.S. options industry, and infrastructure services for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes connectivity providers to connect to other national securities exchanges and the Options Price Reporting Authority (“OPRA”). The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Connectivity provided by these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to connect to other national securities exchanges, market data providers or OPRA and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its connectivity provider expense and recoups that expense, in part, by charging for 10Gb ULL connectivity.
The next cost driver consists of internet Services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami.
External market data includes fees paid to third parties, including other exchanges, to receive market data. The Exchange includes external market data fee costs towards the provision of 10Gb ULL connectivity because such market data is necessary for certain services related to connectivity, including pre-trade risk checks and checks for other conditions (
The Exchange relies on various content service providers for data feeds for the entire U.S. options industry, as well as content for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes content service providers to receive market data from OPRA, other
Lastly, the Exchange notes that the actual dollar amounts allocated as part of the second step of the 2023 budget process differ among the Exchange and its affiliated markets for the internet Services and External Market Data cost driver, even though but for MIAX Emerald, the allocation percentages are generally consistent across markets (
Data Center costs includes an allocation of the costs the Exchange incurs to provide physical connectivity in the third-party data centers where it maintains its equipment (such as dedicated space, security services, cooling and power). The Exchange notes that it does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties. The Exchange has allocated a high percentage of the Data Center cost (60.6%) to physical 10Gb ULL connectivity because the third-party data centers and the Exchange's physical equipment contained therein is the most direct cost in providing physical access to the Exchange. In other words, for the Exchange to operate in a dedicated space with connectivity by market participants to a physical trading platform, the data centers are a very tangible cost, and in turn, if the Exchange did not maintain such a presence then physical connectivity would be of no value to market participants.
Hardware and Software Licenses includes hardware and software licenses used to operate and monitor physical assets necessary to offer physical connectivity to the Exchange.
All physical assets, software, and hardware used to provide 10Gb ULL connectivity, which also includes assets used for testing and monitoring of Exchange infrastructure, were valued at cost, and depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which are owned by the Exchange and some of which are leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange also included in the Depreciation cost driver certain budgeted improvements that the Exchange intends to capitalize and depreciate with respect to 10Gb ULL connectivity in the near-term. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost was therefore narrowly tailored to depreciation related to 10Gb ULL connectivity. As noted above, the Exchange allocated 61.6% of its allocated depreciation costs to providing physical 10Gb ULL connectivity.
The Exchange also notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
Finally, as with other exchange products and services, a portion of general shared expenses was allocated to overall physical connectivity costs. These general shared costs are integral to exchange operations, including its ability to provide physical connectivity. Costs included in general shared expenses include office space and office expenses (
The Exchange employed a process to determine a reasonable percentage to allocate general shared expenses to 10Gb ULL connectivity pursuant to its multi-layered allocation process. First, general expenses were allocated among the Exchange and affiliated markets as described above. Then, the general shared expense assigned to the Exchange was allocated across core services of the Exchange, including connectivity. Then, these costs were further allocated to sub-categories within the final categories,
Again, a portion of all shared expenses were allocated to the Exchange (and its affiliated markets) which, in turn, allocated a portion of that overall allocation to all physical connectivity on the Exchange. The Exchange then allocated 49.1% of the portion allocated to physical connectivity to 10Gb ULL connectivity. The Exchange believes this allocation percentage is reasonable because, while the overall dollar amount may be higher than other cost drivers, the 49.1% is based on and in line with the percentage allocations of each of the Exchange's other cost drivers. The percentage allocated to 10Gb ULL connectivity also reflects its importance to the Exchange's strategy and necessity towards the nature of the Exchange's overall operations, which is to provide a resilient, highly deterministic trading system that relies on faster 10Gb ULL connectivity than the Exchange's competitors to maintiain premium performance. This allocation reflects the Exchange's focus on providing and maintaining high performance network connectivity, of which 10Gb ULL connectivity is a main contributor. The Exchange differentiates itself by offering a “premium-product” network experience, as an operator of a high performance, ultra-low latency network with unparalleled system throughput, which system networks can support access to three distinct options markets and multiple competing market-makers having affirmative obligations to continuously quote over 1,100,000 distinct trading products (per exchange), and the capacity to handle approximately 18 million quote messages per second. The “premium-product” network experience enables users of 10Gb ULL connections to receive the network monitoring and reporting services for those approximately 1,100,000 distinct trading products. These value add services are part of the Exchange's strategy for offering a high performance trading system, which utilizes 10Gb ULL connectivity.
The Exchange notes that the 49.1% allocation of general shared expenses for physical 10Gb ULL connectivity is higher than that allocated to general shared expenses for Limited Service MEI Ports. This is based on its allocation methodology that weighted costs attributable to each core service. While physical connectivity has several areas where certain tangible costs are heavily weighted towards providing such service (
After determining the approximate allocated monthly cost related to 10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of $1,002,880 was divided by the number of physical 10Gb ULL connections the Exchange maintained at the time that proposed pricing was determined (93), to arrive at a cost of approximately $10,784 per month, per physical 10Gb ULL connection. Due to the nature of this particular cost, this allocation methodology results in an allocation among the Exchange and its affiliated markets based on set quantifiable criteria,
The following chart details the individual line-item costs considered by the Exchange to be related to offering Limited Service MEI Ports as well as the percentage of the Exchange's overall costs such costs represent for such area (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering Limited Service MEI Ports. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers for the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because the Exchange's cost allocation methodology utilizes the actual projected costs of the Exchange (which are specific to the Exchange, and are independent of the costs projected and utilized by the Exchange's affiliated markets) to determine its actual costs, which may vary across the Exchange and its affiliated markets based on factors that are unique to each marketplace. The Exchange provides additional explanation below (including the reason for the deviation) for the significant differences.
With respect to Limited Service MEI Ports, the Exchange calculated Human Resources cost by taking an allocation of employee time for employees whose functions include providing Limited Service MEI Ports and maintaining performance thereof (including a broader range of employees such as technical operations personnel, market operations personnel, and software engineering personnel) as well as a limited subset of personnel with ancillary functions related to maintaining such connectivity (such as sales, membership, and finance personnel). Just as described above for 10Gb ULL connectivity, the estimates of Human Resources cost were again determined by consulting with department leaders, determining which employees are involved in tasks related to providing Limited Service MEI Ports and maintaining performance thereof, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of their time such employees devote to tasks related to providing Limited Service MEI Ports and maintaining performance thereof. This includes personnel from the following Exchange departments that are predominately involved in providing Limited Service MEI Ports: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. The Exchange notes that senior level executives were allocated Human Resources costs to the extent they are involved in overseeing tasks specifically related to providing Limited Service MEI Ports. Senior level executives were only allocated Human Resources costs to the extent that they are involved in managing personnel responsible for tasks integral to providing and maintaining Limited Service MEI Ports. The Human Resources cost was again calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.
The Connectivity cost includes external fees paid to connect to other exchanges and cabling and switches, as described above.
The next cost driver consists of internet services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami. For purposes of Limited Service MEI Ports, the Exchange also includes a portion of its costs related to external market data. External market data includes fees paid to third parties, including other exchanges, to receive and consume market data from other markets. The Exchange includes external market data costs towards the provision of Limited Service MEI Ports because such market data is necessary (in addition to physical connectivity) to offer certain services related to such ports, such as validating orders on entry against the NBBO and checking for other conditions (
The Exchange notes that the allocation for the internet Services and External Market Data cost driver is greater than that of its affiliate, MIAX Pearl Options, as MIAX allocated 7.2% of its internet Services and External Market Data expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports for the same cost driver. The allocation percentages set forth above differ because they directly correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI ports. When compared to Full Service Port (Bulk and Single)
Data Center costs includes an allocation of the costs the Exchange incurs to provide Limited Service MEI Ports in the third-party data centers where it maintains its equipment as well as related costs for market data to then enter the Exchange's system via Limited Service MEI Ports (the Exchange does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties).
Hardware and Software Licenses includes hardware and software licenses used to monitor the health of the order entry services provided by the Exchange, as described above.
The Exchange notes that this allocation is greater than its affiliate, MIAX Pearl Options, as MIAX allocated 7.2% of its Hardware and Software Maintenance and License expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI Ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options, which has a lower port count.
The vast majority of the software the Exchange uses to provide Limited Service MEI Ports has been developed in-house and the cost of such development, which takes place over an extended period of time and includes not just development work, but also quality assurance and testing to ensure the software works as intended, is depreciated over time once the software is activated in the production environment. Hardware used to provide Limited Service MEI Ports includes equipment used for testing and monitoring of order entry infrastructure and other physical equipment the Exchange purchased and is also depreciated over time.
All hardware and software, which also includes assets used for testing and monitoring of order entry infrastructure, were valued at cost, depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which is owned by the Exchange and some of which is leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange allocated 6.3% of all depreciation costs to providing Limited Service MEI Ports. The Exchange allocated depreciation costs for depreciated software necessary to operate the Exchange because such software is related to the provision of Limited Service MEI Ports. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost driver was therefore narrowly tailored to depreciation related to Limited Service MEI Ports.
The Exchange notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
Finally, a portion of general shared expenses was allocated to overall Limited Service MEI Ports costs as without these general shared costs the Exchange would not be able to operate in the manner that it does and provide Limited Service MEI Ports. The costs included in general shared expenses include general expenses of the Exchange, including office space and office expenses (
Lastly, the Exchange notes that this allocation is greater than its affiliate, MIAX Pearl Options, as MIAX allocated 9.8% of its Allocated Shared Expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 3.6% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of
Based on August 2023 data, the total monthly cost allocated to Limited Service MEI Ports of $179,765 was divided by the total number of Limited Service MEI Ports utilized by Members in August, which was 1,781 (and includes free and charged ports), resulting in an approximate cost of $101 per port per month (when rounding to the nearest dollar). The Exchange used the total number of Limited Service MEI Ports it maintained in August for all Members and included free and charged ports. However, in prior filings, the Exchange did not include the expense of maintaining the two free Limited Service MEI Ports per matching engine that each Member receives when the Exchange discussed the approximate cost per port per month, but did include the two free Limited Service MEI Ports in the total expense amounts. As described herein, the Exchange changed its proposed fee structure since past filings to now offer four free Limited Service MEI Ports per matching engine to which each Member connects. After the first four free Limited Service MEI Ports, the Exchange proposes to charge $275 per Limited Service MEI Port per matching engine, up to a total of twelve (12) Limited Service MEI Ports per matching engine.
For the sake of clarity, if a Member wanted to connect to all 24 of the Exchange's matching engines and utilize the maximum number of Limited Service MEI Ports on each matching engine (
As mentioned above, Members utilized a total of 1,781 Limited Service MEI Ports in the month of August 2023 (free and charged ports combined). Using August 2023 data to extrapolate out after the proposed changes herein go into effect, the total number of Limited Service MEI Ports that the Exchange would not charge for as a result of this increase in free ports is 940 (meaning the Exchange would charge for only 841 ports) and amounts to a total expense of $98,980 per month to the Exchange ($101 per port multiplied by 980 free Limited Service MEI Ports).
In conducting its Cost Analysis, the Exchange did not allocate any of its expenses in full to any core services (including physical connectivity or Limited Service MEI Ports) and did not double-count any expenses. Instead, as described above, the Exchange allocated applicable cost drivers across its core services and used the same Cost Analysis to form the basis of this proposal and the filings the Exchange submitted proposing fees for proprietary data feeds offered by the Exchange. For instance, in calculating the Human Resources expenses to be allocated to physical connections based upon the above described methodology, the Exchange has a team of employees dedicated to network infrastructure and with respect to such employees the Exchange allocated network infrastructure personnel with a high percentage of the cost of such personnel (42%) given their focus on functions necessary to provide physical connections. The salaries of those same personnel were allocated only 8.4% to Limited Service MEI Ports and the remaining 49.6% was allocated to 1Gb connectivity, other port services, transaction services, membership services and market data. The Exchange did not allocate any other Human Resources expense for providing physical connections to any other employee group, outside of a smaller allocation of 17.8% for 10Gb ULL connectivity or 18.2% for the entire network, of the cost associated with certain specified personnel who work closely with and support network infrastructure personnel. In contrast, the Exchange allocated much smaller percentages of costs (5% or less) across a wider range of personnel groups in order to allocate Human Resources costs to providing Limited Service MEI Ports. This is because a much wider range of personnel are involved in functions necessary to offer, monitor and maintain Limited Service MEI Ports but the tasks necessary to do so are not a primary or full-time function.
In total, the Exchange allocated 25.6% of its personnel costs to providing 10Gb ULL and 1Gb ULL connectivity and 5.8% of its personnel costs to providing Limited Service MEI Ports, for a total allocation of 31.4% Human Resources expense to provide these specific connectivity and port services. In turn, the Exchange allocated the remaining 68.6% of its Human Resources expense to membership services, transaction services, other port services and market data. Thus, again, the Exchange's allocations of cost across core services were based on real costs of operating the Exchange and were not double-counted across the core services or their associated revenue streams.
As another example, the Exchange allocated depreciation expense to all core services, including physical connections and Limited Service MEI Ports, but in different amounts. The Exchange believes it is reasonable to allocate the identified portion of such 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 connectivity services to its Members and non-Members and their customers. However, the Exchange did not allocate all of the depreciation and amortization expense toward the cost of providing connectivity services, but instead allocated approximately 67.9% of the
The Exchange notes that its revenue estimates are based on projections across all potential revenue streams and will only be realized to the extent such revenue streams actually produce the revenue estimated. The Exchange does not yet know whether such expectations will be realized. For instance, in order to generate the revenue expected from connectivity, the Exchange will have to be successful in retaining existing clients that wish to maintain physical connectivity and/or Limited Service MEI Ports or in obtaining new clients that will purchase such services. Similarly, the Exchange will have to be successful in retaining a positive net capture on transaction fees in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the Exchange's 2023 fiscal year of operations and projections. It is possible, however, that actual costs may be higher or lower. To the extent the Exchange sees growth in use of connectivity services it will receive additional revenue to offset future cost increases. However, if use of connectivity services is static or decreases, the Exchange might not realize the revenue that it anticipates or needs in order to cover applicable costs. Accordingly, the Exchange is committing to conduct a one-year review after implementation of these fees. The Exchange expects that it may propose to adjust fees at that time, to increase fees in the event that revenues fail to cover costs and a reasonable mark-up of such costs. Similarly, the Exchange may propose to decrease fees in the event that revenue materially exceeds our current projections. In addition, the Exchange will periodically conduct a review to inform its decision making on whether a fee change is appropriate (
The proposed fees will allow the Exchange to cover certain costs incurred by the Exchange associated with providing and maintaining necessary hardware and other network infrastructure as well as network monitoring and support services; without such hardware, infrastructure, monitoring and support the Exchange would be unable to provide the connectivity and port services. Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection(s). The above cost, namely those associated with hardware, software, and human capital, enable the Exchange to measure network performance with nanosecond granularity. These same costs are also associated with time and money spent seeking to continuously improve the network performance, improving the subscriber's experience, based on monitoring and analysis activity. The Exchange routinely works to improve the performance of the network's hardware and software. The costs associated with maintaining and enhancing a state-of-the-art exchange network is a significant expense for the Exchange, and thus the Exchange believes that it is reasonable and appropriate to help offset those costs by amending fees for connectivity services. Subscribers, particularly those of 10Gb ULL connectivity, expect the Exchange to provide this level of support to connectivity so they continue to receive the performance they expect. This differentiates the Exchange from its competitors. As detailed above, the Exchange has five primary sources of revenue that it can potentially use to fund its operations: transaction fees, fees for connectivity services, membership and regulatory fees, and market data fees. Accordingly, the Exchange must cover its expenses from these five primary sources of revenue.
The Exchange's Cost Analysis estimates the annual cost to provide 10Gb ULL connectivity services will equal $12,034,554. Based on current 10Gb ULL connectivity services usage, the Exchange would generate annual revenue of approximately $15,066,000. The Exchange believes this represents a modest profit of 20% when compared to the cost of providing 10Gb ULL connectivity services, which could decrease over time.
The Exchange's Cost Analysis estimates the annual cost to provide Limited Service MEI Port services will equal $2,157,178. Based on August 2023 data for Limited Service MEI Port usage and counting for the proposed increase in free Limited Service MEI Ports and proposed increase in the monthly fee from $100 to $275 per port, the Exchange would generate annual revenue of approximately $2,775,300. The Exchange believes this would result in an estimated profit margin of 22% after calculating the cost of providing Limited Service MEI Port services, which profit margin could decrease over time.
Based on the above discussion, the Exchange believes that even if the Exchange earns the above revenue or incrementally more or less, the proposed fees are fair and reasonable because they will not result in pricing that deviates from that of other exchanges or a supra-competitive profit, when comparing the total expense of the Exchange associated with providing 10Gb ULL connectivity and Limited Service MEI Port services versus the total projected revenue of the Exchange associated with network 10Gb ULL connectivity and Limited Service MEI Port services.
The Exchange also notes that this the resultant profit margin differs slightly
Further, the Exchange proposes to charge rates that are comparable to, or lower than, similar fees for similar products charged by competing exchanges. For example, for 10Gb ULL connectivity, the Exchange proposes a lower fee than the fee charged by Nasdaq for its comparable 10Gb Ultra fiber connection ($13,500 per month for the Exchange vs. $15,000 per month for Nasdaq).
The Exchange has operated at a cumulative net annual loss since it launched operations in 2012.
The Exchange notes that its revenue estimate is based on projections and will only be realized to the extent customer activity produces the revenue estimated. As a competitor in the hyper-competitive exchange environment, and an exchange focused on driving competition, the Exchange does not yet know whether such projections will be realized. For instance, in order to generate the revenue expected from 10Gb ULL connectivity and Limited Service MEI Ports, the Exchange will have to be successful in retaining existing clients that wish to utilize 10Gb ULL connectivity and Limited Service MEI Ports and/or obtaining new clients that will purchase such access. To the extent the Exchange is successful in encouraging new clients to utilize 10Gb ULL connectivity and Limited Service MEI Ports, the Exchange does not believe it should be penalized for such success. To the extent the Exchange has mispriced and experiences a net loss in connectivity clients or in transaction activity, the Exchange could experience a net reduction in revenue. While the Exchange is supportive of transparency around costs and potential margins (applied across all exchanges), as well as periodic review of revenues and applicable costs (as discussed below), the Exchange does not believe that these estimates should form the sole basis of whether or not a proposed fee is reasonable or can be adopted. Instead, the Exchange believes that the information should be used solely to confirm that an Exchange is not earning—or seeking to earn—supra-competitive profits. The Exchange believes the Cost Analysis and related projections in this filing demonstrate this fact.
The Exchange is owned by a holding company that is the parent company of four exchange markets and, therefore, the Exchange and its affiliated markets must allocate shared costs across all of those markets accordingly, pursuant to the above-described allocation methodology. In contrast, the Investors Exchange LLC (“IEX”) and MEMX, which are currently each operating only one exchange, in their recent non-transaction fee filings allocate the entire amount of that same cost to a single exchange. This can result in lower profit margins for the non-transaction fees proposed by IEX and MEMX because the single allocated cost does not experience the efficiencies and synergies that result from sharing costs across multiple platforms. The Exchange and its affiliated markets often share a single cost, which results in cost efficiencies that can cause a broader gap between the allocated cost amount and projected revenue, even though the fee levels being proposed are lower or competitive with competing markets (as described above). To the extent that the application of a cost-based standard results in Commission Staff making determinations as to the appropriateness of certain profit margins, the Exchange believes that Commission Staff should also consider whether the proposed fee level is comparable to, or competitive with, the same fee charged by competing exchanges and how different cost allocation methodologies (such as across multiple markets) may result in different profit margins for comparable fee levels. Further, if Commission Staff is making determinations as to appropriate profit margins in their approval of exchange fees, the Exchange believes that the Commission should be clear to all market participants as to what they have determined is an appropriate profit margin and should apply such determinations consistently and, in the case of certain legacy exchanges, retroactively, if such standards are to avoid having a discriminatory effect.
Further, as is reflected in the proposal, the Exchange continuously and aggressively works to control its costs as a matter of good business practice. A potential profit margin should not be evaluated solely on its size; that assessment should also consider cost management and whether the ultimate fee reflects the value of the
The Exchange believes that the proposed fees are reasonable, fair, equitable, and not unfairly discriminatory because they are designed to align fees with services provided and will apply equally to all subscribers.
The Exchange believes that the proposed fees are equitably allocated among users of the network connectivity and port alternatives, as the users of 10Gb ULL connections consume substantially more bandwidth and network resources than users of 1Gb ULL connection. Specifically, the Exchange notes that 10Gb ULL connection users account for more than 99% of message traffic over the network, driving other costs that are linked to capacity utilization, as described above, while the users of the 1Gb ULL connections account for less than 1% of message traffic over the network. In the Exchange's experience, users of the 1Gb connections do not have the same business needs for the high-performance network as 10Gb ULL users.
The Exchange's high-performance network and supporting infrastructure (including employee support), provides unparalleled system throughput with the network ability to support access to several distinct options markets. To achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate requirements of its most heavy network consumers. These billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. The Exchange must also purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages to satisfy its record keeping requirements under the Exchange Act.
The proposed changes to the monthly fee for Limited Service MEI Ports is not unfairly discriminatory because it would apply to all Market Makers equally. All Market Makers would now be eligible to receive four (4) free Limited Service MEI Ports and those that elect to purchase more would be subject to the same monthly rate regardless of the number of additional Limited Service MEI Ports they purchase. Certain market participants choose to purchase additional Limited Service MEI Ports based on their own particular trading/quoting strategies and feel they need a certain number of connections to the Exchange to execute on those strategies. Other market participants may continue to choose to only utilize the free Limited Service MEI Ports to accommodate their own trading or quoting strategies, or other business models. All market participants elect to receive or purchase the amount of Limited Service MEI Ports they require based on their own business decisions and all market participants would be subject to the same fee structure and flat fee. Every market participant may receive up to four (4) free Limited Service MEI Ports and those that choose to purchase additional Limited Service MEI Ports may elect to do so based on their own business decisions and would continue to be subject to the same flat fee. The Exchange notes that it filed to amend this fee in 2016 and that filing contained the same fee structure,
The Exchange believes that its proposed fee for Limited Service MEI Ports is reasonable, fair and equitable, and not unfairly discriminatory because it is designed to align fees with services provided, will apply equally to all Members that are assigned Limited Service MEI Ports (either directly or through a Service Bureau), and will minimize barriers to entry by now providing all Members with four, instead of the prior two, free Limited Service MEI Ports.
The Exchange believes that providing four free Limited Service MEI Ports is fair and equitable, and not unfairly discriminatory because it will enable all Members (and more Members than when the Exchange previously provided two free Limited Service MEI Ports) to access the Exchange free of charge, thereby encouraging order flow and liquidity from a diverse set of market participants, facilitating price discovery and the interaction of orders. The Exchange believes that four Limited Service MEI Ports is an appropriate number to provide for free because it aligns with the number of such ports currently maintained by a substantial majority of Members. Based on a review of Limited Service MEI Port usage, 39 of 45 connected Members are not projected to be subject to any Limited Service MEI Port fees under the proposed fee.
The Exchange assessed whether the fee may impact different types or sizes of Members differently. As a threshold matter, the fee does not by design apply differently to different types or sizes of Members. Nonetheless, the Exchange assessed whether there would be any differences in the amount of the projected fee that correlate to the type and/or size of different Members. This assessment revealed that the number of assigned Limited Service MEI Ports, and thus projected fees, correlates closely to a Member's inbound message volume to the Exchange. Specifically, as inbound message volume increases per Member, the number of requested and assigned Limited Service MEI Ports increases. The following table presents data from October 2023 evidencing the correlation between a Member's inbound message volume and the number of Limited Service MEI Port assigned to the Member as of October 31, 2023.
Members with relatively higher inbound message volume are projected to pay higher fees because they have requested more Limited Service MEI Ports. For example, the six Members that subscribe to five or more Limited Service MEI Ports and are subject to the proposed monthly fee on average account for 74.06%% of October 2023 inbound messages over Limited Service MEI Ports. Of those six Members, five experienced a monthly fee decrease for October 2023 under the proposed fee structure compared to the prior fee structure that provided two Limited Service MEI Ports for free and charged a tiered structure for any additional Limited Service MEI Ports. In contrast, the 39 Members that, based on their October 2023 Limited Service MEI Port usage are not projected to be subject to any Limited Service MEI Port fees, on average account for only 25.94% of October 2023 inbound messages over Limited Service MEI Port. This includes one Member that previously paid a fee that was not charged in October 2023 under the proposed fee structure.
The Exchange believes that the variance between projected fees and Limited Service MEI Ports usage is not unfairly discriminatory because it is based on objective differences in Limited Service MEI Port usage among different Members. The Exchange notes that the distribution of total inbound message volume is concentrated in relatively few Members, which consume a much larger proportionate share of the Exchange's resources (compared to the majority of Members that send substantially fewer inbound order messages). This distribution of inbound message volume requires the Exchange to maintain sufficient Limited Service MEI Port capacity to accommodate the higher existing and anticipated message volume of higher volume Members. Thus, the Exchange's incremental aggregate costs for all Limited Service MEI Ports are disproportionately related to volume from the highest inbound message volume Members. For these reasons, the Exchange believes it is not unfairly discriminatory for the Members with the highest inbound message volume to pay a higher share of the total Limited Service MEI Ports fees.
While Limited Service MEI Port usage is concentrated in a few relatively larger Members, the number of such ports requested is not based on the size or type of Member but rather correlates to a Member's inbound message volume to the Exchange. Further, Members with relatively higher inbound message volume also request (and are assigned) more Limited Service MEI Ports than other Members, which in turn means they account for a disproportionate share of the Exchange's aggregate costs for providing Limited Service MEI Ports.
To achieve consistent, premium network performance, the Exchange must build and maintain a network that has the capacity to handle the message rate requirements of its heaviest network consumers during anticipated peak market conditions. The resultant need to support billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. This need also requires the Exchange to purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages as part of it surveillance program and to satisfy its record keeping requirements under the Exchange Act.
Accordingly, the Exchange believes that the fee will be applied consistently with its specific purpose—to partially recover the Exchange's aggregate costs, encourage the efficient use of Limited Service MEI Ports, and align fees with Members' Limited Service MEI Port and system usage.
The Exchange further believes that the proposed fees are reasonable, fair and equitable, and non-discriminatory because they will apply to all Members in the same manner and are not targeted at a specific type or category of market participant engaged in any particular trading strategy. All Members will receive four free Limited Service MEI Ports and pay the same proposed fee per Limited Service MEI Ports for each additional Limited Service MEI Port. Each Limited Service MEI Port is identical, providing connectivity to the Exchange on identical terms. While the proposed fee will result in a different effective “per unit” rate for different Members after factoring in the four free Limited Service MEI Ports, the Exchange does not believe that this difference is material given the overall low proposed fee per Limited Service MEI Port. Because the first four Limited Service MEI Ports are free of charge, each entity will have a “per unit” rate of less than the proposed fee. Further, the fee is not connected to volume based tiers. All Members will be subject to the same fee schedule, regardless of the volume sent to or executed on the Exchange. The fee also does not depend on any distinctions between Members, customers, broker-dealers, or any other entity. The fee will be assessed solely based on the number of Limited Service MEI Ports an entity selects and not on any other distinction applied by the Exchange. While entities that send relatively more inbound messages to the Exchange may select more Limited Service MEI Ports, thereby resulting in higher fees, that distinction is based on decisions made by each Member and the extent and nature of the Member's business on the Exchange rather than application of the fee by the Exchange. Members can determine how many Limited Service MEI Ports they need to implement their trading strategies effectively. The Exchange proposes to offer additional Limited Service MEI Ports at a low fee to enable all Members to purchase as many Limited Service MEI Ports as their business needs dictate in order to optimize throughput and manage latency across the Exchange.
Notwithstanding that Members with the highest number of Limited Service MEI Ports will pay a greater percentage of the total projected fees than is represented by their Limited Service MEI Port usage, the Exchange does not believe that the proposed fee is unfairly discriminatory. It is not possible to fully synchronize the Exchange's objective to provide four free Limited Service MEI Ports to all Members, thereby minimizing barriers to entry and incentivizing liquidity on the Exchange, with an approach that exactly aligns the projected per Member fee with each Member's number of requested Limited Service MEI Ports. As proposed, the Exchange is providing a reasonable increased number of Limited Service MEI Ports to each Member without charge. In fact, the Exchange proposes to provide more Limited Service MEI Ports for free by increasing the number of available Limited Service MEI Ports that are provided for free from two to four. Any variance between projected fees and Limited Service MEI Port usage is attributable to objective differences among Members in terms of the number of Limited Service MEI Ports they determine are appropriate based on their trading on the Exchange. Further, the Exchange believes that the low amount of the proposed fee (which in the aggregate is projected to only partially recover the Exchange's directly-related costs as described herein) mitigates any disparate impact.
Further, the fee will help to encourage Limited Service MEI Port usage in a way that aligns with the Exchange's regulatory obligations. As a national securities exchange, the Exchange is subject to Regulation Systems Compliance and Integrity (“Reg SCI”).
Finally, the Exchange believes that the proposed fee is consistent with Section 11A of the Exchange Act in that it is designed to facilitate the economically efficient execution of securities transactions, fair competition among brokers and dealers, exchange markets and markets other than exchange markets, and the practicability of brokers executing investors' orders in the best market. Specifically, the proposed low, cost-based fee will enable a broad range of the Exchange Members to continue to connect to the Exchange, thereby facilitating the economically efficient execution of securities transactions on the Exchange, fair competition between and among such Members, and the practicability of Members that are brokers executing investors' orders on the Exchange when it is the best market.
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 believes the proposed fees will not result in any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed fees will allow the Exchange to recoup some of its costs in providing 10Gb ULL connectivity and Limited Service MEI Ports at below market rates to market participants since the Exchange launched operations. As described above, the Exchange has operated at a cumulative net annual loss since it launched operations in 2012
Further, the Exchange does not believe that the proposed fee increase for the 10Gb ULL connection change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. As is the case with the current proposed flat fee, the proposed fee would apply uniformly to all market participants regardless of the number of connections they choose to purchase. The proposed fee does not favor certain categories of market participants in a manner that would impose an undue burden on competition.
The Exchange does not believe that the proposed rule change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. In particular, Exchange personnel has been informally discussing potential fees for connectivity services with a diverse group of market participants that are connected to the Exchange (including large and small firms, firms with large connectivity service footprints and small connectivity service footprints, as well as extranets and service bureaus) for several months leading up to that time. The Exchange does not believe the proposed fees for connectivity services would negatively impact the ability of Members, non-Members (extranets or service bureaus), third-parties that purchase the Exchange's connectivity and resell it, and customers of those resellers to compete with other market participants or that they are placed at a disadvantage.
The Exchange does anticipate, however, that some market participants may reduce or discontinue use of connectivity services provided directly by the Exchange in response to the proposed fees. In fact, as mentioned above, one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership on January 1, 2023 as a direct result of the similar proposed fee changes by MIAX Pearl Options.
Lastly, the Exchange does not believe its proposed changes to the monthly rate for Limited Service MEI Ports will place certain market participants at a relative disadvantage to other market participants. All market participants would be eligible to receive four (4) free Limited Service MEI Ports and those that elect to purchase more would be subject to the same flat fee regardless of the number of additional Limited Service MEI Ports they purchase. All firms purchase the amount of Limited Service MEI Ports they require based on their own business decisions and similarly situated firms are subject to the same fees.
The Exchange also does not believe that the proposed rule change and price increase will result in any burden on inter-market competition that is not necessary or appropriate in furtherance of the purposes of the Act. As this is a fee increase, arguably if set too high, this fee would make it easier for other exchanges to compete with the Exchange. Only if this were a substantial fee decrease could this be considered a form of predatory pricing. In contrast, the Exchange believes that, without this fee increase, we are potentially at a competitive disadvantage to certain other exchanges that have in place higher fees for similar services. As we have noted, the Exchange believes that connectivity fees can be used to foster more competitive transaction pricing and additional infrastructure investment and there are other options markets of which market participants may connect to trade options at higher rates than the Exchange's. Accordingly, the Exchange does not believe its proposed fee changes impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
The Exchange also believes that the proposed fees for 10Gb connectivity are appropriate and warranted and would not impose any burden on competition. This is a technology driven change designed to meet customer needs. The proposed fees would assist the Exchange in recovering costs related to providing dedicated 10Gb connectivity to the Exchange while enabling it to continue to meet current and anticipated demands for connectivity by its Members and other market participants. Separating its 10Gb network from MIAX Pearl Options enables the Exchange to better compete with other exchanges by ensuring it can continue to provide adequate connectivity to existing and new Members, which may increase in ability to compete for order flow and deepen its liquidity pool, improving the overall quality of its market. The proposed rates for 10Gb ULL connectivity are structured to enable the Exchange to bifurcate its 10Gb ULL network shared with MIAX Pearl Options so that it can continue to meet current and anticipated connectivity demands of all market participants.
Similarly, and also in connection with a technology change, Cboe amended its access and connectivity fees, including port fees.
The rule structure for options exchanges are also fundamentally different from those of equities exchanges. In particular, options market participants are not forced to connect to (and purchase market data from) all options exchanges. For example, there are many order types that are available in the equities markets that are not utilized in the options markets, which relate to mid-point pricing and pegged pricing which require connection to the SIPs and each of the equities exchanges in order to properly execute those orders in compliance with best execution obligations. Additionally, in the options markets, the linkage routing and trade through protection are handled by the exchanges, not by the individual members. Thus not connecting to an options exchange or disconnecting from an options exchange does not potentially subject a broker-dealer to violate order protection requirements. Gone are the days when the retail brokerage firms (such as Fidelity, Schwab, and eTrade) were members of the options exchanges—they are not members of the Exchange or its affiliates, they do not purchase connectivity to the Exchange, and they do not purchase market data from the Exchange. Accordingly, not only is there not an actual regulatory requirement to connect to every options exchange, the Exchange believes there is also no “de facto” or practical requirement as well, as further evidenced by the recent significant reduction in the number of broker-dealers that are members of all options exchanges.
The Cboe proposal also referenced the National Market System Plan Governing the Consolidated Audit Trail (“CAT NMS Plan”),
Cboe also filed to establish a monthly fee for Certification Logical Ports of $250 per Certification Logical Port.
In its statutory basis, Cboe justified the new port fee by stating that it believed the Certification Logical Port fee were reasonable because while such ports were no longer completely free, TPHs and non-TPHs would continue to be entitled to receive free of charge one Certification Logical Port for each type of logical port that is currently offered in the production environment.
The Cboe fee proposals described herein were filed subsequent to the D.C. Circuit decision in
In conclusion, as discussed thoroughly above, the Exchange regrettably believes that the application of the Revised Review Process and Staff Guidance has adversely affected inter-market competition among legacy and non-legacy exchanges by impeding the ability of non-legacy exchanges to adopt or increase fees for their market data and access services (including connectivity and port products and services) that are on parity or commensurate with fee levels previously established by legacy exchanges. Since the adoption of the Revised Review Process and Staff Guidance, and even more so recently, it has become extraordinarily difficult to adopt or increase fees to generate revenue necessary to invest in systems, provide innovative trading products and solutions, and improve competitive standing to the benefit of non-legacy exchanges' market participants. Although the Staff Guidance served an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, it has also negatively impacted non-legacy exchanges in particular in their efforts to adopt or increase fees that would enable them to more fairly compete with legacy exchanges, despite providing enhanced disclosures and rationale under both competitive and cost basis approaches provided for by the Revised Review Process and Staff Guidance to support their proposed fee changes.
The Exchange received one comment letter on the Initial Proposal, one comment letter on the Second Proposal, one comment letter on the Third Proposal, one comment letter on the Fourth Proposal, one comment letter on the Fifth Proposal, and one comment letter on the Sixth Proposal, all from the same commenter.
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.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the Exchange's GPS antenna fees at General 8, Section 1, as described further below. 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.
The Exchange offers a GPS antenna, which allows co-location customers
GPS network time is the atomic time scale implemented by the atomic clocks in the GPS ground control stations and GPS satellites. Each GPS satellite contains multiple atomic clocks that contribute precise time data to the GPS signals. GPS receivers decode these signals, synchronizing the receivers to the atomic clocks. A GPS antenna serves as a time signal receiver and feeds a primary clock device the GPS network time using precise time data. Firms can use the precise time data provided by the GPS antenna to time-stamp transactional information.
Time synchronization services are well established in the U.S. and utilized in many areas of the U.S. economy and infrastructure. The Service is not novel to the securities markets, or to the Exchange.
The Exchange offers connectivity to a GPS antenna via two options, over shared infrastructure or a dedicated antenna. If a firm wishes to connect via a dedicated connection, it must supply the antenna hardware.
The Exchange currently charges a monthly fee of $200 for the Service, which applies to both the shared infrastructure option and the dedicated antenna option. The Exchange proposes to increase the monthly fee to $600 for the Service, which would apply to both the shared infrastructure option and the dedicated antenna option. As such, the Exchange proposes to amend its fee schedule at General 8, Section 1(d) to reflect the increased monthly fee for the GPS antenna. The Exchange has not raised such price since the monthly fee of $200 was adopted.
In addition, the Exchange's fee schedule at General 8, Section 1(d) currently states that the installation fee for the GPS antenna is installation specific. The Exchange proposes to add specific installation amounts for the Service within the fee schedule, providing greater transparency to market participants. Specifically, the Exchange proposes to charge an installation fee of $900 for connectivity to a GPS antenna over shared infrastructure and $1,500 for connectivity to a GPS antenna over a dedicated antenna.
The Service is an optional product available to any firm that chooses to subscribe. Firms may cancel their subscription at any time. The Service simply provides time synchronization that may be utilized by firms to adjust their own time systems and time-stamp transactional information. The GPS antenna is offered on a completely voluntary basis. No customer is required to purchase the GPS antenna. Potential subscribers may subscribe to the Service only if they voluntarily choose to do so. It is a business decision of each firm whether to subscribe to the Service or not. Furthermore, firms have an array of options for time synchronization. Firms may purchase the Service (or enhanced time synchronization services) from other vendors.
In addition to cost, a firm's decision regarding which, if any, time synchronization option to purchase may depend, among other factors, on whether it wants to build or buy a time feed as well as the design of a firm's systems. A firm may prefer to build out its own time feed using GPS network time (as provided by the Exchange or a third-party vendor) or purchase a time synchronization service that handles the time feed for them. Examples of enhanced time synchronization include Precision Time Protocol (“PTP”), Pulse Per Second Time Synchronization Protocol (“PPS”), and Network Time Protocol (“NTP”), each of which are feeds that a client can consume rather than creating a feed itself. Such a choice may depend on a firm's desire for control of the feed, time sensitivity, and trade strategy, including whether a firm uses such time information to trigger trading decisions, as well as other considerations such as cost and convenience. In addition, with respect to the design of a firm's systems, a firm may choose to have its time synchronization equipment centralized
Approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the shared option. The fact that approximately 41% of the Exchange's co-location customers do not subscribe to the Service demonstrate that there are alternative options available.
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
The proposed change to the pricing schedule is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for order flow, which constrains its pricing determinations. The fact that the market for order flow is competitive has long been recognized by the courts. In
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.' ”
The proposed fees are reasonable and unlikely to burden the market because the purchase of the Service is optional for all categories of co-location customers. No firms are required to purchase the Service. Though many firms use GPS network time to synchronize their internal primary clock devices, firms can purchase time sync services from third-party vendors. Firms are also free to utilize other services that may assist them in enhanced time synchronization of their systems by consuming time feeds, such as PTP, PPS, and NTP. As noted above, approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the shared option. The fact that approximately 41% of the Exchange's co-location customers do not subscribe to the Service demonstrate that there are alternative options available. Firms may choose to purchase multiple time synchronization services for resiliency or otherwise.
The Exchange offers the Service as a convenience to firms to provide them with the ability to synchronize their own primary clock devices to the GPS network time and time-stamp transactional information.
The optional Service is available to all co-location customers that choose to
The Exchange also believes that the proposed changes to include specific installation fees promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule changes will provide greater clarity to Members and the public regarding the Exchange's fees. It is in the public interest for rules to be accurate and transparent so as to eliminate the potential for confusion.
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
In terms of inter-market competition (the competition among self-regulatory organizations), the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Approval of the proposal does not impose any burden on the ability of other exchanges to compete. As noted above, time synchronization services are offered by other vendors and any exchange has the ability to offer such services if it so chooses.
Nothing in the proposal burdens intra-market competition (the competition among consumers of exchange data) because the GPS antenna is available to any co-location customer under the same fees as any other co-location customer, and any co-location customer that wishes to purchase a GPS antenna can do so on a non-discriminatory basis.
No written comments were either solicited or 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 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 (the “Act”),
Cboe EDGX Exchange, Inc. (the “Exchange” or “EDGX”) proposes to amend its Fee Schedule. The text of the proposed rule change is provided in Exhibit 5. The text of the proposed rule change is provided in Exhibit 5.
The text of the proposed rule change is also available on the Exchange's website (
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.
The Exchange proposes to amend its Fee Schedule applicable to its equities trading platform (“EDGX Equities”) as follows: (1) by introducing Add Volume Tier 7; (2) by modifying the Market Quality Tier; (3) by introducing a new Non-Displayed Add Volume Tier; (4) by modifying Remove Volume Tier 3; and (5) by introducing a new Retail Volume Tier. The Exchange proposes to implement these changes effective December 1, 2023.
The Exchange first notes that it operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. More specifically, the Exchange is only one of 16 registered equities exchanges, as well as a number of alternative trading systems and other off-exchange venues that do not have similar self-regulatory responsibilities under the Securities Exchange Act of 1934 (the “Act”), to which market participants may direct their order flow. Based on publicly available information,
Under footnote 1 of the Fee Schedule, the Exchange currently offers various Add/Remove Volume Tiers. In particular, the Exchange offers six Add Volume Tiers that each provide an enhanced rebate for Members' qualifying orders yielding fee codes B,
• Add Volume Tier 7 provides a rebate of $0.0034 per share for securities priced at or above $1.00 to qualifying orders (
Second, the Exchange proposes to modify the criteria of the existing Market Quality Tier. Currently, the criteria for the Market Quality Tier is as follows:
• The Market Quality Tier provides a rebate of $0.0028 per share for securities priced at or above $1.00 to qualifying orders (
Now, the Exchange proposes to amend the second prong of criteria in the Market Quality Tier. The proposed criteria is as follows:
• The Market Quality Tier provides a rebate of $0.0028 per share for securities priced at or above $1.00 to qualifying orders (
In addition to the Add/Remove Volume Tiers offered under footnote 1, the Exchange also offers three Non-Displayed Add Volume Tiers that each provide an enhanced rebate for Members' qualifying orders yielding fee codes DM, HA, MM, and RP, where a Member reaches certain volume-based criteria offered in each tier. The Exchange now proposes to introduce Non-Displayed Add Volume Tier 4. The proposed criteria for Non-Displayed Add Volume Tier 4 is as follows:
• Non-Displayed Add Volume Tier 4 provides a rebate of $0.0025 per share for securities priced at or above $1.00 to qualifying orders (
The Exchange also proposes to make minor grammatical changes to the introductory text associated with the Non-Displayed Add Volume Tiers. These changes are non-substantive in nature.
In addition to the Add/Remove Volume Tiers and Non-Displayed Add Volume Tiers offered under footnote 1, the Exchange also offers three Remove Volume Tiers that each assess a reduced fee for Members' qualifying orders yielding fee codes BB,
• Remove Volume Tier 3 provides a reduced fee of $0.00275 per share for securities priced at or above $1.00 to qualifying orders (
Now, the Exchange proposes to amend the second prong of criteria in Remove Volume Tier 3. The proposed criteria is as follows:
• Proposed Remove Volume Tier 3 provides a reduced fee of $0.00275 per share for securities priced at or above $1.00 to qualifying orders (
Pursuant to footnote 2 of the Fee Schedule, the Exchange offers Retail Volume Tiers which provide Retail Member Organizations (“RMOs”)
• Proposed Retail Volume Tier 3 provides an enhanced rebate of $0.0037 per share for securities priced above $1.00 to qualifying orders (
Together, the proposed addition of Retail Volume Tier 3, proposed addition of Add Volume Tier 7, proposed amendment to the Market Quality Tier, proposed addition of Non-Displayed Add Volume Tier 4, and proposed amendment to Remove Volume Tier 3 are each intended to provide Members an alternative opportunity to earn an enhanced rebate or a reduced fee by increasing their order flow to the Exchange, which further contributes to a deeper, more liquid market and provides even more execution opportunities for active market participants. Incentivizing an increase in liquidity adding or removing volume, through enhanced rebate or reduced fee opportunities, encourages liquidity adding Members on the Exchange to contribute to a deeper, more liquid market, and liquidity executing Members on the Exchange to increase transactions and take execution opportunities provided by such increased liquidity, together providing for overall enhanced price discovery and price improvement opportunities on the Exchange. As such, increased overall order flow benefits all Members by contributing towards a robust and well-balanced market ecosystem.
The Exchange also proposes to make minor grammatical changes to the introductory text associated with the Retail Volume Tiers. These changes are non-substantive in nature.
The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
As described above, the Exchange operates in a highly competitive market in which market participants can readily direct order flow to competing venues if they deem fee levels at a particular venue to be excessive or incentives to be insufficient. The Exchange believes that its proposal to: (1) introduce new Add Volume Tier 7; (2) modify the Market Quality Tier; (3) introduce new Non-Displayed Add Volume Tier 4; (4) modify Remove Volume Tier 3; and (5) introduce new Retail Volume Tier 3 reflects a competitive pricing structure designed to incentivize market participants to direct their order flow to the Exchange, which the Exchange believes would enhance market quality to the benefit of all Members. Specifically, the Exchange's proposal to introduce slightly more difficult criteria to its Market Quality Tier and Remove Volume Tier is not a significant departure from existing criteria, is reasonably correlated to the enhanced rebate or reduced fee offered by the Exchange and other competing exchanges,
In particular, the Exchange believes its proposal to: (1) introduce new Add Volume Tier 7; (2) modify the Market Quality Tier; (3) introduce new Non-Displayed Add Volume Tier 4; (4) modify Remove Volume Tier 3; and (5) introduce new Retail Volume Tier 3 is reasonable because the revised tiers will be available to all Members and provide all Members with an additional opportunity to receive an enhanced rebate or a reduced fee. The Exchange further believes the proposed modifications to its Add Volume Tier, Non-Displayed Add Volume Tier, and Retail Volume Tier will provide a reasonable means to encourage liquidity adding displayed orders and liquidity adding non-displayed orders, respectively, in Members' order flow to the Exchange and to incentivize Members to continue to provide liquidity adding volume to the Exchange by offering them an additional opportunity to receive an enhanced rebate or reduced fee on qualifying orders. Further, the Exchange wishes to encourage the use of the Primary Peg and MidPoint Peg order types by introducing criteria specific to Hidden, Primary Peg ADV and Hidden Midpoint ADV. While the proposed criteria in the Market Quality Tier and Remove Volume Tier 3 are slightly more difficult than the current criteria found in those tiers, the proposed criteria is not a significant departure from existing criteria, is reasonably correlated to the enhanced rebate or reduced fee offered by the Exchange, and will continue to incentivize Members to submit order flow to the Exchange. An overall increase in activity would deepen the Exchange's liquidity pool, offers additional cost savings, support the quality of price discovery, promote market transparency and improve market quality, for all investors.
The Exchange believes that the proposed changes to its Add/Remove Volume Tiers, Market Quality Tier, Non-Displayed Add Volume Tier, and Retail Volume Tier are reasonable as they do not represent a significant departure from the criteria currently offered in the Fee Schedule. The Exchange also believes that the proposal represents an equitable allocation of fees and rebates and is not unfairly discriminatory because all Members will be eligible for the proposed new tiers and have the opportunity to meet the tiers' criteria and receive the corresponding enhanced rebate if such criteria is met. Without having a view of activity on other markets and off-exchange venues, the Exchange has no way of knowing whether this proposed rule change would definitely result in any Members qualifying the new proposed tiers. While the Exchange has no way of predicting with certainty how the proposed changes will impact Member activity, based on the prior months volume, the Exchange anticipates that at least one Member will be able to satisfy proposed Add Volume Tier 7, at least two Members will be able to satisfy the proposed Market Quality Tier, at least one Member will be able to satisfy proposed Non-Displayed Add Volume Tier 4, at least one Member will be able to satisfy proposed Remove Volume Tier 3, and at least 1 Member will be able to satisfy proposed Retail Volume Tier 3. The Exchange also notes that proposed changes will not adversely impact any Member's ability to qualify for enhanced rebates offered under other tiers. Should a Member not meet the proposed new criteria, the
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. Rather, as discussed above, the Exchange believes that the proposed changes would encourage the submission of additional order flow to a public exchange, thereby promoting market depth, execution incentives and enhanced execution opportunities, as well as price discovery and transparency for all Members. As a result, the Exchange believes that the proposed changes further the Commission's goal in adopting Regulation NMS of fostering competition among orders, which promotes “more efficient pricing of individual stocks for all types of orders, large and small.”
The Exchange believes the proposed rule changes do not impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. Particularly, the proposed changes to the Exchange's Add/Remove Volume Tiers, Market Quality Tier, Non-Displayed Add Volume Tier, and Retail Volume Tier will apply to all Members equally in that all Members are eligible for each of the Tiers, have a reasonable opportunity to meet the Tiers' criteria and will receive the enhanced rebate on their qualifying orders if such criteria is met. The Exchange does not believe the proposed changes burden competition, but rather, enhances competition as it is intended to increase the competitiveness of EDGX by amending an existing pricing incentive and adopting pricing incentives in order to attract order flow and incentivize participants to increase their participation on the Exchange, providing for additional execution opportunities for market participants and improved price transparency. Greater overall order flow, trading opportunities, and pricing transparency benefits all market participants on the Exchange by enhancing market quality and continuing to encourage Members to send orders, thereby contributing towards a robust and well-balanced market ecosystem.
Next, the Exchange believes the proposed rule changes does not impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act. As previously discussed, the Exchange operates in a highly competitive market. Members have numerous alternative venues that they may participate on and direct their order flow, including other equities exchanges, off-exchange venues, and alternative trading systems. Additionally, the Exchange represents a small percentage of the overall market. Based on publicly available information, no single equities exchange has more than 14% of the market share.
The Exchange neither solicited nor received comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) 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.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the Exchange's GPS antenna fees at General 8, Section 1, as described further below. 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.
The Exchange offers a GPS antenna, which allows co-location customers
GPS network time is the atomic time scale implemented by the atomic clocks in the GPS ground control stations and GPS satellites. Each GPS satellite contains multiple atomic clocks that contribute precise time data to the GPS signals. GPS receivers decode these signals, synchronizing the receivers to the atomic clocks. A GPS antenna serves as a time signal receiver and feeds a primary clock device the GPS network time using precise time data. Firms can use the precise time data provided by the GPS antenna to time-stamp transactional information.
Time synchronization services are well established in the U.S. and utilized in many areas of the U.S. economy and infrastructure. The Service is not novel to the securities markets, or to the Exchange.
The Exchange offers connectivity to a GPS antenna via two options, over shared infrastructure or a dedicated antenna. If a firm wishes to connect via a dedicated connection, it must supply the antenna hardware.
The Exchange currently charges a monthly fee of $200 for the Service, which applies to both the shared infrastructure option and the dedicated antenna option. The Exchange proposes to increase the monthly fee to $600 for the Service, which would apply to both the shared infrastructure option and the dedicated antenna option. As such, the Exchange proposes to amend its fee schedule at General 8, Section 1(d) to reflect the increased monthly fee for the GPS antenna. The Exchange has not raised such price since the monthly fee of $200 was adopted.
In addition, the Exchange's fee schedule at General 8, Section 1(d) currently states that the installation fee for the GPS antenna is installation specific. The Exchange proposes to add specific installation amounts for the Service within the fee schedule, providing greater transparency to market participants. Specifically, the Exchange proposes to charge an installation fee of $900 for connectivity to a GPS antenna over shared infrastructure and $1,500 for connectivity to a GPS antenna over a dedicated antenna.
The Service is an optional product available to any firm that chooses to subscribe. Firms may cancel their subscription at any time. The Service simply provides time synchronization that may be utilized by firms to adjust their own time systems and time-stamp transactional information. The GPS antenna is offered on a completely voluntary basis. No customer is required to purchase the GPS antenna. Potential subscribers may subscribe to the Service only if they voluntarily choose to do so. It is a business decision of each firm whether to subscribe to the Service or not. Furthermore, firms have an array of options for time synchronization. Firms may purchase the Service (or enhanced time synchronization services) from other vendors.
In addition to cost, a firm's decision regarding which, if any, time synchronization option to purchase may depend, among other factors, on whether it wants to build or buy a time feed as well as the design of a firm's systems. A firm may prefer to build out its own time feed using GPS network time (as provided by the Exchange or a third-party vendor) or purchase a time synchronization service that handles the time feed for them. Examples of enhanced time synchronization include Precision Time Protocol (“PTP”), Pulse Per Second Time Synchronization Protocol (“PPS”), and Network Time Protocol (“NTP”), each of which are feeds that a client can consume rather than creating a feed itself. Such a choice may depend on a firm's desire for control of the feed, time sensitivity, and trade strategy, including whether a firm uses such time information to trigger trading decisions, as well as other considerations such as cost and convenience. In addition, with respect to the design of a firm's systems, a firm may choose to have its time synchronization equipment centralized or in multiple locations. Third-party vendors may be situated in Carteret or other New York metro financial data centers. Clients and vendors alike can produce a time feed in Carteret or any of the other locations.
Approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the shared option. The fact that approximately 41% of the Exchange's co-location customers do not subscribe to the Service demonstrate that there are alternative options available.
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
The proposed change to the pricing schedule is reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces in the market for order flow, which constrains its pricing determinations. The fact that the market for order flow is competitive has long been recognized by the courts. In
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs and the national market system.' ”
The proposed fees are reasonable and unlikely to burden the market because the purchase of the Service is optional for all categories of co-location customers. No firms are required to purchase the Service. Though many firms use GPS network time to synchronize their internal primary clock devices, firms can purchase time sync services from third-party vendors. Firms are also free to utilize other services that may assist them in enhanced time synchronization of their systems by consuming time feeds, such as PTP, PPS, and NTP. As noted above, approximately 59% of the Exchange's co-location customers subscribe to the Service, most of which opt for the
The Exchange offers the Service as a convenience to firms to provide them with the ability to synchronize their own primary clock devices to the GPS network time and time-stamp transactional information.
The optional Service is available to all co-location customers that choose to subscribe. The proposed fees would apply to all co-location customers on a non-discriminatory basis, and therefore are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers.
The Exchange also believes that the proposed changes to include specific installation fees promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed rule changes will provide greater clarity to Members and the public regarding the Exchange's fees. It is in the public interest for rules to be accurate and transparent so as to eliminate the potential for confusion.
If the Exchange is incorrect in its determination that the proposed fees reflect the value of the GPS antenna, customers will not purchase the product or will seek other options at their disposal, such as purchasing time synchronization services from third-party vendors.
The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.
In terms of inter-market competition (the competition among self-regulatory organizations), the Exchange notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, the Exchange must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. Because competitors are free to modify their own fees in response, the Exchange believes that the degree to which fee changes in this market may impose any burden on competition is extremely limited. Approval of the proposal does not impose any burden on the ability of other exchanges to compete. As noted above, time synchronization services are offered by other vendors and any exchange has the ability to offer such services if it so chooses.
Nothing in the proposal burdens intra-market competition (the competition among consumers of exchange data) because the GPS antenna is available to any co-location customer under the same fees as any other co-location customer, and any co-location customer that wishes to purchase a GPS antenna can do so on a non-discriminatory basis.
No written comments were either solicited or 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.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange proposes to amend the MIAX Emerald Options Exchange Fee Schedule (the “Fee Schedule”) to amend certain connectivity and port fees.
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.
The Exchange proposes to amend the Fee Schedule as follows: (1) increase the fees for a 10 gigabit (“Gb”) ultra-low latency (“ULL”) fiber connection for Members
Also, in that fee change, the Exchange adopted fees for providing five different types of ports for the first time. These ports were FIX Ports, MEI Ports, Clearing Trade Drop Ports, FIX Drop Copy Ports, and Purge Ports.
Since the time of the 2021 increase discussed above, the Exchange experienced ongoing increases in expenses, particularly internal expenses.
Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection with nanosecond granularity, and continuous improvements in network performance with the goal of improving the subscriber's experience. The costs associated with maintaining and enhancing a state-of-the-art network is a significant expense for the Exchange, and thus the Exchange believes that it is reasonable and appropriate to help offset those increased costs by amending fees for connectivity services. Subscribers expect the Exchange to provide this level of support so they
The Exchange now proposes to amend the Fee Schedule to amend the fees for 10Gb ULL connectivity and Limited Service MEI Ports in order to recoup ongoing costs and increase in expenses set forth below in the Exchange's cost analysis. The Exchange initially filed this proposal on December 30, 2022 as SR-EMERALD-2022-38. On January 9, 2023, the Exchange withdrew SR-EMERALD-2022-38 and resubmitted this proposal as SR-EMERALD-2023-01 (the “Initial Proposal”).
The Exchange previously included a cost analysis in the Initial, Second, Third, Fourth, Fifth, and Sixth Proposals. As described more fully below, the Exchange provides an updated cost analysis that includes, among other things, additional descriptions of how the Exchange allocated costs among it and its affiliated exchanges (MIAX PEARL, LLC (“MIAX Pearl”) (separately among MIAX Pearl Options and MIAX Pearl Equities) and MIAX
Starting in 2017, following the United States Court of Appeals for the District of Columbia's
While the above appeal to the D.C. Circuit was pending, on March 29, 2019, the Commission issued an order disapproving a proposed fee change by BOX Exchange LLC (“BOX”) to establish connectivity fees (the “BOX Order”), which significantly increased the level of information needed for the Commission to believe that an exchange's filing satisfied its obligations under the Act with respect to changing a fee.
Also while the above appeal was pending, on May 21, 2019, the Commission Staff issued guidance “to assist the national securities exchanges and FINRA . . . in preparing Fee Filings that meet their burden to demonstrate that proposed fees are consistent with the requirements of the Securities Exchange Act.”
Following the BOX Order and Staff Guidance, on August 6, 2020, the D.C. Circuit vacated the Commission's SIFMA Decision in
As a result of the Commission's loss of the
While the Exchange appreciates that the Staff Guidance articulates an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, the practical effect of the Revised Review Process, Staff Guidance, and the Commission's related practice of continuous suspension of new fee filings, is anti-competitive, discriminatory, and has put in place an un-level playing field, which has negatively impacted smaller, nascent, non-legacy exchanges (“non-legacy exchanges”), while favoring larger, incumbent, entrenched, legacy exchanges (“legacy exchanges”).
The net result is that the non-legacy exchanges are effectively now blocked by the Commission Staff from adopting or increasing fees to amounts comparable to the legacy exchanges (which were not subject to the Revised Review Process and Staff Guidance), despite providing enhanced disclosures
Commission Staff now require exchange filings, including from non-legacy exchanges such as the Exchange, to provide detailed cost-based analysis in place of competition-based arguments to support such changes. However, even with the added detailed cost and expense disclosures, the Commission Staff continues to either suspend such filings and institute disapproval proceedings, or put the exchanges in the unenviable position of having to repeatedly withdraw and re-file with additional detail in order to continue to charge those fees.
The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages. First, legacy exchanges are able to use their additional non-transaction revenue for investments in infrastructure, vast marketing and advertising on major media outlets,
While the Commission has clearly noted that the Staff Guidance is merely guidance and “is not a rule, regulation or statement of the . . . Commission . . . the Commission has neither approved nor disapproved its content . . .”,
Because of the un-level playing field created by the Revised Review Process and Staff Guidance, the Exchange believes that the Commission Staff, at this point, should either (a) provide sufficient clarity on how its cost-based standard can be met, including a clear and exhaustive articulation of required data and its views on acceptable margins,
In light of the above, disapproval of this would not meet the fairness standard under the Act, would be discriminatory and places a substantial burden on competition. The Exchange would be uniquely disadvantaged by not being able to increase its access fees to comparable levels (or lower levels than current market rates) to those of other options exchanges for connectivity. If the Commission Staff were to disapprove this proposal, that action, and not market forces, would substantially affect whether the Exchange can be successful in its competition with other options exchanges. Disapproval of this filing could also be viewed as an arbitrary and capricious decision should the Commission Staff continue to ignore its past treatment of non-transaction fee filings before implementation of the Revised Review Process and Staff Guidance and refuse to allow such filings to be approved despite significantly enhanced arguments and cost disclosures.
The Exchange proposes to amend the Fee Schedule to increase the fees for Members and non-Members to access the Exchange's system networks
The Exchange will continue to assess monthly Member and non-Member network connectivity fees for connectivity to the primary and secondary facilities in any month the Member or non-Member is credentialed to use any of the Exchange APIs or market data feeds in the production environment. The Exchange will continue to pro-rate the fees when a 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 Member or non-Member has been credentialed to utilize any of the Exchange 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.
The Exchange also proposes to amend Section 5)d) of the Fee Schedule to amend the monthly port fee for Limited Service MEI Ports available to Market Makers.
The Exchange now proposes to amend the monthly fee per Limited Service MEI Port and increase the number of free Limited Service MEI Ports per matching engine from two (2) to four (4). Specifically, the Exchange will now provide the first, second, third and fourth Limited Service MEI Ports for each matching engine free of charge. For additional Limited Service MEI Ports after the first four ports per matching engine that are provided for free (
Market Makers that elect to purchase more than the number of Limited Service Ports that are provide for free do so due to the nature of their business and their perceived need for numerous ports to access the Exchange. Meanwhile, Market Makers who utilize the free Limited Service MEI Ports do so based on their business needs.
The Exchange notes that it last proposed to increase its monthly Limited Service MEI Port fees in 2020 (other than the prior proposals to adopt a tiered fee structure for Limited Service MEI Ports),
The Exchange also proposes to make corresponding changes to the Definitions section of the Fee Schedule and the paragraph describing the cap on the number of Limited Service MEI Ports each Market Maker may receive in Section 5)d)ii) of the Fee Schedule to account for the proposed change to now provide the first four (4) Limited Service MEI Ports for free per matching engine. Accordingly, the Exchange proposes to amend the last sentence of the paragraph describing the fees for Limited Service MEI Ports in Section 5)d)ii) of the Fee Schedule to now state that Market Makers are limited to ten additional Limited Service MEI Ports per matching engine, for a total of fourteen Limited Service MEI Ports per matching engine.
The proposed fee changes are immediately effective.
The Exchange believes that the proposed fees are consistent with Section 6(b) of the Act
The Exchange believes that the information provided to justify the proposed fees meets or exceeds the amount of detail required in respect of proposed fee changes under the Revised Review Process and as set forth in recent Staff Guidance. Based on both the BOX Order
The Exchange believes that exchanges, in setting fees of all types, should meet high standards of transparency to demonstrate why each new fee or fee amendment meets the requirements of the Act that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among market participants. The Exchange believes this high standard is especially important when an exchange imposes various fees for market participants to access an exchange's marketplace.
In the Staff Guidance, the Commission Staff states that, “[a]s an initial step in assessing the reasonableness of a fee, staff considers whether the fee is constrained by significant competitive forces.”
The proposed fees are reasonable because they promote parity among exchange pricing for access, which promotes competition, including in the Exchanges' ability to competitively price transaction fees, invest in infrastructure, new products and other innovations, all while allowing the Exchange to recover its costs to provide dedicated access via 10Gb ULL connectivity and Limited Service MEI Ports. As discussed above, the Revised Review Process and Staff Guidance have created an uneven playing field between legacy and non-legacy exchanges by severely restricting non-legacy exchanges from being able to increase non-transaction related fees to provide them with additional necessary revenue to better compete with legacy exchanges, which largely set fees prior to the Revised Review Process. The much higher non-transaction fees charged by the legacy exchanges provides them with two significant competitive advantages: (i) additional non-transaction revenue that may be used to fund areas other than the non-transaction service related to the fee, such as investments in infrastructure, advertising, new products and other innovations; and (ii) greater flexibility to lower their transaction fees by using the revenue from the higher non-transaction fees to subsidize transaction fee rates. The latter is more immediately impactful in competition for order flow and market share, given the variable nature of this cost on Member firms. The absence of a reasonable path forward to increase non-transaction fees to comparable (or lower rates) limits the Exchange's flexibility to, among other things, make additional investments in infrastructure and advertising, diminishes the ability to remain competitive on transaction fees, and hinders the ability to compete for order flow and market share. Again, there is little doubt that subjecting one exchange to a materially different standard than that applied to other exchanges for non-transaction fees leaves that exchange at a disadvantage in its ability to compete with its pricing of transaction fees.
The Exchange initially adopted a fee of $50 per port, after the first two Limited Service MEI Ports that are provided free of charge, and the Exchange incurred all the costs associated to provide those first two Limited Service MEI Ports since it commenced operations in March 2019. At that same time, the Exchange only charged $6,000 per month for each 10Gb ULL connection. As a new exchange entrant, the Exchange chose to offer connectivity and ports at very low fees to encourage market participants to trade on the Exchange and experience, among things, the quality of the Exchange's technology and trading functionality. This practice is not uncommon. New exchanges often do not charge fees or charge lower fees for certain services such as memberships/trading permits to attract order flow to an exchange, and later amend their fees to reflect the true value of those services, absorbing all costs to provide those services in the meantime. Allowing new exchange entrants time to build and sustain market share through various pricing incentives before increasing non-transaction fees encourages market entry and fee parity, which promotes competition among exchanges. It also enables new exchanges to mature their markets and allow market participants to trade on the new exchanges without fees serving as a potential barrier to attracting memberships and order flow.
Later in 2020, as the Exchange's market share increased,
The proposed changes to the Fee Schedule are reasonable in several respects. As a threshold matter, the Exchange is subject to significant competitive forces, which constrains its pricing determinations for transaction fees as well as non-transaction fees. The fact that the market for order flow is competitive has long been recognized by the courts. In
The Commission and the courts have repeatedly expressed their preference for competition over regulatory intervention to determine prices, products, and services in the securities markets. In Regulation NMS, while adopting a series of steps to improve the current market model, the Commission highlighted the importance of market forces in determining prices and SRO revenues, and also recognized that current regulation of the market system “has been remarkably successful in promoting market competition in its broader forms that are most important to investors and listed companies.”
Congress directed the Commission to “rely on `competition, whenever possible, in meeting its regulatory responsibilities for overseeing the SROs
The Exchange believes the competing exchanges' 10Gb connectivity and port fees are useful examples of alternative approaches to providing and charging for access and demonstrating how such fees are competitively set and constrained. To that end, the Exchange believes the proposed fees are competitive and reasonable because the proposed fees are similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with comparable market shares. As such, the Exchange believes that denying its ability to institute fees that allow the Exchange to recoup its costs with a reasonable margin in a manner that is closer to parity with legacy exchanges, in effect, impedes its ability to compete, including in its pricing of transaction fees and ability to invest in competitive infrastructure and other offerings.
The following table shows how the Exchange's proposed fees remain similar to or less than fees charged for similar connectivity and port access provided by other options exchanges with similar market share. Each of the connectivity or port rates in place at competing options exchanges were filed with the Commission for immediate effectiveness and remain in place today.
There is no requirement, regulatory or otherwise, that any broker-dealer connect to and access any (or all of) the available options exchanges. Market participants may choose to become a member of one or more options exchanges based on the market participant's assessment of the business opportunity relative to the costs of the Exchange.
It is not a requirement for market participants to become members of all options exchanges; in fact, certain market participants conduct an options business as a member of only one options market.
One other exchange recently noted in a proposal to amend their own trading permit fees that of the 62 market making firms that are registered as Market Makers across Cboe, MIAX, and BOX, 42 firms access only one of the three exchanges.
Not only is there not an actual regulatory requirement to connect to every options exchange, the Exchange believes there is also no “de facto” or practical requirement as well, as further evidenced by the broker-dealer membership analysis of the options exchanges discussed above. As noted above, this is evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options (which are similar to the changes proposed herein). Indeed, broker-dealers choose if and how to access a particular exchange and because it is a choice, the Exchange must set reasonable pricing, otherwise prospective members would not connect and existing members would disconnect from the Exchange. The decision to become a member of an exchange, particularly for registered market makers, is complex, and not solely based on the non-transactional costs assessed by an exchange. As noted herein, specific factors include, but are not limited to: (i) an exchange's available liquidity in options series; (ii) trading functionality offered on a particular market; (iii) product offerings; (iv) customer service on an exchange; and (v) transactional pricing. Becoming a member of the exchange does not “lock” a potential member into a market or diminish the overall competition for exchange services.
In lieu of becoming a member at each options exchange, a market participant may join one exchange and elect to have their orders routed in the event that a better price is available on an away market. Nothing in the Order Protection Rule requires a firm to become a Member at—or establish connectivity to—the Exchange.
With respect to the submission of orders, Members may also choose not to purchase any connection from the Exchange, and instead rely on the port of a third party to submit an order. For example, a third-party broker-dealer Member of the Exchange may be utilized by a retail investor to submit orders into an exchange. An institutional investor may utilize a broker-dealer, a service bureau,
Non-Member third-parties, such as service bureaus and extranets, resell the Exchange's connectivity. This indirect connectivity is another viable alternative for market participants to trade on the Exchange without connecting directly to the Exchange (and thus not pay the Exchange's connectivity fees), which alternative is already being used by non-Members and further constrains the price that the Exchange is able to charge for connectivity and other access fees to its market. The Exchange notes that it could, but chooses not to, preclude market participants from reselling its connectivity. Unlike other exchanges, the Exchange also does not currently assess fees on third-party resellers on a per customer basis (
The Exchange is obligated to regulate its Members and secure access to its environment. In order to properly regulate its Members and secure the trading environment, the Exchange takes measures to ensure access is monitored and maintained with various controls. Connectivity and ports are methods utilized by the Exchange to grant Members secure access to communicate with the Exchange and exercise trading rights. When a market participant elects to be a Member, and is approved for membership by the Exchange, the Member is granted trading rights to enter orders and/or quotes into Exchange through secure connections.
Again, there is no legal or regulatory requirement that a market participant become a Member of the Exchange. This is again evidenced by the fact that one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership effective January 1, 2023 as a direct result of the proposed connectivity and port fee changes on MIAX Pearl Options. If a market participant chooses to become a Member, they may then choose to purchase connectivity beyond the one connection that is necessary to quote or submit orders on the Exchange. Members may freely choose to rely on one or many connections, depending on their business model.
In general, 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 Exchange Act requirements that fees be reasonable, equitably allocated, not unfairly discriminatory, and not create an undue burden on competition among members and markets. In particular, the Exchange believes that each exchange should take extra care to be able to demonstrate that these fees are based on its costs and reasonable business needs.
In proposing to charge fees for connectivity and port services, the Exchange is especially diligent in assessing those fees in a transparent way against its own aggregate costs of providing the related service, and in carefully and transparently assessing the impact on Members—both generally and in relation to other Members,
As detailed below, the Exchange recently calculated its aggregate annual costs for providing physical 10Gb ULL connectivity to the Exchange at $11,361,586 (or approximately $946,799 per month, rounded to the nearest dollar when dividing the annual cost by 12 months) and its aggregate annual costs for providing Limited Service MEI Ports at $1,799,066 (or approximately $148,255 per month, rounded to the nearest dollar when dividing the annual cost by 12 months). In order to cover the aggregate costs of providing connectivity to its users (both Members and non-Members
In 2020, the Exchange completed a study of its aggregate costs to produce market data and connectivity (the “Cost Analysis”).
As an initial step, the Exchange determined the total cost for the Exchange and the affiliated markets for each cost driver as part of its 2023 budget review process. The 2023 budget review is a company-wide process that occurs over the course of many months, includes meetings among senior management, department heads, and the Finance Team. Each department head is required to send a “bottom up” budget to the Finance Team allocating costs at the profit and loss account and vendor levels for the Exchange and its affiliated markets based on a number of factors, including server counts, additional hardware and software utilization, current or anticipated functional or non-functional development projects, capacity needs, end-of-life or end-of-service intervals, number of members, market model (
All of these factors result in different allocation percentages among the Exchange and its affiliated markets,
The next step involves determining what portion of the cost allocated to the Exchange pursuant to the above methodology is to be allocated to each core service,
By allocating segmented costs to each core service, the Exchange was able to estimate by core service the potential margin it might earn based on different fee models. The Exchange notes that as a non-listing venue it has five primary sources of revenue that it can potentially use to fund its operations: transaction fees, fees for connectivity and port services, membership fees, regulatory fees, and market data fees. Accordingly, the Exchange must cover its expenses from these five primary sources of revenue. The Exchange also notes that as a general matter each of these sources of revenue is based on services that are interdependent. For instance, the Exchange's system for executing transactions is dependent on physical hardware and connectivity; only Members and parties that they sponsor to participate directly on the Exchange may submit orders to the Exchange; many Members (but not all) consume market data from the Exchange in order to trade on the Exchange; and the Exchange consumes market data from external sources in order to comply with regulatory obligations. Accordingly, given this interdependence, the allocation of costs to each service or revenue source required judgment of the Exchange and was weighted based on estimates of the Exchange that the Exchange believes are reasonable, as set forth below. While there is no standardized and generally accepted methodology for the allocation of an exchange's costs, the Exchange's methodology is the result of an extensive review and analysis and will be consistently applied going forward for any other potential fee proposals. In the absence of the Commission attempting to specify a methodology for the allocation of exchanges' interdependent costs, the Exchange will continue to be left with its best efforts to attempt to conduct such an allocation in a thoughtful and reasonable manner.
Through the Exchange's extensive updated Cost Analysis, which was again recently further refined, the Exchange analyzed every expense item in the Exchange's general expense ledger to determine whether each such expense relates to the provision of connectivity and port services, and, if such expense did so relate, what portion (or percentage) of such expense actually supports the provision of connectivity and port services, and thus bears a relationship that is, “in nature and closeness,” directly related to network connectivity and port services. In turn, the Exchange allocated certain costs more to physical connectivity and others to ports, while certain costs were only allocated to such services at a very low percentage or not at all, using consistent allocation methodologies as described above. Based on this analysis, the Exchange estimates that the aggregate monthly cost to provide 10Gb ULL connectivity and Limited Service MEI Port services, including both physical 10Gb connections and Limited Service MEI Ports, is $1,095,054 (utilizing the rounded numbers when dividing the annual cost for 10Gb ULL connectivity and annual cost for Limited Service MEI Ports by 12 months, then adding both numbers together), as further detailed below.
The following chart details the individual line-item costs considered by the Exchange to be related to offering physical dedicated 10Gb ULL connectivity via an unshared network as well as the percentage of the Exchange's overall costs that such costs represent for each cost driver (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering physical 10Gb ULL connectivity. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers for the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because the Exchange's cost allocation methodology utilizes the actual projected costs of the Exchange (which are specific to the Exchange, and are independent of the costs projected and utilized by the Exchange's affiliated markets) to determine its actual costs, which may vary across the Exchange and its affiliated markets based on factors that are unique to each marketplace. The Exchange provides additional explanation below (including the reason for the deviation) for the significant differences.
The Exchange notes that it and its affiliated markets have 184 employees (excluding employees at non-options/equities exchange subsidiaries of Miami International Holdings, Inc. (“MIH”), the holding company of the Exchange and its affiliated markets), and each department leader has direct knowledge of the time spent by each employee with respect to the various tasks necessary to operate the Exchange. Specifically, twice a year, and as needed with additional new hires and new project initiatives, in consultation with employees as needed, managers and department heads assign a percentage of time to every employee and then allocate that time amongst the Exchange and its affiliated markets to determine each market's individual Human Resources expense. Then, managers and department heads assign a percentage of each employee's time allocated to the Exchange into buckets including network connectivity, ports, market data, and other exchange services. This process ensures that every employee is 100% allocated, ensuring there is no double counting between the Exchange and its affiliated markets.
For personnel costs (Human Resources), the Exchange calculated an allocation of employee time for employees whose functions include providing and maintaining physical connectivity and performance thereof (primarily the Exchange's network infrastructure team, which spends most of their time performing functions necessary to provide physical connectivity). As described more fully above, the Exchange's parent company allocates costs to the Exchange and its affiliated markets and then a portion of the Human Resources costs allocated to the Exchange is then allocated to connectivity. From that portion allocated to the Exchange that applied to connectivity, the Exchange then allocated a weighted average of 42.4% of each employee's time from the above group.
The Exchange also allocated Human Resources costs to provide physical connectivity to a limited subset of personnel with ancillary functions related to establishing and maintaining such connectivity (such as information security, sales, membership, and finance personnel). The Exchange allocated cost on an employee-by-employee basis (
The estimates of Human Resources cost were therefore determined by consulting with such department leaders, determining which employees are involved in tasks related to providing physical connectivity, and confirming that the proposed allocations were reasonable based on an understanding of the percentage of time such employees devote to those tasks. This includes personnel from the Exchange departments that are predominately involved in providing 1Gb and 10Gb ULL connectivity: Business Systems Development, Trading Systems Development, Systems Operations and Network Monitoring, Network and Data Center Operations, Listings, Trading Operations, and Project Management. Again, the Exchange allocated 42.4% of each of their employee's time assigned to the Exchange for 10Gb ULL connectivity, as stated above. Employees from these departments perform numerous functions to support 10Gb ULL connectivity, such as the installation, re-location, configuration, and maintenance of 10Gb ULL connections and the hardware they access. This hardware includes servers, routers, switches, firewalls, and monitoring devices. These employees also perform software upgrades, vulnerability assessments, remediation and patch installs, equipment configuration and hardening, as well as performance and capacity management. These employees also engage in research and development analysis for equipment and software supporting 10Gb ULL connectivity and design, and support the development and on-going maintenance of internally-developed applications as well as data capture and analysis, and Member and internal Exchange reports related to network and system performance. The above list of employee functions is not exhaustive of all the functions performed by Exchange employees to support 10Gb ULL connectivity, but illustrates the breath of functions those employees perform in
Lastly, the Exchange notes that senior level executives' time was only allocated to the 10Gb ULL connectivity related Human Resources costs to the extent that they are involved in overseeing tasks related to providing physical connectivity. The Human Resources cost was calculated using a blended rate of compensation reflecting salary, equity and bonus compensation, benefits, payroll taxes, and 401(k) matching contributions.
The Connectivity cost driver includes external fees paid to connect to other exchanges and third parties, cabling and switches required to operate the Exchange. The Connectivity cost driver is more narrowly focused on technology used to complete connections to the Exchange and to connect to external markets. The Exchange notes that its connectivity to external markets is required in order to receive market data to run the Exchange's matching engine and basic operations compliant with existing regulations, primarily Regulation NMS.
The Exchange relies on various connectivity providers for connectivity to the entire U.S. options industry, and infrastructure services for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes connectivity providers to connect to other national securities exchanges and the Options Price Reporting Authority (“OPRA”). The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Connectivity provided by these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to connect to other national securities exchanges, market data providers or OPRA and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its connectivity provider expense and recoups that expense, in part, by charging for 10Gb ULL connectivity.
The next cost driver consists of internet Services and external market data. The internet services cost driver includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami.
External market data includes fees paid to third parties, including other exchanges, to receive market data. The Exchange includes external market data fee costs towards the provision of 10Gb ULL connectivity because such market data is necessary for certain services related to connectivity, including pre-trade risk checks and checks for other conditions (
The Exchange relies on various content service providers for data feeds for the entire U.S. options industry, as well as content for critical components of the network that are necessary to provide and maintain its System Networks and access to its System Networks via 10Gb ULL connectivity. Specifically, the Exchange utilizes content service providers to receive market data from OPRA, other exchanges and market data providers. The Exchange understands that these service providers provide services to most, if not all, of the other U.S. exchanges and other market participants. Market data provided these service providers is critical to the Exchanges daily operations and performance of its System Networks to which market participants connect to via 10Gb ULL connectivity. Without these services providers, the Exchange would not be able to receive market data and, therefore, would not be able to operate and support its System Networks. The Exchange does not employ a separate fee to cover its content service provider expense and recoups that expense, in part, by charging for 10Gb ULL connectivity.
Lastly, the Exchange notes that the actual dollar amounts allocated as part of the second step of the 2023 budget process differ among the Exchange and its affiliated markets for the internet Services and External Market Data cost driver, even though, but for the Exchange, the allocation percentages are generally consistent across markets (
Data Center costs includes an allocation of the costs the Exchange incurs to provide physical connectivity in the third-party data centers where it maintains its equipment (such as dedicated space, security services, cooling and power). The Exchange notes that it does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties. The Exchange has allocated a high percentage of the Data Center cost (61.9%) to physical
Hardware and Software Licenses includes hardware and software licenses used to operate and monitor physical assets necessary to offer physical connectivity to the Exchange.
All physical assets, software, and hardware used to provide 10Gb ULL connectivity, which also includes assets used for testing and monitoring of Exchange infrastructure, were valued at cost, and depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost primarily relates to servers necessary to operate the Exchange, some of which are owned by the Exchange and some of which are leased by the Exchange in order to allow efficient periodic technology refreshes. The Exchange also included in the Depreciation cost driver certain budgeted improvements that the Exchange intends to capitalize and depreciate with respect to 10Gb ULL connectivity in the near-term. As with the other allocated costs in the Exchange's updated Cost Analysis, the Depreciation cost was therefore narrowly tailored to depreciation related to 10Gb ULL connectivity. As noted above, the Exchange allocated 63.8% of its allocated depreciation costs to providing physical 10Gb ULL connectivity.
The Exchange also notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
Finally, as with other exchange products and services, a portion of general shared expenses was allocated to overall physical connectivity costs. These general shared costs are integral to exchange operations, including its ability to provide physical connectivity. Costs included in general shared expenses include office space and office expenses (
The Exchange employed a process to determine a reasonable percentage to allocate general shared expenses to 10Gb ULL connectivity pursuant to its multi-layered allocation process. First, general expenses were allocated among the Exchange and affiliated markets as described above. Then, the general shared expense assigned to the Exchange was allocated across core services of the Exchange, including connectivity. Then, these costs were further allocated to sub-categories within the final categories,
Again, a portion of all shared expenses were allocated to the Exchange (and its affiliated markets) which, in turn, allocated a portion of that overall allocation to all physical connectivity on the Exchange. The Exchange then allocated 51.3% of the portion allocated to physical connectivity to 10Gb ULL connectivity. The Exchange believes this allocation percentage is reasonable because, while the overall dollar amount may be higher than other cost drivers, the 51.3% is based on and in line with the percentage allocations of each of the Exchange's other cost drivers. The percentage allocated to 10Gb ULL connectivity also reflects its importance to the Exchange's strategy and necessity towards the nature of the Exchange's overall operations, which is to provide a resilient, highly deterministic trading system that relies on faster 10Gb ULL connectivity than the Exchange's competitors to maintiain premium performance. This allocation reflects the Exchange's focus on providing and maintaining high performance network connectivity, of which 10Gb ULL connectivity is a main contributor. The Exchange differentiates itself by offering a “premium-product” network experience, as an operator of a high performance, ultra-low latency network with unparalleled system throughput, which system networks can support access to three distinct options markets and multiple competing market-makers having affirmative obligations to continuously quote over 1,100,000 distinct trading products (per exchange), and the capacity to handle approximately 18 million quote messages per second. The “premium-product” network experience enables users of 10Gb ULL connections to receive the network monitoring and reporting services for those approximately 1,100,000 distinct trading products. These value add services are part of the Exchange's strategy for offering a high performance trading system, which utilizes 10Gb ULL connectivity.
The Exchange notes that the 51.3% allocation of general shared expenses for physical 10Gb ULL connectivity is higher than that allocated to general shared expenses for Limited Service MEI Ports. This is based on its allocation methodology that weighted costs attributable to each core service. While physical connectivity has several areas where certain tangible costs are heavily weighted towards providing such service (
After determining the approximate allocated monthly cost related to 10Gb connectivity, the total monthly cost for 10Gb ULL connectivity of $946,799 was divided by the number of physical 10Gb ULL connections the Exchange maintained at the time that proposed pricing was determined (102), to arrive at a cost of approximately $9,282 per month, per physical 10Gb ULL connection. Due to the nature of this particular cost, this allocation methodology results in an allocation among the Exchange and its affiliated markets based on set quantifiable criteria,
The following chart details the individual line-item costs considered by the Exchange to be related to offering Limited Service MEI Ports as well as the percentage of the Exchange's overall costs such costs represent for such area (
Below are additional details regarding each of the line-item costs considered by the Exchange to be related to offering Limited Service MEI Ports. While some costs were attempted to be allocated as equally as possible among the Exchange and its affiliated markets, the Exchange notes that some of its cost allocation percentages for certain cost drivers differ when compared to the same cost drivers described by the Exchange's affiliated markets in their similar proposed fee changes for connectivity and ports. This is because the Exchange's cost allocation methodology utilizes the actual projected costs of the Exchange (which are specific to the Exchange, and are independent of the costs projected and utilized by the Exchange's affiliated markets) to determine its actual costs, which may vary across the Exchange and its affiliated markets based on factors that are unique to each marketplace. The Exchange provides additional explanation below (including the reason for the deviation) for the significant differences.
With respect to Limited Service MEI Ports, the Exchange calculated Human Resources cost by taking an allocation of employee time for employees whose functions include providing Limited Service MEI Ports and maintaining performance thereof (including a broader range of employees such as technical operations personnel, market operations personnel, and software engineering personnel) as well as a limited subset of personnel with ancillary functions related to maintaining such connectivity (such as
The Connectivity cost includes external fees paid to connect to other exchanges and cabling and switches, as described above.
The next cost driver consists of internet services and external market data. Internet services includes third-party service providers that provide the internet, fiber and bandwidth connections between the Exchange's networks, primary and secondary data centers, and office locations in Princeton and Miami. For purposes of Limited Service MEI Ports, the Exchange also includes a portion of its costs related to external market data. External market data includes fees paid to third parties, including other exchanges, to receive and consume market data from other markets. The Exchange includes external market data costs towards the provision of Limited Service MEI Ports because such market data is necessary (in addition to physical connectivity) to offer certain services related to such ports, such as validating orders on entry against the NBBO and checking for other conditions (
The Exchange notes that the allocation for the internet Services and External Market Data cost driver is greater than that of its affiliate, MIAX Pearl Options, as MIAX Emerald allocated 3.2% of its internet Services and External Market Data expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports for the same cost driver. The allocation percentages set forth above differ because they directly correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Emerald Market Makers utilized 1,030 Limited Service MEI ports and MIAX Market Makers utilized 1,781 Limited Service MEI ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure and internet Service), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options, which has a lower port count.
Data Center costs includes an allocation of the costs the Exchange incurs to provide Limited Service MEI Ports in the third-party data centers where it maintains its equipment as well as related costs for market data to then enter the Exchange's system via Limited Service MEI Ports (the Exchange does not own the Primary Data Center or the Secondary Data Center, but instead, leases space in data centers operated by third parties).
Hardware and Software Licenses includes hardware and software licenses used to monitor the health of the order entry services provided by the Exchange, as described above.
The Exchange notes that this allocation is greater than its affiliate, MIAX Pearl Options, as MIAX Emerald allocated 3.2% of its Hardware and Software Maintenance and License expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 1.4% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI Ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX and MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options, which has a lower port count.
The vast majority of the software the Exchange uses to provide Limited Service MEI Ports has been developed in-house and the cost of such development, which takes place over an extended period of time and includes not just development work, but also quality assurance and testing to ensure the software works as intended, is depreciated over time once the software is activated in the production environment. Hardware used to provide Limited Service MEI Ports includes equipment used for testing and monitoring of order entry infrastructure and other physical equipment the Exchange purchased and is also depreciated over time.
All hardware and software, which also includes assets used for testing and monitoring of order entry infrastructure, were valued at cost, depreciated or leased over periods ranging from three to five years. Thus, the depreciation cost
The Exchange notes that this allocation differs from its affiliated markets due to a number of factors, such as the age of physical assets and software (
Finally, a portion of general shared expenses was allocated to overall Limited Service MEI Ports costs as without these general shared costs the Exchange would not be able to operate in the manner that it does and provide Limited Service MEI Ports. The costs included in general shared expenses include general expenses of the Exchange, including office space and office expenses (
Lastly, the Exchange notes that this allocation is greater than its affiliate, MIAX Pearl Options, as MIAX Emerald allocated 10.3% of its Allocated Shared Expense towards Limited Service MEI Ports, while MIAX Pearl Options allocated 3.6% to its Full Service MEO Ports (Bulk and Single) for the same category of expense. The allocation percentages set forth above differ because they correspond with the number of applicable ports utilized on each exchange. For August 2023, MIAX Market Makers utilized 1,781 Limited Service MEI ports and MIAX Emerald Market Makers utilized 1,030 Limited Service MEI Ports. When compared to Full Service Port (Bulk and Single) usage, for August 2023, MIAX Pearl Options Members utilized only 384 Full Service MEO Ports (Bulk and Single), far fewer than number of Limited Service MEI Ports utilized by Market Makers on MIAX Emerald, thus resulting in a smaller cost allocation. There is increased cost associated with supporting a higher number of ports (requiring more hardware and other technical infrastructure), thus the Exchange allocates a higher percentage of expense than MIAX Pearl Options which has a lower port count.
Based on August 2023 data, the total monthly cost allocated to Limited Service MEI Ports of $148,255 was divided by the total number of Limited Service MEI Ports utilized by Members in August, which was 1,030 (and includes free and charged ports), resulting in an approximate cost of $144 per port per month (when rounding to the nearest dollar). The Exchange used the total number of Limited Service MEI Ports it maintained in August for all Members and included free and charged ports. However, in prior filings, the Exchange did not include the expense of maintaining the two free Limited Service MEI Ports per matching engine that each Member receives when the Exchange discussed the approximate cost per port per month, but did include the two free Limited Service MEI Ports in the total expense amounts. As described herein, the Exchange changed its proposed fee structure since past filings to now offer four free Limited Service MEI Ports per matching engine to which each Member connects. After the first four free Limited Service MEI Ports, the Exchange proposes to charge $420 per Limited Service MEI Port per matching engine, up to a total of fourteen (14) Limited Service MEI Ports per matching engine.
For the sake of clarity, if a Member wanted to connect to all 12 of the Exchange's matching engines and utilize the maximum number of Limited Service MEI Ports on each matching engine (
As mentioned above, Members utilized a total of 1,030 Limited Service MEI Ports in the month of August 2023 (free and charged ports combined). Using August 2023 data to extrapolate out after the proposed changes herein go into effect, the total number of Limited
In conducting its Cost Analysis, the Exchange did not allocate any of its expenses in full to any core services (including physical connectivity or Limited Service MEI Ports) and did not double-count any expenses. Instead, as described above, the Exchange allocated applicable cost drivers across its core services and used the same Cost Analysis to form the basis of this proposal and the filings the Exchange submitted proposing fees for proprietary data feeds offered by the Exchange. For instance, in calculating the Human Resources expenses to be allocated to physical connections based upon the above described methodology, the Exchange has a team of employees dedicated to network infrastructure and with respect to such employees the Exchange allocated network infrastructure personnel with a high percentage of the cost of such personnel (42.4%) given their focus on functions necessary to provide physical connections. The salaries of those same personnel were allocated only 8.0% to Limited Service MEI Ports and the remaining 49.6% was allocated to 1Gb connectivity, other port services, transaction services, membership services and market data. The Exchange did not allocate any other Human Resources expense for providing physical connections to any other employee group, outside of a smaller allocation of 19.8% for 10Gb ULL connectivity or 19.9% for the entire network, of the cost associated with certain specified personnel who work closely with and support network infrastructure personnel. In contrast, the Exchange allocated much smaller percentages of costs (5% or less) across a wider range of personnel groups in order to allocate Human Resources costs to providing Limited Service MEI Ports. This is because a much wider range of personnel are involved in functions necessary to offer, monitor and maintain Limited Service MEI Ports but the tasks necessary to do so are not a primary or full-time function.
In total, the Exchange allocated 28.1% of its personnel costs to providing 10Gb ULL and 1Gb connectivity and 5.9% of its personnel costs to providing Limited Service MEI Ports, for a total allocation of 34% Human Resources expense to provide these specific connectivity and port services. In turn, the Exchange allocated the remaining 66% of its Human Resources expense to membership services, transaction services, other port services and market data. Thus, again, the Exchange's allocations of cost across core services were based on real costs of operating the Exchange and were not double-counted across the core services or their associated revenue streams.
As another example, the Exchange allocated depreciation expense to all core services, including physical connections and Limited Service MEI Ports, but in different amounts. The Exchange believes it is reasonable to allocate the identified portion of such 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 connectivity services to its Members and non-Members and their customers. However, the Exchange did not allocate all of the depreciation and amortization expense toward the cost of providing connectivity services, but instead allocated approximately 67.5% of the Exchange's overall depreciation and amortization expense to connectivity services (63.8% attributed to 10Gb ULL physical connections and 3.7% to Limited Service MEI Ports). The Exchange allocated the remaining depreciation and amortization expense (approximately 32.5%) toward the cost of providing transaction services, membership services, other port services and market data.
The Exchange notes that its revenue estimates are based on projections across all potential revenue streams and will only be realized to the extent such revenue streams actually produce the revenue estimated. The Exchange does not yet know whether such expectations will be realized. For instance, in order to generate the revenue expected from connectivity, the Exchange will have to be successful in retaining existing clients that wish to maintain physical connectivity and/or Limited Service MEI Ports or in obtaining new clients that will purchase such services. Similarly, the Exchange will have to be successful in retaining a positive net capture on transaction fees in order to realize the anticipated revenue from transaction pricing.
The Exchange notes that the Cost Analysis is based on the Exchange's 2023 fiscal year of operations and projections. It is possible, however, that actual costs may be higher or lower. To the extent the Exchange sees growth in use of connectivity services it will receive additional revenue to offset future cost increases.
However, if use of connectivity services is static or decreases, the Exchange might not realize the revenue that it anticipates or needs in order to cover applicable costs. Accordingly, the Exchange is committing to conduct a one-year review after implementation of these fees. The Exchange expects that it may propose to adjust fees at that time, to increase fees in the event that revenues fail to cover costs and a reasonable mark-up of such costs. Similarly, the Exchange may propose to decrease fees in the event that revenue materially exceeds our current projections. In addition, the Exchange will periodically conduct a review to inform its decision making on whether a fee change is appropriate (
The proposed fees will allow the Exchange to cover certain costs incurred by the Exchange associated with providing and maintaining necessary hardware and other network infrastructure as well as network monitoring and support services; without such hardware, infrastructure, monitoring and support the Exchange would be unable to provide the connectivity and port services. Much of the cost relates to monitoring and analysis of data and performance of the network via the subscriber's connection(s). The above cost, namely
The Exchange's Cost Analysis estimates the annual cost to provide 10Gb ULL connectivity services will equal $11,361,586. Based on current 10Gb ULL connectivity services usage, the Exchange would generate annual revenue of approximately $16,524,000. The Exchange believes this represents a modest profit of 31% when compared to the cost of providing 10Gb ULL connectivity services which could decrease over time.
The Exchange's Cost Analysis estimates the annual cost to provide Limited Service MEI Port services will equal $1,779,066. Based on August 2023 data for Limited Service MEI Port usage and counting for the proposed increase in free Limited Service MEI Ports and proposed increase in the monthly fee from $100 to $420 per port, the Exchange would generate annual revenue of approximately $2,832,480. The Exchange believes this would result in an estimated profit margin of 37% after calculating the cost of providing Limited Service MEI Port services, which profit margin could decrease over time.
Based on the above discussion, the Exchange believes that even if the Exchange earns the above revenue or incrementally more or less, the proposed fees are fair and reasonable because they will not result in pricing that deviates from that of other exchanges or a supra-competitive profit, when comparing the total expense of the Exchange associated with providing 10Gb ULL connectivity and Limited Service MEI Port services versus the total projected revenue of the Exchange associated with network 10Gb ULL connectivity and Limited Service MEI Port services.
The Exchange also notes that this the resultant profit margin differs slightly from the profit margins set forth in similar fee filings by its affiliated markets. This is not atypical among exchanges and is due to a number of factors that differ between these four markets, including: different market models, market structures, and product offerings (equities, options, price-time, pro-rata, simple, and complex); different pricing models; different number of market participants and connectivity subscribers; different maintenance and operations costs, as described in the cost allocation methodology above; different technical architecture (
Further, the Exchange proposes to charge rates that are comparable to, or lower than, similar fees for similar products charged by competing exchanges. For example, for 10Gb ULL connectivity, the Exchange proposes a lower fee than the fee charged by Nasdaq for its comparable 10Gb Ultra fiber connection ($13,500 per month for the Exchange vs. $15,000 per month for Nasdaq).
The Exchange operated at a cumulative net annual loss from the time it launched operations in 2019 through fiscal year 2021.
The Exchange notes that its revenue estimate is based on projections and will only be realized to the extent customer activity produces the revenue estimated. As a competitor in the hyper-competitive exchange environment, and an exchange focused on driving competition, the Exchange does not yet know whether such projections will be realized. For instance, in order to generate the revenue expected from 10Gb ULL connectivity and Limited Service MEI Ports, the Exchange will have to be successful in retaining existing clients that wish to utilize 10Gb ULL connectivity and Limited Service MEI Ports and/or obtaining new clients that will purchase such access. To the extent the Exchange is successful in encouraging new clients to utilize 10Gb ULL connectivity and Limited Service MEI Ports, the Exchange does not believe it should be penalized for such success. To the extent the Exchange has mispriced and experiences a net loss in connectivity clients or in transaction activity, the Exchange could experience a net reduction in revenue. While the Exchange is supportive of transparency around costs and potential margins (applied across all exchanges), as well as periodic review of revenues and applicable costs (as discussed below), the Exchange does not believe that these estimates should form the sole basis of whether or not a proposed fee is reasonable or can be adopted. Instead, the Exchange believes that the information should be used solely to confirm that an Exchange is not earning—or seeking to earn—supra-competitive profits. The Exchange believes the Cost Analysis and related projections in this filing demonstrate this fact.
The Exchange is owned by a holding company that is the parent company of four exchange markets and, therefore, the Exchange and its affiliated markets must allocate shared costs across all of those markets accordingly, pursuant to the above-described allocation methodology. In contrast, the Investors Exchange LLC (“IEX”) and MEMX, which are currently each operating only one exchange, in their recent non-transaction fee filings allocate the entire amount of that same cost to a single exchange. This can result in lower profit margins for the non-transaction fees proposed by IEX and MEMX because the single allocated cost does not experience the efficiencies and synergies that result from sharing costs across multiple platforms. The Exchange and its affiliated markets often share a single cost, which results in cost efficiencies that can cause a broader gap between the allocated cost amount and projected revenue, even though the fee levels being proposed are lower or competitive with competing markets (as described above). To the extent that the application of a cost-based standard results in Commission Staff making determinations as to the appropriateness of certain profit margins, the Exchange believes that Commission Staff should also consider whether the proposed fee level is comparable to, or competitive with, the same fee charged by competing exchanges and how different cost allocation methodologies (such as across multiple markets) may result in different profit margins for comparable fee levels. Further, if Commission Staff is making determinations as to appropriate profit margins in their approval of exchange fees, the Exchange believes that the Commission should be clear to all market participants as to what they have determined is an appropriate profit margin and should apply such determinations consistently and, in the case of certain legacy exchanges, retroactively, if such standards are to avoid having a discriminatory effect.
Further, as is reflected in the proposal, the Exchange continuously and aggressively works to control its costs as a matter of good business practice. A potential profit margin should not be evaluated solely on its size; that assessment should also consider cost management and whether the ultimate fee reflects the value of the services provided. For example, a profit margin on one exchange should not be deemed excessive where that exchange has been successful in controlling its costs, but not excessive on another exchange where that exchange is charging comparable fees but has a lower profit margin due to higher costs. Doing so could have the perverse effect of not incentivizing cost control where higher costs alone could be used to justify fees increases.
The Exchange believes that the proposed fees are reasonable, fair, equitable, and not unfairly discriminatory because they are designed to align fees with services provided and will apply equally to all subscribers.
The Exchange believes that the proposed fees are equitably allocated among users of the network connectivity and port alternatives, as the users of 10Gb ULL connections consume substantially more bandwidth and network resources than users of 1Gb ULL connection. Specifically, the Exchange notes that 10Gb ULL connection users account for more than 99% of message traffic over the network, driving other costs that are linked to capacity utilization, as described above, while the users of the 1Gb ULL connections account for less than 1% of message traffic over the network. In the Exchange's experience, users of the 1Gb connections do not have the same business needs for the high-performance network as 10Gb ULL users.
The Exchange's high-performance network and supporting infrastructure (including employee support), provides unparalleled system throughput with the network ability to support access to several distinct options markets. To achieve a consistent, premium network performance, the Exchange must build out and maintain a network that has the capacity to handle the message rate requirements of its most heavy network consumers. These billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. The Exchange must also purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages to satisfy its record keeping requirements under the Exchange Act.
The proposed changes to the monthly fee for Limited Service MEI Ports is not unfairly discriminatory because it would apply to all Market Makers equally. All Market Makers would now be eligible to receive four (4) free Limited Service MEI Ports and those that elect to purchase more would be subject to the same monthly rate
The Exchange believes that its proposed fee for Limited Service MEI Ports is reasonable, fair and equitable, and not unfairly discriminatory because it is designed to align fees with services provided, will apply equally to all Members that are assigned Limited Service MEI Ports (either directly or through a Service Bureau), and will minimize barriers to entry by now providing all Members with four, instead of the prior two, free Limited Service MEI Ports.
The Exchange believes that providing four free Limited Service MEI Ports is fair and equitable, and not unfairly discriminatory because it will enable all Members (and more Members than when the Exchange previously provided two free Limited Service MEI Ports) to access the Exchange free of charge, thereby encouraging order flow and liquidity from a diverse set of market participants, facilitating price discovery and the interaction of orders. The Exchange believes that four Limited Service MEI Ports is an appropriate number to provide for free because it aligns with the number of such ports currently maintained by a substantial majority of Members. Based on a review of Limited Service MEI Port usage, 28 of 35 connected Members are not projected to be subject to any Limited Service MEI Port fees under the proposed fee.
The Exchange assessed whether the fee may impact different types or sizes of Members differently. As a threshold matter, the fee does not by design apply differently to different types or sizes of Members. Nonetheless, the Exchange assessed whether there would be any differences in the amount of the projected fee that correlate to the type and/or size of different Members. This assessment revealed that the number of assigned Limited Service MEI Ports, and thus projected fees, correlates closely to a Member's inbound message volume to the Exchange. Specifically, as inbound message volume increases per Member, the number of requested and assigned Limited Service MEI Ports increases. The following table presents data from October 2023 evidencing the correlation between a Member's inbound message volume and the number of Limited Service MEI Port assigned to the Member as of October 31, 2023.
Members with relatively higher inbound message volume are projected to pay higher fees because they have requested more Limited Service MEI Ports. For example, the seven Members that subscribe to five or more Limited
The Exchange believes that the variance between projected fees and Limited Service MEI Ports usage is not unfairly discriminatory because it is based on objective differences in Limited Service MEI Port usage among different Members. The Exchange notes that the distribution of total inbound message volume is concentrated in relatively few Members, which consume a much larger proportionate share of the Exchange's resources (compared to the majority of Members that send substantially fewer inbound order messages). This distribution of inbound message volume requires the Exchange to maintain sufficient Limited Service MEI Port capacity to accommodate the higher existing and anticipated message volume of higher volume Members. Thus, the Exchange's incremental aggregate costs for all Limited Service MEI Ports are disproportionately related to volume from the highest inbound message volume Members. For these reasons, the Exchange believes it is not unfairly discriminatory for the Members with the highest inbound message volume to pay a higher share of the total Limited Service MEI Ports fees.
While Limited Service MEI Port usage is concentrated in a few relatively larger Members, the number of such ports requested is not based on the size or type of Member but rather correlates to a Member's inbound message volume to the Exchange. Further, Members with relatively higher inbound message volume also request (and are assigned) more Limited Service MEI Ports than other Members, which in turn means they account for a disproportionate share of the Exchange's aggregate costs for providing Limited Service MEI Ports.
To achieve consistent, premium network performance, the Exchange must build and maintain a network that has the capacity to handle the message rate requirements of its heaviest network consumers during anticipated peak market conditions. The resultant need to support billions of messages per day consume the Exchange's resources and significantly contribute to the overall network connectivity expense for storage and network transport capabilities. This need also requires the Exchange to purchase additional storage capacity on an ongoing basis to ensure it has sufficient capacity to store these messages as part of it surveillance program and to satisfy its record keeping requirements under the Exchange Act.
Accordingly, the Exchange believes that the fee will be applied consistently with its specific purpose—to partially recover the Exchange's aggregate costs, encourage the efficient use of Limited Service MEI Ports, and align fees with Members' Limited Service MEI Port and system usage.
The Exchange further believes that the proposed fees are reasonable, fair and equitable, and non-discriminatory because they will apply to all Members in the same manner and are not targeted at a specific type or category of market participant engaged in any particular trading strategy. All Members will receive four free Limited Service MEI Ports and pay the same proposed fee per Limited Service MEI Ports for each additional Limited Service MEI Port. Each Limited Service MEI Port is identical, providing connectivity to the Exchange on identical terms. While the proposed fee will result in a different effective “per unit” rate for different Members after factoring in the four free Limited Service MEI Ports, the Exchange does not believe that this difference is material given the overall low proposed fee per Limited Service MEI Port. Because the first four Limited Service MEI Ports are free of charge, each entity will have a “per unit” rate of less than the proposed fee. Further, the fee is not connected to volume based tiers. All Members will be subject to the same fee schedule, regardless of the volume sent to or executed on the Exchange. The fee also does not depend on any distinctions between Members, customers, broker-dealers, or any other entity. The fee will be assessed solely based on the number of Limited Service MEI Ports an entity selects and not on any other distinction applied by the Exchange. While entities that send relatively more inbound messages to the Exchange may select more Limited Service MEI Ports, thereby resulting in higher fees, that distinction is based on decisions made by each Member and the extent and nature of the Member's business on the Exchange rather than application of the fee by the Exchange. Members can determine how many Limited Service MEI Ports they need to implement their trading strategies effectively. The Exchange proposes to offer additional Limited Service MEI Ports at a low fee to enable all Members to purchase as many Limited Service MEI Ports as their business needs dictate in order to optimize throughput and manage latency across the Exchange.
Notwithstanding that Members with the highest number of Limited Service MEI Ports will pay a greater percentage of the total projected fees than is represented by their Limited Service MEI Port usage, the Exchange does not believe that the proposed fee is unfairly discriminatory. It is not possible to fully synchronize the Exchange's objective to provide four free Limited Service MEI Ports to all Members, thereby minimizing barriers to entry and incentivizing liquidity on the Exchange, with an approach that exactly aligns the projected per Member fee with each Member's number of requested Limited Service MEI Ports. As proposed, the Exchange is providing a reasonable increased number of Limited Service MEI Ports to each Member without charge. In fact, the Exchange proposes to provide more Limited Service MEI Ports for free by increasing the number of available Limited Service MEI Ports that are provided for free from two to four. Any variance between projected fees and Limited Service MEI Port usage is attributable to objective differences among Members in terms of the number of Limited Service MEI Ports they determine are appropriate based on
Further, the fee will help to encourage Limited Service MEI Port usage in a way that aligns with the Exchange's regulatory obligations. As a national securities exchange, the Exchange is subject to Regulation Systems Compliance and Integrity (“Reg SCI”).
Finally, the Exchange believes that the proposed fee is consistent with Section 11A of the Exchange Act in that it is designed to facilitate the economically efficient execution of securities transactions, fair competition among brokers and dealers, exchange markets and markets other than exchange markets, and the practicability of brokers executing investors' orders in the best market. Specifically, the proposed low, cost-based fee will enable a broad range of the Exchange Members to continue to connect to the Exchange, thereby facilitating the economically efficient execution of securities transactions on the Exchange, fair competition between and among such Members, and the practicability of Members that are brokers executing investors' orders on the Exchange when it is the best market.
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 believes the proposed fees will not result in any burden on intra-market competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed fees will allow the Exchange to recoup some of its costs in providing 10Gb ULL connectivity and Limited Service MEI Ports at below market rates to market participants since the Exchange launched operations. As described above, the Exchange operated at a cumulative net annual loss since its launch in 2019 through 2021
Further, the Exchange does not believe that the proposed fee increase for the 10Gb ULL connection change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. As is the case with the current proposed flat fee, the proposed fee would apply uniformly to all market participants regardless of the number of connections they choose to purchase. The proposed fee does not favor certain categories of market participants in a manner that would impose an undue burden on competition.
The Exchange does not believe that the proposed rule change would place certain market participants at the Exchange at a relative disadvantage compared to other market participants or affect the ability of such market participants to compete. In particular, Exchange personnel has been informally discussing potential fees for connectivity services with a diverse group of market participants that are connected to the Exchange (including large and small firms, firms with large connectivity service footprints and small connectivity service footprints, as well as extranets and service bureaus) for several months leading up to that time. The Exchange does not believe the proposed fees for connectivity services would negatively impact the ability of Members, non-Members (extranets or service bureaus), third-parties that purchase the Exchange's connectivity and resell it, and customers of those resellers to compete with other market participants or that they are placed at a disadvantage.
The Exchange does anticipate, however, that some market participants may reduce or discontinue use of connectivity services provided directly by the Exchange in response to the proposed fees. In fact, as mentioned above, one MIAX Pearl Options Market Maker terminated their MIAX Pearl Options membership on January 1, 2023 as a direct result of the similar proposed fee changes by MIAX Pearl Options.
Lastly, the Exchange does not believe its proposed changes to the monthly rate for Limited Service MEI Ports will place certain market participants at a relative disadvantage to other market participants. All market participants would be eligible to receive four (4) free Limited Service MEI Ports and those that elect to purchase more would be subject to the same flat fee regardless of the number of additional Limited Service MEI Ports they purchase. All firms purchase the amount of Limited Service MEI Ports they require based on their own business decisions and similarly situated firms are subject to the same fees.
The Exchange also does not believe that the proposed rule change and price increase will result in any burden on inter-market competition that is not necessary or appropriate in furtherance of the purposes of the Act. As this is a fee increase, arguably if set too high, this fee would make it easier for other exchanges to compete with the Exchange. Only if this were a substantial fee decrease could this be considered a form of predatory pricing. In contrast, the Exchange believes that, without this fee increase, we are potentially at a competitive disadvantage to certain other exchanges that have in place higher fees for similar services. As we have noted, the Exchange believes that connectivity fees can be used to foster more competitive transaction pricing and additional infrastructure investment and there are other options markets of which market participants may connect to trade options at higher rates than the Exchange's. Accordingly, the Exchange does not believe its proposed fee changes impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
In conclusion, as discussed thoroughly above, the Exchange regrettably believes that the application of the Revised Review Process and Staff Guidance has adversely affected inter-market competition among legacy and non-legacy exchanges by impeding the ability of non-legacy exchanges to adopt or increase fees for their market data and access services (including connectivity and port products and services) that are on parity or commensurate with fee levels previously established by legacy exchanges. Since the adoption of the Revised Review Process and Staff Guidance, and even more so recently, it has become extraordinarily difficult to adopt or increase fees to generate revenue necessary to invest in systems, provide innovative trading products and solutions, and improve competitive standing to the benefit of non-legacy exchanges' market participants. Although the Staff Guidance served an important policy goal of improving disclosures and requiring exchanges to justify that their market data and access fee proposals are fair and reasonable, it has also negatively impacted non-legacy exchanges in particular in their efforts to adopt or increase fees that would enable them to more fairly compete with legacy exchanges, despite providing enhanced disclosures and rationale under both competitive and cost basis approaches provided for by the Revised Review Process and Staff Guidance to support their proposed fee changes.
The Exchange received one comment letter on the Initial Proposal, one comment letter on the Second Proposal, one comment letter on the Third Proposal, one comment letter on the Fourth Proposal, one comment letter on the Fifth Proposal, and one comment letter on the Sixth Proposal, all from the same commenter.
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.
60-Day notice and request for comments.
The Small Business Administration (SBA) intends to request approval, from the Office of Management and Budget (OMB) for the collection of information described below. The Paperwork Reduction Act (PRA) requires federal agencies to publish a notice in the
Submit comments on or before February 13, 2024.
Send all comments to, Paul Kirwin, Chief, SBA Supervised Lender Oversight Division, Office of Credit Risk Management, Small Business Administration, Washington, DC 20416.
Paul Kirwin, Chief, SBA Supervised Lender Oversight Division, Office of Credit Risk Management 202-205-7261,
Small Business Lending Companies (SBLCs), Community Advantage Small Business Lending Companies (CA SBLCs) and Non-federally regulated lenders (NFRLs) are non-depository lending institutions authorized by SBA primarily to make loans under section 7(a) of the Small Business Act. As sole regulator of these institutions, SBA requires them to submit audited financial statements annually as well as interim, quarterly financial statements and other reports to facilitate the Agency's oversight of these lenders.
SBA is requesting comments on (a) Whether the collection of information is necessary for the agency to properly perform its functions; (b) whether the burden estimates are accurate; (c) whether there are ways to minimize the burden, including through the use of automated techniques or other forms of information technology; and (d) whether there are ways to enhance the quality, utility, and clarity of the information.
Lakeshore Terminal Railroad LLC (Lakeshore Terminal), a noncarrier, has filed a verified notice of exemption pursuant to 49 CFR 1150.31 to acquire and operate approximately 0.5 miles (2,854 feet) of what is currently private industry track in East Chicago, Lake County, Ind., extending from a point of connection with Indiana Harbor Belt Railroad Company to the end of track (the Line).
This transaction is related to a verified notice of exemption concurrently filed in
According to Lakeshore Terminal, its noncarrier corporate affiliate, Lakeshore Railcar & Tanker Services LLC (Lakeshore Services), currently owns the Line and uses it for non-common carrier activity (primarily, freight car repair and cleaning). The verified notice states that Lakeshore Terminal and Lakeshore Services have an agreement under which Lakeshore Services will convey the Line to Lakeshore Terminal for the initiation of railroad common carrier service. Lakeshore Terminal states that it will operate and provide all rail common carrier service to customers on the Line and connecting ancillary trackage once the exemption becomes effective.
Lakeshore Terminal certifies that it will not be subject to any limitations on its ability to interchange with a third-party connecting carrier. Lakeshore Terminal also certifies that its projected annual revenues are not expected to exceed $5 million and that the proposed
The earliest this transaction may be consummated is December 31, 2023, the effective date of the exemption (30 days after the verified notice was filed).
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than December 22, 2023 (at least seven days before the exemption becomes effective).
All pleadings, referring to Docket No. FD 36742, must be filed with the Surface Transportation Board either via e-filing on the Board's website or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, a copy of each pleading must be served on Lakeshore Terminal's representative, Robert A. Wimbish, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 800, Chicago, IL 60606-3208.
According to Lakeshore Terminal, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic preservation reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Mai Dinh, Director, Office of Proceedings.
Iowa Northern Railway Company (IANR) has filed a verified notice of exemption under 49 CFR 1180.2(d)(4) to renew its lease of the railroad property of North Central Iowa Rail Corridor, LLC (NCIRC), between milepost 48.12 at Belmond, Iowa, and milepost 75.95 at Forest City, Iowa, and 600 feet of connecting track at Garner, Iowa (the Line).
According to the verified notice, in 2011, IANR leased the Line from NCIRC, for an initial term of ten years, pursuant to a lease and purchase agreement.
IANR represents that the transaction involves a renewal of a lease that the Board previously authorized, and only an extension in time is involved. Therefore, the transaction is exempt from the prior approval requirements of 49 U.S.C. 11323.
This transaction may be consummated on or after December 30, 2023, the effective date of the exemption (30 days after the verified notice was filed).
Under 49 U.S.C. 10502(g), the Board may not use its exemption authority to relieve a rail carrier of its statutory obligation to protect the interests of its employees. However, 49 U.S.C. 11326(c) does not provide for labor protection for transactions under 49 U.S.C. 11324 and 11325 that involve only Class III rail carriers. Because this transaction involves Class III rail carriers only, the Board, under the statute, may not impose labor protective conditions for this transaction.
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than December 22, 2023.
All pleadings, referring to Docket No. FD 35508 (Sub-No. 1), must be filed with the Surface Transportation Board either via e-filing on the Board's website or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, one copy of each pleading must be served on IANR's representative, Kevin M. Sheys, Hogan Lovells US LLP, Columbia Square 555, Thirteenth Street NW, Washington, DC 20004.
According to IANR, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Mai T. Dinh, Director, Office of Proceedings.
Patriot Rail Company LLC, SteelRiver Transport Ventures LLC, Global Diversified Infrastructure Fund (North America) LP, First State Infrastructure Managers (International) Limited, and Mitsubishi UFJ Financial Group, Inc. (collectively, Applicants), all noncarriers, have filed a verified notice of exemption under 49 CFR 1180.2(d)(2) to continue in control of Lakeshore Terminal Railroad LLC (Lakeshore Terminal) upon Lakeshore Terminal's becoming a Class III rail carrier.
This transaction is related to a verified notice of exemption filed concurrently in
According to the verified notice, Applicants currently control Lakeshore Terminal in addition to 31 existing Class III rail carriers in 21 states.
The verified notice indicates that: (1) the Line does not connect with any of the Patriot Short Lines; (2) the acquisition of control is not part of a series of anticipated transactions that would connect the Line or any of the Patriot Short Lines with each other; and (3) the proposed transaction does not involve a Class I rail carrier. Therefore, the transaction is exempt from the prior approval requirements of 49 U.S.C. 11323.
The transaction may be consummated on or after December 31, 2023, the effective date of the exemption (30 days after the verified notice was filed).
Under 49 U.S.C. 10502(g), the Board may not use its exemption authority to relieve a rail carrier of its statutory obligation to protect the interests of its employees. However, 49 U.S.C. 11326(c) does not provide for labor protection for transactions under 49 U.S.C. 11324 and 11325 that involve only Class III rail carriers. Accordingly, the Board may not impose labor protective conditions here because all of the carriers involved are Class III rail carriers.
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions to stay must be filed no later than December 22, 2023.
All pleadings, referring to Docket No. FD 36743, must be filed with the Surface Transportation Board either via e-filing on the Board's website or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, a copy of each pleading must be served on Applicants' representative, Robert A. Wimbish, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 800, Chicago, IL 60606-3208.
According to the verified notice, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic preservation reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Mai T. Dinh, Director, Office of Proceedings.
Federal Aviation Administration (FAA), Department of Transportation (DOT).
Random drug and alcohol testing percentage rates of covered aviation employees for the period January 1, 2024 to December 31, 2024; correction.
On November 17, 2023, the Federal Aviation Administration (FAA) published the Random Drug and Alcohol Testing Percentage Rates of Covered Aviation Employees for the Period January 1, 2024 to December 31, 2024. In that document, the FAA inadvertently provided incorrect years in the supplementary information section. This document corrects that error.
This correction is effective December 15, 2023.
Ms. Vicky Dunne, Federal Aviation Administration, Office of Aerospace Medicine, Drug Abatement Division, Program Policy Branch; Email
On November 17, 2023, the Federal Aviation Administration (FAA) published the Random Drug and Alcohol Testing Percentage Rates of Covered Aviation Employees for the Period January 1, 2024 to December 31, 2024; Corrections. In the second column, third paragraph under the supplementary section of the document, the year appeared as 2023 instead of 2024. In the third column, first paragraph under the supplementary section of the document, the year appeared as 2022 instead of 2024. This document corrects that error.
In the
In the
Issued in Washington, DC.
Federal Aviation Administration (FAA), DOT.
Notice of final action to release airport property.
In accordance with section 125 of The Wendell H. Ford Aviation Investment and Reform Act for the 21st Century(AIR-21) the Federal Aviation Administration (FAA) provides notice that the FAA is approving a surplus property land release of Federal obligations for a 5.25 acre parcel at the Kearney Muncipal Airport, Kearney, Nebraska.
Amy J. Walter, Airports Land Specialist, Federal Aviation Administration, Central Region Airports Division, ACE-
The Sponsor self reported the sale of a parcel of surplus property airport land prior to receiving required authorization and release by the Federal Aviation Administration (FAA). FAA authorization is a requirement found in the Federal surplus property transfer deeds, 14 CFR part 155, the Federal obligations found in the grant assurances and the guidelines outlined in FAAO 5190.6 Airport Compliance Manual. The 5.25 acre parcel was sold to the previous tenant who had improved the parcel with a building and fuel storage. Upon FAA request, the airport has submitted acceptable corrective actions that include the required documentation of payment of Fair Market Value in the amount of $183,500.00. The FAA has confirmed that the disposition of proceeds from the sale of the airport property are in accordance with 49 U.S.C. 47107(c)(2)(B) and FAA's Policy and Procedures Concerning the Use of Airport Revenue, published in the
Federal Aviation Administration (FAA), DOT.
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FAA invites public comments about our intention to request the Office of Management and Budget (OMB) approval to renew an information collection. The
Written comments should be submitted by January 16, 2024.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
John Graybill by email at:
Texas Department of Transportation (TxDOT), Federal Highway Administration (FHWA), U.S. Department of Transportation.
Notice of limitation on claims for judicial review of actions by TxDOT and Federal agencies.
This notice announces actions taken by TxDOT and Federal agencies that are final. The environmental review, consultation, and other actions required by applicable Federal environmental laws for these projects are being, or have been, carried out by TxDOT pursuant to an assignment agreement executed by FHWA and TxDOT. The actions relate to various proposed highway projects in the State of Texas. These actions grant licenses, permits, and approvals for the projects.
By this notice, TxDOT is advising the public of final agency actions subject to 23 U.S.C. 139(l)(1). A claim seeking judicial review of TxDOT and Federal agency actions on the highway projects will be barred unless the claim is filed on or before the deadline. For the projects listed below, the deadline is May 13, 2024. If the Federal law that authorizes judicial review of a claim provides a time period of less than 150 days for filing such a claim, then that shorter time period still applies.
Patrick Lee, Environmental Affairs Division, Texas Department of Transportation, 125 East 11th Street, Austin, Texas 78701; telephone: (512) 416-2358; email:
The environmental review, consultation, and other actions required by applicable Federal environmental laws for these projects are being, or have been, carried out by TxDOT pursuant to 23 U.S.C. 327 and a Memorandum of Understanding dated December 9, 2019, and executed by FHWA and TxDOT.
Notice is hereby given that TxDOT and Federal agencies have taken final agency actions by issuing licenses, permits, and approvals for the highway projects in the State of Texas that are listed below.
The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion (CE), Environmental Assessment (EA), or Environmental Impact Statement (EIS) issued in connection with the projects and in other key project documents. The CE, EA, or EIS and other key documents for the listed projects are available by contacting the local TxDOT office at the address or telephone number provided for each project below.
This notice applies to all TxDOT and Federal agency decisions as of the issuance date of this notice and all laws under which such actions were taken, including but not limited to:
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The projects subject to this notice are:
1. US 79 at Little Brazos River, Robertson County, Texas. The project will replace and widen the existing US 79 bridge and approaches over the Little Brazos River. Additional roadway improvements include reconstruction of the base and roadway ditch grading, structure widening, and drainage restoration and improvements. The project is 1.441 miles long on US 79 southwest of Hearne, TX. Starting at the northeast limits of the project, an existing culvert will be reconstructed, and an existing concrete-lined drainage channel will be reconstructed. This work will extend an additional 0.48 mile and will include driveway construction over the proposed ditch. Additional work on FM 50 where it intersects with US 79 will be 0.12 mile long. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion Determination issued on September 5, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT Bryan District Office at 2591 North Earl Rudder Freeway, Bryan, Texas 77803; telephone: (979) 778-2165.
2. SH 178 from the Texas/New Mexico state line to the SH 178/I-10 interchange, El Paso County, Texas. The project will include four direct connectors at the interchange of I-10 and SH 178. Between I-10 and SH 20 (Doniphan Drive) improvements include access control measures, reconstruction, and extension of existing frontage roads in both directions. The project will also include grade-separated interchanges along SH 178 at Upper Valley Road and Westside Drive, with four elevated lanes constructed over these intersections, and entrance and exit ramps connecting with two-lane access roads. The total project length is approximately three miles. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion Determination issued on October 3, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT El Paso District Office at 13301 Gateway West, El Paso, TX 79928; telephone: (915) 790-4341.
3. SH 6 at the BNSF railroad, Brazoria County, Texas. The project will reconstruct the pump station and install a new stormwater detention on SH 6 at the BNSF railroad near Avenue C/Perry Lane. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion Determination issued on October 5, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT Houston District Office at 7600 Washington Avenue, Houston, TX 77007; telephone: (713) 802-5000.
4. US 183 from RM 1431 to Avery Ranch Boulevard, Williamson County, Texas. The improvements include the
5. Wheatland Road From Dallas/Lancaster County Line to University Hills Boulevard, Dallas County, Texas. The proposed roadway will be a new location undivided roadway realigning Wheatland Road. The project will accommodate four 12-foot-wide travel lanes (two in each direction), with dedicated 5-foot-wide bike lanes and 5-foot-wide sidewalks along both sides of the roadway within an 80-foot-wide right-of-way to match the previous improved section of Wheatland Rd east of the proposed project. The realigned Killough Blvd. would include one 12-foot lane in either direction and a dedicated right-turn lane toward Wheatland Road. The project is approximately 0.579 mile in length. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion Determination issued on October 23, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT Dallas District Office at 4777 E Highway 80, Mesquite, TX 75150; telephone: (214) 320-4480.
6. State Loop (SL) 335 realignment at SH 136 intersection in Potter County, Texas. The project will extend along SL 335 from approximately 0.58 mile south of the SH 136 intersection to approximately 0.365 mile north of the intersection, for a total project length of approximately 0.94 mile. Entrance and exit ramps on SL 335 north of SH 136 will be reconfigured to eliminate the jug handles so that the frontage roads tie straight into SH 136. Eastbound SH 136 west of the intersection will add a 12-foot-wide right turn lane for traffic turning south onto southbound SL 335. New frontage roads for SL 335 northbound and southbound traffic south of SH 136 will be constructed adjacent to the SL 335 main lanes. The areas north of SH 136 where jug handles will be removed will be shaped and reseeded. Lakeside Drive north of SH 136 will no longer be connected to the SL 335 roadway. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Categorical Exclusion Determination issued on October 27, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT Amarillo District Office at 5715 Canyon Drive, Amarillo, TX 79110; telephone: (806) 356-3200.
7. FM 428 from Dallas Parkway to SH 289/Preston Road, Collin County, Texas. The project will include the realignment and widening of the roadway within the project limits. Improvements will consist of four 12-foot-wide lanes (ultimate six) with an 18-foot-wide raised median, and 10-foot-wide sidewalks along both sides of the road. The project will include a bridge over Doe Branch and an overpass over the BNSF tracks. The project is approximately 1.8 miles in length. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in, the Categorical Exclusion Determination issued on November 10, 2023, and other documents in the TxDOT project file. The Categorical Exclusion Determination and other documents in the TxDOT project file are available by contacting the TxDOT Dallas District Office at 4777 E Highway 80, Mesquite, TX 75150; telephone: (214) 320-4480.
8. Hachar-Reuthinger Road, from FM 1472 to I-35 Southbound Frontage Road, Webb County, Texas. The proposed Hachar-Reuthinger Road will provide a new roadway on new location for approximately 8.4 miles from FM 1472 (aka Mines Road) northbound lane east to the southbound (western) frontage road of I-35 approximately two miles north of the I-35/Beltway Parkway/Uniroyal Drive overpass. The proposed roadway will consist of a four-lane divided facility with two lanes of travel in each direction. The proposed roads will consist of two 12-foot-wide travel lanes with four-foot-wide inside shoulders and 10-foot-wide outside shoulders. Intersections with turnarounds will be constructed at the intersection of the future Beltway Parkway and at two additional locations based upon the City of Laredo Thoroughfare Plan. These two currently unidentified intersections will be located approximately 2.4 miles east of Mines Road/FM 1472 intersection, and approximately 1.5 mile northeast of the Hachar Road/Beltway Parkway. A westbound turnaround will be constructed approximately 0.16 mile east of the FM 1472/Hachar-Reuthinger Road intersection. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Final Environmental Assessment (EA), the Finding of No Significant Impact (FONSI) issued on September 20, 2023, and other documents in the TxDOT project file. The EA, FONSI, and other documents in the TxDOT project file are available by contacting the TxDOT Laredo District Office at 1817 Bob Bullock Loop, Laredo, TX 78043; telephone: (956) 712-7402.
9. FM 517 from SH 35 to I-45 in Brazoria and Galveston Counties, Texas. The project will make improvements along 9.8 miles of FM 517. Between SH 35 and FM 646 the improvements will include widening the existing facility to four lanes with two 12-foot-wide travel lanes in each direction. Between FM 646 and I-45, the improvements will add an 18-foot-wide raised median with turn lanes. The facility will also have 14-foot-wide shoulders and 10-foot-wide shared use paths on both sides of the roadway. No sidewalks are proposed between FM 646 and I-45. The roadway will be converted to curb and gutter system with open vegetated ditches. There are no detention ponds proposed. The actions by TxDOT and Federal agencies and the laws under which such actions were taken are described in the Final Environmental Assessment (EA), the Finding of No Significant Impact (FONSI) issued on October 30, 2023, and other documents in the TxDOT project file. The EA, FONSI and, other documents in the TxDOT project file are available by contacting the TxDOT Houston District Office at 7600 Washington Avenue, Houston, TX 77007; telephone: (713) 802-5000.
In the
All other deadlines shall remain in accordance with the NOFA published on December 11, 2023.
The CDFI Fund will respond to questions concerning the NOFA and the Application between the hours of 9:00 a.m. and 5:00 p.m. Eastern Time, starting on the date that the NOFA was published through the dates listed in this notice. The CDFI Fund strongly recommends Applicants submit questions to the CDFI Fund via an AMIS service request to the NACA Program, Office of Certification Policy and Evaluation, the Office of Compliance Monitoring and Evaluation, or IT Help Desk. Other information regarding the CDFI Fund and its programs may be obtained from the CDFI Fund's website at
The CDFI Fund will use the contact information in AMIS to communicate with Applicants and Recipients. It is imperative therefore, that Applicants, Recipients, Subsidiaries, Affiliates, and signatories maintain accurate contact information in their accounts. This includes information such as contact names (especially for the Authorized Representative), email addresses, fax and phone numbers, and office locations. For more information about AMIS, please see the AMIS Landing Page at
12 U.S.C. 4701, et seq; 12 CFR parts 1805 and 1815; 2 CFR part 200.
In the
All other deadlines shall remain in accordance with the NOFA published on December 11, 2023.
The CDFI Fund will respond to questions concerning the NOFA and the Application between the hours of 9:00 a.m. and 5:00 p.m. Eastern Time, starting on the date that the NOFA was published through the dates listed in this notice. The CDFI Fund strongly recommends Applicants submit questions to the CDFI Fund via an AMIS service request to the CDFI Program, Office of Certification Policy and Evaluation, the Office of Compliance Monitoring and Evaluation, or IT Help Desk. Other information regarding the CDFI Fund and its programs may be obtained from the CDFI Fund's website at
The CDFI Fund will use the contact information in AMIS to communicate with Applicants and Recipients. It is imperative therefore, that Applicants, Recipients, Subsidiaries, Affiliates, and signatories maintain accurate contact information in their accounts. This includes information such as contact names (especially for the Authorized Representative), email addresses, fax and phone numbers, and office locations. For more information about AMIS, please see the AMIS Landing Page at
Office of the Comptroller of the Currency (OCC), Treasury.
Notice and request for comment.
The OCC, as part of its continuing effort to reduce paperwork and respondent burden, invites comment on a continuing information collection, as required by the Paperwork Reduction Act of 1995 (PRA). In accordance with the requirements of the PRA, the OCC may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The OCC is soliciting comment concerning a revision to its information collection titled, “Fair Housing Home Loan Data System Regulation.”
Comments must be received by February 13, 2024.
Commenters are encouraged to submit comments by email, if possible. You may submit comments by any of the following methods:
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Following the close of this notice's 60-day comment period, the OCC will publish a second notice with a 30-day comment period. You may review comments and other related materials that pertain to this information collection beginning on the date of publication of the second notice for this collection by the method set forth in the next bullet.
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• For assistance in navigating
Shaquita Merritt, Clearance Officer, (202) 649-5490, Chief Counsel's Office, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.
Under the PRA (44 U.S.C. 3501
The requirements in part 27 are as follows:
Section 27.3(a)(1) requires provision of the data that national banks are required to collect on home loans pursuant to Regulation C.
Sections 27.3(a)(2) and (3) require national banks that receive more than 50 applications but are not HMDA reporters to collect certain information quarterly.
Section 27.3(a) also lists exceptions to the HMDA-LAR recordkeeping requirements.
Section 27.3(b) lists the information national banks must attempt to obtain from an applicant as part of a home loan application and sets forth the information that banks must disclose to an applicant.
Section 27.3(c) sets forth additional information national banks must maintain in each of their home loan files.
Section 27.4 states that the OCC may require a national bank to maintain a Fair Housing Inquiry/Application Log found in Appendix III to part 27 including if: (1) there is reason to believe that the bank is prescreening, or otherwise engaging in discriminatory practices on a prohibited basis, (2) complaints filed with the Comptroller or letters in the Community Reinvestment Act file are found to be substantive in nature, indicating that the bank's home lending practices are, or may be, discriminatory, or (3) analysis of the data compiled by the bank under HMDA and Regulation C indicates a pattern of significant variation in the number of home loans between census tracts with similar incomes and home ownership levels differentiated only by race or national origin.
Section 27.5 requires a national bank to maintain the information required by § 27.3 for 25 months after the bank notifies the applicant of action taken on an application or after withdrawal of an application.
Section 27.7 requires a national bank to submit to the OCC, upon request prior to a scheduled examination, the information required by §§ 27.3(a) and 27.4. Non-HMDA reporters with more than 50 applications are required to submit this data using the Monthly Home Loan Activity Format form in Appendix I to part 27 and the Home Loan Data Submission Form in Appendix IV to part 27, except that there is an additional exclusion for national banks with fewer than 75 applications. Specifically, § 27.7(c)(3) states that a bank with fewer than 75 home loan applications in the preceding year is not required to submit such forms unless the home loan activity is concentrated in the few months preceding the request for data, indicating the likelihood of increased activity over the subsequent year, or there is cause to believe that a bank is not in compliance with the fair housing laws based on prior examinations and/or complaints, among other factors.
Section 27.7(d) provides that if there is cause to believe that a national bank is in noncompliance with fair housing laws, the Comptroller may require submission of additional Home Loan Data Submission Forms. The Comptroller may also require submission of the information maintained under § 27.3(a) and Home Loan Data Submission Forms at more frequent intervals than specified.
Comments submitted in response to this notice will be summarized and included in the request for OMB approval. All comments will become a matter of public record. Comments are invited on:
(a) Whether the collection of information is necessary for the proper performance of the functions of the OCC, including whether the information has practical utility;
(b) The accuracy of the OCC's estimate of the burden of the collection of information;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the collection on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
Financial Crimes Enforcement Network (“FinCEN”), Treasury.
Notice and request for nominations.
FinCEN is inviting the public to nominate financial institutions, trade groups, and non-federal regulators or law enforcement agencies for membership in the Bank Secrecy Act Advisory Group. New members will be selected for three-year membership terms.
Nominations must be received by January 16, 2024.
Nominations must be emailed to
FinCEN Regulatory Support Section at
Section 1564 of the Annunzio-Wylie Anti-
BSAAG membership is open to financial institutions, trade groups, and Federal and non-Federal regulators and law enforcement agencies that are located within the United States. In September of 2022, FinCEN published a final rule
Each member selected will serve a three-year term and must designate one individual to represent that member at plenary meetings. While BSAAG membership is granted to organizations, not to individuals, the designated representative for each selected organization should be knowledgeable about Bank Secrecy Act requirements and be willing and able to devote the necessary time and effort on behalf of the representative's organization. Members are expected to actively share anecdotal perspectives, quantifiable insights on BSA requirements, and industry trends in BSAAG discussions. The organization's representative must be able to attend biannual plenary meetings, generally held in Washington, DC, over one or two days, generally in May and October. Additional BSAAG meetings may be held by phone, videoconference, or in person, and the organization's representative is expected to actively engage in the BSAAG's work through participation in meetings of various BSAAG Subcommittees and/or working groups, including Subcommittees established pursuant to the Anti-Money Laundering Act of 2020 (AML Act).
Nominations for individuals who are not representing an organization will not be considered, but organizations may nominate themselves. Please provide complete answers to the following items, as nominations will be evaluated based on the information provided in response to this notice and request for nominations. There is no required format; interested organizations may submit their nominations via email or email attachment. Nominations should consist of:
• Name of the organization requesting membership
• Point of contact, title, address, email address, and phone number
• Description of the financial institution or trade group and its involvement with the Bank Secrecy Act and/or Corporate Transparency Act.
• Reasons why the organization's participation on the BSAAG will bring value to the group
• Trade groups must submit a full list of their members along with their nomination. Trade groups must also confirm that, if selected, they will only share BSAAG information with their members that are located within the United States.
In making the selections, FinCEN will seek to complement current BSAAG members and obtain comprehensive representation in terms of affiliation, industry, and geographic representation. The Director of FinCEN retains full discretion on all membership decisions. The Director may consider prior years' applications when making selections and will not limit consideration to institutions nominated by the public when making selections.
Office of Foreign Assets Control, Treasury.
Notice.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) is publishing the names of one or more persons that have been placed on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) based on OFAC's determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
See Supplementary Information section for effective date(s).
OFAC: Bradley T. Smith, Director, tel.: 202-622-2490; Associate Director for Global Targeting, tel.: 202-622-2420; Assistant Director for Licensing, tel.: 202-622-2480; Assistant Director for Regulatory Affairs, tel.: 202-622-4855; or the Assistant Director for Compliance, tel.: 202-622-2490.
The SDN List and additional information concerning OFAC sanctions programs are available on OFAC's website (
On December 6, 2023, OFAC determined that the property and interests in property subject to U.S. jurisdiction of the following persons are blocked under the relevant sanctions authority listed below.
1. ALEMAN MEZA, Oscar, Mexico; DOB 17 Apr 1962; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. AEMO620417HSLLZS07 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or
2. BASTIDAS ERENAS, Juan Pablo (a.k.a. “PAYO”), Mexico; DOB 11 Mar 1980; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. BAEJ800311HSLSRN16 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
3. BELTRAN ARAUJO, Amberto, Mexico; DOB 12 Dec 1988; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. BEAA881212HSLLRM08 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
4. BELTRAN ARAUJO, Mario German (a.k.a. “EL NINON”), Mexico; DOB 14 May 1992; POB Sonora, Mexico; nationality Mexico; Gender Male; C.U.R.P. BEAM920514HSRLRR03 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
5. CARO MONGE, Jesus Jose Gil (a.k.a. “KIKIL”), Mexico; DOB 20 Jun 1991; POB Jalisco, Mexico; nationality Mexico; Gender Male; C.U.R.P. CAMJ910620HJCRNS02 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
6. CARO QUINTERO, Jose Gil, Mexico; DOB 07 Feb 1968; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. CAQG680207HSLRNL09 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
7. ESTEVEZ COLMENARES, Ricardo (a.k.a. SOTO RODRIGUEZ, Bogar; a.k.a. “LOCO”; a.k.a. “TIO”), Mexico; DOB 14 Sep 1974; POB Guerrero, Mexico; nationality Mexico; Gender Male; C.U.R.P. EECR740914HGRSLC02 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
8. ESTRADA GUTIERREZ, Jose de Jesus (a.k.a. ESTRADA GUTIERREZ, Josue de Jesus), Mexico; DOB 17 Nov 1968; POB Jalisco, Mexico; nationality Mexico; Gender Male; C.U.R.P. EAGJ681117HJCSTS00 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
9. FLORES ORTIZ, Francisco Abraham (a.k.a. “PANCHITO”), Mexico; DOB 13 Aug 1977; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. FOOF770813HSLLRR00 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
10. FRANCO FIGUEROA, Ulises (a.k.a. “CHARCO”), Mexico; DOB 17 Jun 1987; POB Oaxaca, Mexico; nationality Mexico; Gender Male; C.U.R.P. FAFU870617HOCRGL03 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
11. GASTELUM IRIBE, Oscar Manuel (a.k.a. “EL MUSICO”; a.k.a. “SALGADO”), Monte Rosa #657, Colonia Montebello, Culiacan, Sinaloa 80227, Mexico; Rio de la Plata #3041, Colonia Lomas del Boulevard, Culiacan, Sinaloa 80110, Mexico; Antonio Palafox #1856 Int 42, Colonia Paseos del Sol, Zapopan, Jalisco, Mexico; DOB 05 Oct 1974; POB Jalisco, Mexico; nationality Mexico; RFC GAI0741005TQ3 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
12. INZUNZA NORIEGA, Pedro, Mexico; DOB 24 Nov 1962; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. IUNP621124HSLNRD01 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
13. LEON RODRIGUEZ, Juvenal (a.k.a. “GALLO”), Mexico; DOB 01 Sep 1976; POB Guanajuato, Mexico; nationality Mexico; Gender Male; C.U.R.P. LERJ760901HGTNDV06 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
14. LOPEZ LOPEZ, Servando (a.k.a. “EL HUEVO”), Mexico; DOB 17 Sep 1974; POB Sinaloa, Mexico; nationality Mexico; Gender Male; C.U.R.P. LOLS740917HSLPPR01 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
15. PULIDO DIAZ, Oscar, Mexico; DOB 14 Apr 1976; POB Guerrero, Mexico; nationality Mexico; Gender Male; C.U.R.P. PUDO760414HGRLZS04 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(a)(i) of E.O. 14059 for having engaged in, or attempted to engage in, activities or transactions that have materially contributed to, or pose a significant risk of materially contributing to, the international proliferation of illicit drugs or their means of production.
1. DIFACULSA, S.A. DE C.V., Villa Dorada 3996, Fracc. Los Portales, Culiacan, Sinaloa, Mexico; Organization Established Date 25 Feb 2006; Organization Type: Retail sale of pharmaceutical and medical goods, cosmetic and toilet articles in specialized stores; Folio Mercantil No. 75487 (Mexico) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(b)(iii) of E.O. 14059 for being owned, controlled, or directed by, or having acted or purported to act for or on behalf of, directly or indirectly, a person sanctioned pursuant to E.O. 14059.
2. EDITORIAL MERCADO ECUESTRE, S.A. DE C.V., Guadalajara, Jalisco, Mexico; Organization Established Date 11 Jan 2005; Organization Type: Publishing of newspapers, journals and periodicals; Folio Mercantil No. 28481 (Mexico) [ILLICIT-DRUGS-EO14059].
Designated pursuant to section 1(b)(iii) of E.O. 14059 for being owned, controlled, or directed by, or having acted or purported to act for or on behalf of, directly or indirectly, a person sanctioned pursuant to E.O. 14059.
Departmental Offices, U.S. Department of the Treasury.
Notice.
The Department of the Treasury, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other federal agencies to comment on the proposed information collections listed below, in accordance with the Paperwork Reduction Act of 1995.
Written comments must be received on or before February 13, 2024.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestions for reducing the burden, by the following method:
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Jeffrey Stout, State Small Business Credit Initiative (SSBCI), at (866) 220-9050 or
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To determine whether an application should be selected for funding, Treasury must collect certain types of information in an application. This information is detailed in the publicly-posted NOFO on Treasury's website, and includes: designation letter from the jurisdiction's governing official designating the eligible applicant to take specific actions with respect to the program; information about the applicant's proposed program, including a description of the project service area and potential to connect eligible beneficiaries to business opportunities, the applicant's proposed solution and how it aligns with the needs of eligible beneficiaries and overcomes any limitations or gaps in coverage in providing TA services, a description of the applicant's key partners and project support, information about the applicant's organizational capacity and experience, and the applicant's performance goals and measures; details on the applicant's budget using the line items of Form SF-424A “Budget Information—Non-Construction Programs” and a budget narrative that details the use of funds in each line item, as applicable to the proposed programs; certain required assurances and certifications; and supporting
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Treasury is updating the burden estimate for OMB Control Number 1505-0227 to account for applications and reports under the SSBCI Investing in America SBOP.
Departmental Offices, U.S. Department of the Treasury.
Notice of Information Collection; request for comment.
The Internal Revenue Service, as part of its continuing effort to reduce paperwork and respondent burden, invites the public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. Currently, the IRS is soliciting comments concerning the burden associated with the U.S. Income Tax Return Forms for Individual Taxpayers.
Comments should be received on or before January 16, 2024 to be assured of consideration.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Copies of the submissions may be obtained from Melody Braswell by emailing
This approval package is being submitted for renewal purposes only.
Total Monetized Burden = Total Out-of-Pocket Costs + Total Annual Monetized Time.
Departmental Offices, U.S. Department of the Treasury.
Notice of information collection; request for comment.
The Department of the Treasury will submit the following information collection requests to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. The public is invited to submit comments on these requests.
Comments should be received on or before January 16, 2024 to be assured of consideration.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Copies of the submissions may be obtained from Spencer W. Clark by emailing
Section 604(b) of the Act prescribes that the $10 billion be allocated to eligible grant recipients according to a formula provided in the statute. Treasury has used this formula to calculate the CPF grant fund allocations for each eligible recipient and has posted these allocations on its website. In general, each State (including the District of Columbia and Puerto Rico) will receive between approximately $107 million and $500 million, each of the seven named territories and freely associated states will receive approximately $14 million, and each Tribal government will receive approximately $167,000.
Treasury has separately received approval under OMB #1505-0274 for information collections related to applying for CPF grant awards (“Applications”) and for specifying the use of funds (“Grant Plans”).
For non-Tribal entities, the current information collection is used to solicit information related to quarterly project and expenditure reports and annual performance reports. Both information collections are described generally in the Compliance and Reporting Guidance for States, Territories, and Freely Associated Sates, which provides these recipients information needed to fulfill their reporting requirements and compliance obligations.
For Tribal entities, the current information collection will be used to solicit information for annual reports. The information collection is described generally in the Compliance and Reporting Guidance for Tribal Entities, which provides Tribal entities with information needed to fulfill their reporting requirements and compliance obligations.
Departmental Offices, U.S. Department of the Treasury.
Notice of information collection; request for comment.
The Internal Revenue Service, as part of its continuing effort to reduce paperwork and respondent burden, invites the general public and other Federal agencies to take this opportunity to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995. The IRS is soliciting comments concerning forms used by tax-exempt organizations.
Comments should be received on or before January 16, 2024 to be assured of consideration.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
Copies of the submissions may be obtained from Melody Braswell by emailing
These are forms used by tax-exempt organizations. These include Forms 990, 990-EZ, 990-N, 990-PF, 990-T, and related forms and schedules tax-exempt organizations attach to their returns. In addition, there are numerous Treasury Decisions and guidance documents that are covered by the burden estimate provided in this notice.
Tax compliance burden is defined as the time and money taxpayers spend to comply with their tax filing responsibilities. Time-related activities include recordkeeping, tax planning, gathering tax materials, learning about the law and what you need to do, and completing and submitting the return. Out-of-pocket costs include expenses such as purchasing tax software, paying a third-party preparer, and printing and postage. Tax compliance burden does not include a taxpayer's tax liability, economic inefficiencies caused by sub-optimal choices related to tax deductions or credits, or psychological costs.
Total Monetized Burden = Total Out-of-Pocket Costs + Total Monetized Time.
Office of Energy Efficiency and Renewable Energy, Department of Energy.
Notice of proposed rulemaking and announcement of public meeting.
The Energy Policy and Conservation Act, as amended (“EPCA”), prescribes energy conservation standards for various consumer products and certain commercial and industrial equipment, including electric motors. In this notice of proposed rulemaking (“NOPR”), DOE proposes new energy conservation standards for a subset of electric motors, expanded scope electric motors, expressed in terms of average full-load efficiency, and also announces a public meeting to receive comment on these proposed standards and associated analyses and results.
Comments regarding the likely competitive impact of the proposed standard should be sent to the Department of Justice contact listed in the
The public meeting will be held at the U.S. Department of Energy, Forrestal Building, Room 1E-245, 1000 Independence Avenue SW, Washington, DC 20585. See section VII of this document, “Public Participation,” for further details, including procedures for attending the in-person meeting, webinar registration information, participant instructions, and information about the capabilities available to webinar participants.
Interested persons are encouraged to submit comments using the Federal eRulemaking Portal at
No telefacsimiles (“faxes”) will be accepted. For detailed instructions on submitting comments and additional information on this process, see section VII of this document.
The docket web page can be found at
EPCA requires the Attorney General to provide DOE a written determination of whether the proposed standard is likely to lessen competition. The U.S. Department of Justice Antitrust Division invites input from market participants and other interested persons with views on the likely competitive impact of the proposed standard. Interested persons may contact the Antitrust Division at
Mr. Jeremy Dommu, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Building Technologies Office, EE-5B, 1000 Independence Avenue SW, Washington, DC 20585-0121. Email:
Ms. Kristin Koernig, U.S. Department of Energy, Office of the General Counsel, GC-33, 1000 Independence Avenue SW, Washington, DC 20585-0121. Telephone: (202) 586-3593. Email:
For further information on how to submit a comment, review other public comments and the docket, or participate in the public meeting, contact the Appliance and Equipment Standards Program staff at (202) 287-1445 or by email:
1. Consumer Sample
2. Motor Input Power
3. Annual Operating Hours
4. Impact of Electric Motor Speed
The Energy Policy and Conservation Act, Public Law 94-163, as amended (“EPCA”),
Pursuant to EPCA, any new or amended energy conservation standard must be designed to achieve the maximum improvement in energy efficiency that DOE determines is technologically feasible and economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A)) Furthermore, the new or amended standard must result in significant conservation of energy. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3)(B))
In accordance with these and other statutory provisions discussed in this document, DOE analyzed the benefits and burdens of four trial standard levels (“TSLs”) for ESEMs. The TSLs and their associated benefits and burdens are discussed in detail in sections V.A through V.C of this document. As discussed in section V.C of this document, DOE has tentatively determined that TSL 2 represents the maximum improvement in energy efficiency that is technologically feasible and economically justified. The proposed standards, which are expressed in average full-load efficiency, are shown in Table I-1 through Table I-3 and are equivalent to those recommended in a joint recommendation for energy conservation standards for ESEMs
Upon receipt of the December 2022 Joint Recommendation, DOE considered whether the statutory requirements of
These proposed standards, if adopted, would apply to all ESEMs listed in Table I-1 through Table I-3 manufactured in, or imported into, the United States starting on January 1, 2029.
Table I-4 presents DOE's evaluation of the economic impacts of the proposed standards on consumers of ESEMs, as measured by the average life-cycle cost (“LCC”) savings and the simple payback period (“PBP”).
DOE's analysis of the impacts of the proposed standards on consumers is described in section IV.F of this document.
The industry net present value (“INPV”) is the sum of the discounted cash flows to the industry from the base year through the end of the analysis period (2024-2058). Using a real discount rate of 9.1 percent, DOE estimates that the INPV for manufacturers of ESEMs in the case without new standards is $2,019 million in 2022$. Under the proposed standards, DOE estimates the change in INPV to range from −13.1 percent to −6.5 percent, which is approximately −$264 million to −$131 million. In order to bring equipment into compliance with new standards, it is estimated that industry will incur total conversion costs of $339 million.
DOE's analysis of the impacts of the proposed standards on manufacturers is described in section IV.J of this document. The analytic results of the manufacturer impact analysis (“MIA”) are presented in section V.B.2 of this document.
DOE's analyses indicate that the proposed energy conservation standards for ESEMs would save a significant amount of energy. Relative to the case without new standards, the lifetime energy savings for ESEMs purchased in the 30-year period that begins in the anticipated year of compliance with the new standards (2029-2058) amount to 8.9 quadrillion British thermal units (“Btu”), or quads.
The cumulative net present value (“NPV”) of total consumer benefits of the proposed standards for ESEMs ranges from $38.3 billion (at a 7-percent discount rate) to $72.8 billion (at a 3-percent discount rate). This NPV expresses the estimated total value of future operating-cost savings minus the estimated increased equipment and installation costs for ESEMs purchased in 2029-2058.
In addition, the proposed standards for ESEMs are projected to yield significant environmental benefits. DOE estimates that the proposed standards would result in cumulative emission reductions (over the same period as for energy savings) of 160.5 million metric tons (“Mt”)
DOE estimates the value of climate benefits from a reduction in greenhouse gases (“GHG”) using four different estimates of the social cost of CO
DOE estimated the monetary health benefits of SO
Table I-5 summarizes the monetized benefits and costs expected to result from the proposed standards for ESEMs. There are other important unquantified effects, including certain unquantified climate benefits, unquantified public health benefits from the reduction of toxic air pollutants and other emissions, unquantified energy security benefits, and distributional effects, among others.
The benefits and costs of the proposed standards can also be expressed in terms of annualized values. The monetary values for the total annualized net benefits are (1) the reduced consumer operating costs, minus (2) the increase in product purchase prices and installation costs, plus (3) the value of climate and health benefits of emission reductions, all annualized.
The national operating cost savings are domestic private U.S. consumer monetary savings that occur as a result of purchasing the covered products and are measured for the lifetime of ESEMs shipped in 2029-2058. The benefits associated with reduced emissions achieved as a result of the proposed standards are also calculated based on the lifetime of ESEMs shipped in 2029-2058. Total benefits for both the 3-percent and 7-percent cases are presented using the average GHG social costs with 3-percent discount rate. Estimates of SC-GHG values are presented for all four discount rates in section V.B of this document.
Table I-6 presents the total estimated monetized benefits and costs associated with the proposed standard, expressed in terms of annualized values. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and health benefits from reduced NO
Using a 3-percent discount rate for all benefits and costs, the estimated cost of the proposed standards is $556 million per year in increased equipment costs, while the estimated annual benefits are $3,140 million in reduced operating costs, $542 million in climate benefits, and $1,052 million in health benefits. In this case, the net benefit would amount to $4,179 million per year.
DOE's analysis of the national impacts of the proposed standards is described in sections IV.G, IV.K, and IV.L of this document.
DOE has tentatively concluded that the proposed standards represent the maximum improvement in energy efficiency that is technologically feasible and economically justified, and would result in the significant conservation of energy. Specifically, with regards to technological feasibility, equipment achieving these standard levels are already commercially available for all equipment classes covered by this proposal. As for economic justification, DOE's analysis shows that the benefits of the proposed standard exceed, to a great extent, the burdens of the proposed standards.
Using a 7-percent discount rate for consumer benefits and costs and NO
The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given rulemaking.
As previously mentioned, the standards are projected to result in estimated national energy savings of 8.9 quad FFC, the equivalent of the primary annual energy use of 95.7 million homes. In addition, they are projected to reduce CO
DOE also considered more-stringent energy efficiency levels as potential standards, and is still considering them in this proposed rulemaking. However, DOE has tentatively concluded that the potential burdens of the more-stringent energy efficiency levels would outweigh the projected benefits.
Based on consideration of the public comments DOE receives in response to this document and related information collected and analyzed during the course of this proposed rulemaking effort, DOE may adopt energy efficiency levels presented in this document that are either higher or lower than the proposed standards, or some combination of level(s) that incorporate the proposed standards in part.
The following section briefly discusses the statutory authority underlying this proposed rule, as well as some of the relevant historical background related to the establishment of standards for ESEMs.
EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part C of EPCA, added by Public Law 95-619, Title IV, section 441(a), established the Energy Conservation Program for Certain Industrial Equipment, which sets forth a variety of provisions designed to improve the energy efficiency of certain types of industrial equipment, including electric motors. (42 U.S.C. 6311(1)(A)) ESEMs, the subject of this document, are a category of electric motors.
The Energy Policy Act of 1992 (“EPACT 1992”) (Pub. L. 102-486 (Oct. 24, 1992)) further amended EPCA by establishing energy conservation standards and test procedures for certain commercial and industrial electric motors that are manufactured alone or as a component of another piece of equipment. In December 2007, Congress enacted the Energy Independence and Security Act of 2007 (“EISA 2007”) (Pub. L. 110-140 (Dec. 19, 2007). Section 313(b)(1) of EISA 2007 updated the energy conservation standards for those electric motors already covered by EPCA and established energy conservation standards for a larger scope of motors not previously covered by standards. (42 U.S.C. 6313(b)(2)) EISA 2007 also revised certain statutory definitions related to electric motors. See EISA 2007, sec. 313 (amending statutory definitions related to electric motors at 42 U.S.C. 6311(13)).
The energy conservation program under EPCA, consists essentially of four parts: (1) testing, (2) labeling, (3) the establishment of Federal energy conservation standards, and (4) certification and enforcement procedures. Relevant provisions of EPCA include definitions (42 U.S.C. 6311), test procedures (42 U.S.C. 6314), labeling provisions (42 U.S.C. 6315), energy conservation standards (42 U.S.C. 6313), and the authority to require information and reports from
Federal energy efficiency requirements for covered equipment established under EPCA generally supersede state laws and regulations concerning energy conservation testing, labeling, and standards. (42 U.S.C. 6316(a) and 42 U.S.C. 6316(b); 42 U.S.C. 6297) DOE may, however, grant waivers of Federal preemption in limited instances for particular state laws or regulations, in accordance with the procedures and other provisions set forth under EPCA. (
Subject to certain criteria and conditions, DOE is required to develop test procedures to measure the energy efficiency, energy use, or estimated annual operating cost of each covered equipment. (
DOE must follow specific statutory criteria for prescribing new or amended standards for covered equipment, including ESEMs. Any new or amended standard for a covered product must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A)) Furthermore, DOE may not adopt any standard that would not result in the significant conservation of energy. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3))
Moreover, DOE may not prescribe a standard (1) for certain equipment, including ESEMs, if no test procedure has been established for the equipment, or (2) if DOE determines by rule that the standard is not technologically feasible or economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3)(A)-(B)) In deciding whether a proposed standard is economically justified, DOE must determine whether the benefits of the standard exceed its burdens. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3)(A)-(B)) DOE must make this determination after receiving comments on the proposed standard, and by considering, to the greatest extent practicable, the following seven statutory factors:
(1) The economic impact of the standard on manufacturers and consumers of the products subject to the standard;
(2) The savings in operating costs throughout the estimated average life of the covered products in the type (or class) compared to any increase in the price, initial charges, or maintenance expenses for the covered products that are likely to result from the standard;
(3) The total projected amount of energy (or as applicable, water) savings likely to result directly from the standard;
(4) Any lessening of the utility or the performance of the covered products likely to result from the standard;
(5) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the standard;
(6) The need for national energy and water conservation; and
(7) Other factors the Secretary of Energy (“Secretary”) considers relevant.
Further, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy savings during the first year that the consumer will receive as a result of the standard, as calculated under the applicable test procedure. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(iii))
EPCA also contains what is known as an “anti-backsliding” provision, which prevents the Secretary from prescribing any amended standard that either increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(1)) Also, the Secretary may not prescribe an amended or new standard if interested persons have established by a preponderance of the evidence that the standard is likely to result in the unavailability in the United States in any covered product type (or class) of performance characteristics (including reliability), features, sizes, capacities, and volumes that are substantially the same as those generally available in the United States. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(4))
Additionally, EPCA specifies requirements when promulgating an energy conservation standard for a covered product or equipment that has two or more subcategories. DOE must specify a different standard level for a type or class of product that has the same function or intended use, if DOE determines that products within such group: (A) consume a different kind of energy from that consumed by other covered products within such type (or class); or (B) have a capacity or other performance-related feature which other products within such type (or class) do not have and such feature justifies a higher or lower standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(q)(1)) In determining whether a performance-related feature justifies a different standard for a group of equipment, DOE must consider such factors as the utility to the consumer of such a feature and other factors DOE deems appropriate. (
DOE does not currently have energy conservation standards for ESEMs even though DOE has the authority to regulate electric motors broadly. DOE has adopted energy conservation standards for medium electric motors (“MEMs”) at 10 CFR 431.25 (see section III.A of this document for further description), as well as small electric motors (“SEMs”) at 10 CFR 431.446, which are separately regulated categories.
On May 21, 2020, DOE issued an early assessment request for information (“RFI”) (“May 2020 Early Assessment Review RFI”) in which DOE stated that it was initiating an early assessment review to determine whether any new or amended standards would satisfy the relevant requirements of EPCA for a new or amended energy conservation standard for electric motors and sought information related to that effort. Specifically, DOE sought data and information that could enable the agency to determine whether DOE should propose a “no new standard” determination because a more stringent standard: (1) would not result in a significant savings of energy; (2) is not technologically feasible; (3) is not economically justified; or (4) any combination of the foregoing. 85 FR 30878, 30879.
On March 2, 2022, DOE published a Preliminary Analysis for electric motors (“March 2022 Preliminary Analysis”). 87 FR 11650. In conjunction with the March 2022 Preliminary Analysis, DOE published the March 2022 Preliminary TSD, which presented the results of the in-depth technical analyses in the following areas: (1) engineering; (2) markups to determine equipment price; (3) energy use; (4) LCC and PBP; and (5) national impacts. The results presented included the current scope of electric motors regulated at 10 CFR 431.25, in addition to an expanded scope of motors, including electric motors above 500 horsepower, air-over electric motors, and ESEMs.
On April 5, 2022, DOE held a public webinar in which it presented the methods and analysis in the March 2022 Preliminary Analysis and solicited public comment. (“April 5, 2022, Public Meeting”).
A parenthetical reference at the end of a comment quotation or paraphrase provides the location of the item in the public record.
By letter dated December 22, 2022, DOE received the December 2022 Joint Recommendation from the Electric Motors Working Group. The December 2022 Joint Recommendation addressed energy conservation standards for high-torque, medium-torque, low-torque, and polyphase ESEMs that are 0.25-3 hp, and AO-ESEMs. The December 2022 Joint Recommendation recommended a compliance date for updated energy conservation standards for AO-ESEMs as well. (Electric Motors Working Group, No. 38 at p. 5)
This section summarizes the standard levels recommended in the December 2022 Joint Recommendation and the subsequent procedural steps taken by DOE. Further discussion on scope is provided in section III.A of this document. The Electric Motors Working Group stated that the recommended levels would minimize potential market disruptions by allowing smaller designs to remain on the market. Specifically the Electric Motors Working Group stated that the recommended levels for high and medium torque ESEM could allow smaller capacitor start induction run (“CSIR”) motors and currently unregulated split-phase motors, which are common in certain space-constrained products; for low torque ESEMs, the Electric Motors Working Group stated that manufacturers believe efficiency levels above the recommended levels could result in significant increases in the physical size, unavailability of product, and, in some cases, may be extremely difficult to achieve with current permanent split capacitor (“PSC”) technology; and for AO-ESEMs, the Electric Motors Working Group stated that the recommended levels represented the highest feasible efficiencies given the potential design constraints associated with their use in covered equipment. (
(1) Values for open and enclosed motors rated at 0.25, 0.33, and 0.5 hp (all pole configurations) that are largely based on the levels in NEMA MG 1, Table 12-19, “Premium Efficiency Levels for Capacitor-Start/Induction-
(2) Values for open motors (2-, 4-, 6-pole) above 0.5 hp that are consistent with the current small electric motor standards for CSCR and CSIR motors found in 10 CFR part 431, subpart X (§ 431.446).
(3) Values for 8-pole open motors above 0.5 hp and all enclosed motors above 0.5 hp that are based on the levels in NEMA MG 1, Table 12-20, “Premium Efficiency Levels for Capacitor-Start/Capacitor-Run Single-Phase Small Motors.” For cases where Table 12-20 lists two frame sizes (
(1) Values for open motors rated at 0.25 hp, 0.33 hp, and 1.5 hp and above that are based on DOE's new efficiency level (EL 3).
(2) Values for open motors rated at 0.5, 0.75, and 1.0 hp that are based on DOE's new EL 2, with two exceptions:
(a) The 6-pole, 1.0 hp value is the mid-point between EL 2 (75.3%) and EL 3 (79.2%)
(b) The 2-pole, 0.5 hp value is the mid-point between EL 2 (66.4%) and EL 3 (71.1%)
(3) Values for enclosed motors that are based on the equivalent open motor efficiency but are adjusted to account for the lack of additional cooling, which is a function of motor rpm (
(1) Values for 2-pole, 4-pole, and 6-pole open motors that are consistent with the current small electric motor standards for polyphase motors found in 10 CFR part 431, subpart X (§ 431.446).
(2) Values for 8-pole open and all enclosed motors from NEMA MG 1, Table 12-21, “Premium Efficiency Levels for Three-Phase Induction Small Motors.” For cases where Table 12-21 lists two frame sizes (
DOE notes that the scope and standards proposed in this document are equivalent to those recommended by the Electric Motors Working Group. Regarding the compliance year for energy conservation standards for ESEMs, the Electric Motors Working Group recommended that DOE align the compliance date for AO-ESEMs with the compliance date for updated energy conservation standards for CUAC/HP, which were under negotiation in DOE's ASRAC Working Group on CUAC/HPs at the time. Since then, the CUAC/HP negotiations have concluded and include a recommended compliance year of 2029 (
In accordance with section 3(a) of 10 CFR part 430, subpart C, appendix A (“Process Rule”), DOE notes that it is deviating from the provision in the Process Rule regarding the pre-NOPR and NOPR stages for an energy conservation standards rulemaking.
Section 6(f)(2) of the Process Rule specifies that the length of the public comment period for a NOPR will be not less than 75 calendar days. For this NOPR, DOE has opted instead to provide a 60-day comment period, consistent with EPCA requirements. (42 U.S.C. 6316(a); 42 U.S.C. 6295(p). DOE is opting to deviate from the 75-day comment period because stakeholders have already been afforded multiple opportunities to provide comments on this proposed rulemaking. As noted previously, DOE requested comment on various issues pertaining to this standards rulemaking in the May 2020 Early Assessment Review RFI and provided stakeholders with a 30-day comment period. 85 FR 30878. Additionally, DOE provided a 60-day comment period for stakeholders to provide input on the analyses presented in the March 2022 Preliminary Analysis. 87 FR 11650. The analytical assumptions and approaches used for the analyses conducted for this NOPR are similar to those used for the preliminary analysis. Furthermore, as discussed previously in this document, the standards proposed in this document are equivalent to those recommended by the Electric Motors Working Group for the electric motor types subject to this proposal. Therefore, DOE believes a 60-day comment period is appropriate and will provide interested parties with a meaningful opportunity to comment on the proposed rule.
Section 6(a)(2) of the Process Rule states that if DOE determines it is appropriate to proceed with a rulemaking, the preliminary stages of a rulemaking to issue or amend an energy conservation standard that DOE will undertake will be a framework document and preliminary analysis, or
DOE developed this proposal after considering oral and written comments, data, and information from interested parties that represent a variety of interests, including the December 2022 Joint Recommendation. The following discussion addresses issues raised by these commenters.
This document covers certain equipment meeting the definition of electric motors as defined in 10 CFR 431.12. Specifically, the definition for “electric motor” is “a machine that converts electrical power into rotational mechanical power.” 10 CFR 431.12. This NOPR addresses ESEMs, which are covered under 10 CFR part 431 subpart B. This NOPR does not address small electric motors, which are covered under 10 CFR part 431 subpart X.
Currently, DOE regulates MEMs falling into the NEMA Design A, NEMA Design B, NEMA Design C, and fire pump motor categories and those electric motors that meet the criteria specified at 10 CFR 431.25(g). 10 CFR 431.25(h)-(j). Section 431.25(g) specifies that the relevant standards apply only to electric motors, including partial electric motors, that satisfy the following criteria:
(1) Are single-speed, induction motors;
(2) Are rated for continuous duty (MG 1) operation or for duty type S1 (IEC);
(3) Contain a squirrel-cage (MG 1) or cage (IEC) rotor;
(4) Operate on polyphase alternating current 60-hertz sinusoidal line power;
(5) Are rated 600 volts or less;
(6) Have a 2-, 4-, 6-, or 8-pole configuration;
(7) Are built in a three-digit or four-digit NEMA frame size (or IEC metric equivalent), including those designs between two consecutive NEMA frame sizes (or IEC metric equivalent), or an enclosed 56 NEMA frame size (or IEC metric equivalent);
(8) Produce at least one horsepower (0.746 kW) but not greater than 500 horsepower (373 kW), and
(9) Meet all of the performance requirements of one of the following motor types: A NEMA Design A, B, or C motor or an IEC Design N, NE, NEY, NY or H, HE, HEY, HYmotor.
10 CFR 431.25(g).
The definitions for “NEMA Design A motors,” “NEMA Design B motors,” “NEMA Design C motors,” “fire pump electric motors,” “IEC Design N motor,” and “IEC Design H motor,” as well as “E” and “Y” designated IEC Design motors, are codified in 10 CFR 431.12. DOE has also currently exempted certain categories of motors from standards. The exemptions are as follows:
(1) Air-over electric motors;
(2) Component sets of an electric motor;
(3) Liquid-cooled electric motors;
(4) Submersible electric motors; and
(5) Inverter-only electric motors.
10 CFR 431.25(l).
On October 19, 2022, DOE published the electric motors test procedure final rule (“October 2022 Final Rule”). 87 FR 63588. As part of the October 2022 Final Rule, DOE expanded the test procedure scope to additional categories of electric motors that currently do not have energy conservation standards. 87 FR 63588, 63593-63606. The expanded test procedure scope included the following:
(1) Electric motors having a rated horsepower above 500 and up to 750 hp that meets the criteria listed at § 431.25(g), with the exception of criteria § 431.25(g)(8) to air-over electric motors (“AO-MEMs”), and inverter-only electric motors;
(2) Expanded Scope Electric Motors (“ESEM”, formally known as “small, non-small electric motor, electric motors” or “SNEMs”), that are not air-over electric motors, which:
(a) Are not a small electric motor, as defined at § 431.442 and is not a dedicated pool pump motors as defined at § 431.483;
(b) Are rated for continuous duty (MG 1) operation or for duty type S1 (IEC);
(c) Operate on polyphase or single-phase alternating current 60-hertz (Hz) sinusoidal line power; or is used with an inverter that operates on polyphase or single-phase alternating current 60-hertz (Hz) sinusoidal line power;
(d) Are rated for 600 volts or less;
(e) Are a single-speed induction motor capable of operating without an inverter or is an inverter-only electric motor;
(f) Produce a rated motor horsepower greater than or equal to 0.25 horsepower (0.18 kW); and
(g) Are built in the following frame sizes: any two-, or three-digit NEMA frame size (or IEC equivalent) if the motor operates on single-phase power; any two-, or three-digit NEMA frame size (or IEC equivalent) if the motor operates on polyphase power, and has a rated motor horsepower less than 1 horsepower (0.75 kW); or a two-digit NEMA frame size (or IEC metric equivalent), if the motor operates on polyphase power, has a rated motor horsepower equal to or greater than 1 horsepower (0.75 kW), and is not an enclosed 56 NEMA frame size (or IEC metric equivalent).
(3) ESEMs that are air-over electric motors (“AO-ESEMs”) and inverter-only electric motors;
(4) A synchronous electric motor, which:
(a) Is not a dedicated pool pump motor as defined at § 431.483 or is not an air-over electric motor;
(b) Is a synchronous electric motor;
(c) Is rated for continuous duty (MG 1) operation or for duty type S1 (IEC);
(d) Operates on polyphase or single-phase alternating current 60-hertz (Hz) sinusoidal line power; or is used with an inverter that operates on polyphase or single-phase alternating current 60-hertz (Hz) sinusoidal line power;
(e) Is rated 600 volts or less; and
(f) Produces at least 0.25 hp (0.18 kW) but not greater than 750 hp (559 kW).
(5) Synchronous electric motors that are inverter-only electric motors.
In the October 2022 Final Rule, DOE noted that, for these motors newly included within the scope of the test procedure for which there was no established energy conservation standards, such as ESEMs and AO-
(1) Inverter-only electric motors that are air-over electric motors;
(2) Component sets of an electric motor;
(3) Liquid-cooled electric motors; and
(4) Submersible electric motors.
Due to the number of electric motor characteristics (
In the March 2022 Preliminary Analysis, DOE analyzed the additional motors now included within the scope of the test procedure after the October 2022 Final Rule.
Further discussion on equipment classes and the basis used to establish them is provided in section IV.A.3 of this document.
In addition to proposing new requirements for ESEMs, in this NOPR, DOE proposes to move portions of the existing electric motor regulations that pertain to the energy conservation standards and their compliance dates (at 10 CFR 431.25) to improve clarity. In this NOPR, DOE proposes to revise 10 CFR 431.25 by retaining the existing electric motor energy conservation standards and their compliance dates, adding provisions pertaining to ESEMs, and reorganizing all provisions currently in 10 CFR 431.25 by compliance date (
The June 2023 DFR amended the existing energy conservation standards for electric motors by establishing higher standards for certain horsepower electric motors and expanding the scope of the energy conservation standards to include certain air-over electric motors and electric motors with horsepower greater than 500. DOE adopted standards that were consistent with a joint recommendation that was submitted to DOE on November 15, 2022 (the “November 2022 Joint Recommendation”), after determining that the new and amended energy conservation standards for these products would result in significant conservation of energy and are technologically feasible and economically justified. 88 FR 36066, 36067-36069.
In the June 2023 DFR, DOE described that DOE currently regulates MEMs falling into the NEMA Design A, NEMA Design B, NEMA Design C, and fire pump motor categories and those electric motors that meet the criteria specified at 10 CFR 431.25(g).
In the June 2023 DFR, to support the new energy conservations standards for air-over electric motors, DOE created new equipment classes: one for standard frame size air-over motors (“AO-MEM (Standard frame size)”)) and one for specialized frame size air-over electric motors (“AO-Polyphase (Specialized frame size)”).
To clarify that AO-Polyphase (Specialized frame size) are not included in the scope of electric motors included as ESEMs, DOE proposes to add “and do not have an air-over enclosure and a specialized frame size if the motor operates on polyphase power” to the ESEM scope criteria in the proposed paragraph (d)(2)(i)(1) of 10 CFR 431.25 in this NOPR. DOE notes that AO-MEM (Standard frame size) do not meet the frame criteria for ESEMs and are not included in the scope of ESEMs.
In the June 2023 DFR, DOE further noted that the specialized frame size air-over electric motors equipment class included frame sizes beyond those described at 10 CFR 431.25(g)(7).
The general scope description in 10 CFR 431.25(m) of the regulatory text published in the June 2023 DFR presents the nine criteria that determine what electric motors the standards in 10 CFR 431.25 apply to. Specifically, the criteria at 10 CFR 431.25(m)(7) specifies that the standards apply to electric motors that: “Are built in a three-digit or four-digit NEMA frame size (or IEC metric equivalent), including those designs between two consecutive NEMA frame sizes (or IEC metric equivalent), or an enclosed 56 NEMA frame size (or IEC metric equivalent).”
When describing the energy conversation standards adopted for specialized frame sizes air-over electric motors, DOE specified that the standards are applicable to “air-over electric motor meeting the criteria in paragraph (m) of this section and [. . .] built in a specialized frame size” in section 10 CFR 431.25(p) of the regulatory text published in the June 2023 DFR. 88 FR 36066, 36150.
As published, the general scope description in 10 CFR 431.25(m)(7) of the regulatory text in the June 2023 DFR, and the scope description in section 10 CFR 431.25(p) may be interpreted as inconsistent with the scope of electric motors included in the AO-Polyphase (Specialized frame size) equipment class analyzed in the June 2023 DFR, and for which DOE intended to establish new standards in 10 CFR 431.25(p). Specifically, DOE identified that the criteria at 10 CFR 431.25 (m)(7), which is identical to the criteria currently at 10 CFR 431.25(g)(7), excludes specialized frame air-over motors built in two-digit NEMA frame sizes (other than enclosed 56 frame size motors). Therefore, while in the preamble, DOE explicitly stated that the specialized frame size air-over electric motors equipment class included frame sizes beyond those described at 10 CFR 431.25(g)(7), the regulatory text as written may be interpreted as limiting the covered frame sizes to those specifically described at 10 CFR 431.25(g)(7).
Therefore, to clarify the intent of the preamble of the June 2023 DFR when establishing standards for the AO-polyphase (Specialized frame size) equipment class, which was to include frame sizes beyond those described at 10 CFR 431.25(g)(7), DOE proposes to make the following clarification by adding “or have an air-over enclosure and a specialized frame size” to the criteria originally included under 10 CFR 431.25 (m)(7) in the June 2023 DFR, to read as follows: “Are built in a three-digit or four-digit NEMA frame size (or IEC metric equivalent), including those designs between two consecutive NEMA frame sizes (or IEC metric equivalent), or an enclosed 56 NEMA frame size (or IEC metric equivalent), or have an air-over enclosure and a specialized frame size”. As previously discussed, DOE proposes to re-organize the regulatory text at 10 CFR 431.25 and therefore is adding this proposed clarification in the new paragraphs (c)(1)(i)(7) and (d)(1)(i)(7).
EPCA sets forth generally applicable criteria and procedures for DOE's adoption and amendment of test procedures. (42 U.S.C. 6314(a)) Manufacturers of covered equipment must use these test procedures to certify to DOE that their equipment complies with energy conservation standards and to quantify the efficiency of their equipment. On October 19, 2022, DOE published the October 2022 Final Rule. 87 FR 63588. As described previously in this document, the October 2022 Final Rule expanded the types of motors included within the scope of the test procedure, including the new class of ESEMs for which DOE is establishing energy conservation standards in this NOPR. DOE's test procedures for electric motors are currently prescribed at appendix B as “small, non-small-electric-motor electric motor” and measure the full-load efficiency of an electric motor. To harmonize terminology, in this NOPR, DOE is replacing any reference to small, non-small-electric-motor electric motor (“SNEM”) in appendix B with the term “expanded scope electric motor,” or “ESEM.”
DOE's energy conservation standards for electric motors are currently prescribed at 10 CFR 431.25. DOE's current energy conservation standards for electric motors are expressed in terms of nominal full-load efficiency and manufacturers must certify the represented value of nominal full-load efficiency of each basic model. 10 CFR 429.64. The provisions establishing how to determine the average full-load efficiency and the nominal full-load efficiency of a basic model are provided at 10 CFR 429.64.
As discussed in section II.B.3 of this document, the ESEM standard levels recommended by the Electric Motors Working Group are expressed in average full-load efficiency and not in terms of nominal full-load efficiency. To align with the Electric Motors Working Group recommendations, DOE proposes to revise the provisions related to the determination of the represented values for ESEMs at 10 CFR 429.64 such that manufacturers of ESEMs would certify a represented value of average full-load efficiency instead of a represented value of nominal full-load efficiency. DOE also proposes edits to 10 CFR 429.70(j) to reflect the use of a represented value of average full-load efficiency instead of
DOE requests comments on the proposal to use a represented value of average full-load efficiency for ESEMs and proposed revisions to 10 CFR 429.64 and 429.70(j).
In each energy conservation standards rulemaking, DOE conducts a screening analysis based on information gathered on all current technology options and prototype designs that could improve the efficiency of the products or equipment that are the subject of this proposed rulemaking. As the first step in such an analysis, DOE develops a list of technology options for consideration in consultation with manufacturers, design engineers, and other interested parties. DOE then determines which of those means for improving efficiency are technologically feasible. DOE considers technologies incorporated in commercially-available products or in working prototypes to be technologically feasible. 10 CFR 431.4; sections 6(c)(3)(i) and 7(b)(1), Process Rule.
After DOE has determined that particular technology options are technologically feasible, it further evaluates each technology option in light of the following additional screening criteria: (1) practicability to manufacture, install, and service; (2) adverse impacts on product utility or availability; (3) adverse impacts on health or safety, and (4) unique-pathway proprietary technologies. 10 CFR 431.4; sections 6(b)(3)(ii)-(v) and 7(b)(2)-(5), Process Rule. Section IV.B of this document discusses the results of the screening analysis for ESEMs, particularly the designs DOE considered, those it screened out, and those that are the basis for the standards considered in this rulemaking. For further details on the screening analysis for this proposed rulemaking, see chapter 4 of the NOPR TSD.
When DOE proposes to adopt a new or amended standard for a type or class of covered product, it must determine the maximum improvement in energy efficiency or maximum reduction in energy use that is technologically feasible for such product. (42 U.S.C. 6316(a); 42 U.S.C. 6295(p)(1)) Accordingly, in the engineering analysis, DOE determined the maximum technologically feasible (“max-tech”) improvements in energy efficiency for ESEMs, using the design parameters for the most efficient products available on the market or in working prototypes. The max-tech levels that DOE determined for this proposed rulemaking are described in section IV.C of this proposed rule and in chapter 5 of the NOPR TSD.
For each TSL, DOE projected energy savings from application of the TSL to ESEMs purchased in the 30-year period that begins in the year of compliance with the proposed standards (2029-2058).
DOE used its national impact analysis (“NIA”) spreadsheet model to estimate national energy savings (“NES”) from potential new standards for ESEMs. The NIA spreadsheet model (described in section IV.H of this document) calculates energy savings in terms of site energy, which is the energy directly consumed by products at the locations where they are used. For electricity, DOE reports national energy savings in terms of primary energy savings, which is the savings in the energy that is used to generate and transmit the site electricity. DOE also calculates NES in terms of FFC energy savings. The FFC metric includes the energy consumed in extracting, processing, and transporting primary fuels (
To adopt any new or amended standards for a covered product, DOE must determine that such action would result in significant energy savings. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3)(B))
The significance of energy savings offered by a new or amended energy conservation standard cannot be determined without knowledge of the specific circumstances surrounding a given proposed rulemaking.
As stated, the standard levels proposed in this NOPR are projected to result in national energy savings of 8.9 quad FFC, the equivalent of the primary annual energy use of 95.7 million homes. Based on the amount of FFC savings, the corresponding reduction in emissions, and need to confront the global climate crisis, DOE has tentatively determined the energy savings from the standard levels proposed in this NOPR are “significant” within the meaning of 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o)(3)(B).
As noted previously, EPCA provides seven factors to be evaluated in determining whether a potential energy conservation standard is economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII)) The following sections discuss how DOE has addressed each of those seven factors in this proposed rulemaking.
In determining the impacts of a potential new or amended standard on manufacturers, DOE conducts an MIA, as discussed in section IV.J of this document. DOE first uses an annual cash-flow approach to determine the quantitative impacts. This step includes
For individual consumers, measures of economic impact include the changes in LCC and PBP associated with new or amended standards. These measures are discussed further in the following section. For consumers in the aggregate, DOE also calculates the national net present value of the consumer costs and benefits expected to result from particular standards. DOE also evaluates the impacts of potential standards on identifiable subgroups of consumers that may be affected disproportionately by a standard.
EPCA requires DOE to consider the savings in operating costs throughout the estimated average life of the covered product in the type (or class) compared to any increase in the price of, or in the initial charges for, or maintenance expenses of, the covered product that are likely to result from a standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(II)) DOE conducts this comparison in its LCC and PBP analysis.
The LCC is the sum of the purchase price of equipment (including its installation) and the operating expense (including energy, maintenance, and repair expenditures) discounted over the lifetime of the equipment. The LCC analysis requires a variety of inputs, such as equipment prices, equipment energy consumption, energy prices, maintenance and repair costs, equipment lifetime, and discount rates appropriate for consumers. To account for uncertainty and variability in specific inputs, such as equipment lifetime and discount rate, DOE uses a distribution of values, with probabilities attached to each value.
The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more-efficient equipment through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost due to a more-stringent standard by the change in annual operating cost for the year that standards are assumed to take effect.
For its LCC and PBP analysis, DOE assumes that consumers will purchase the covered equipment in the first year of compliance with new standards. The LCC savings for the considered efficiency levels are calculated relative to the case that reflects projected market trends in the absence of new standards. DOE's LCC and PBP analysis is discussed in further detail in section IV.F of this document.
Although significant conservation of energy is a separate statutory requirement for adopting an energy conservation standard, EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from the standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(III)) As discussed in section IV.H of this document, DOE uses the NIA spreadsheet models to project national energy savings.
In establishing product classes and in evaluating design options and the impact of potential standard levels, DOE evaluates potential standards that would not lessen the utility or performance of the considered products. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(IV)) Based on data available to DOE, the standards proposed in this document would not reduce the utility or performance of the equipment under consideration in this proposed rulemaking.
EPCA directs DOE to consider the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from a proposed standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(V)) It also directs the Attorney General to determine the impact, if any, of any lessening of competition likely to result from a proposed standard and to transmit such determination to the Secretary within 60 days of the publication of a proposed rule, together with an analysis of the nature and extent of the impact. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(ii)) DOE will transmit a copy of this proposed rule to the Attorney General with a request that the Department of Justice (“DOJ”) provide its determination on this issue. DOE will publish and respond to the Attorney General's determination in the final rule. DOE invites comment from the public regarding the competitive impacts that are likely to result from this proposed rule. In addition, stakeholders may also provide comments separately to DOJ regarding these potential impacts. See the
DOE also considers the need for national energy and water conservation in determining whether a new or amended standard is economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(VI)) The energy savings from the proposed standards are likely to provide improvements to the security and reliability of the Nation's energy system. Reductions in the demand for electricity also may result in reduced costs for maintaining the reliability of the Nation's electricity system. DOE conducts a utility impact analysis to estimate how standards may affect the Nation's needed power generation capacity, as discussed in section IV.M of this document.
DOE maintains that environmental and public health benefits associated with the more efficient use of energy are important to take into account when considering the need for national energy conservation. The proposed standards are likely to result in environmental benefits in the form of reduced emissions of air pollutants and greenhouse gases (“GHGs”) associated with energy production and use. DOE conducts an emissions analysis to estimate how potential standards may affect these emissions, as discussed in section IV.K of this document; the estimated emissions impacts are reported in section V.B.6 of this document. DOE also estimates the economic value of emissions reductions resulting from the considered TSLs, as discussed in section IV.L of this document.
In determining whether an energy conservation standard is economically justified, DOE may consider any other factors that the Secretary deems to be
EPCA creates a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of the equipment that meets the standard is less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable DOE test procedure. (42 U.S.C. 6313(a); 42 U.S.C. 6295(o)(2)(B)(iii) DOE's LCC and PBP analyses generate values used to calculate the effects that new energy conservation standards would have on the PBP for consumers. These analyses include, but are not limited to, the 3-year PBP contemplated under the rebuttable-presumption test.
In addition, DOE routinely conducts an economic analysis that considers the full range of impacts to consumers, manufacturers, the Nation, and the environment, as required under 42 U.S.C. 6313(a) and 42 U.S.C. 6295(o)(2)(B). The results of this analysis serve as the basis for DOE's evaluation of the economic justification for a potential standard level (thereby supporting or rebutting the results of any preliminary determination of economic justification). The rebuttable presumption payback calculation is discussed in section V.B.1.c of this document.
This section addresses the analyses DOE has performed for this proposed rulemaking with regard to ESEMs. Separate subsections address each component of DOE's analyses. In this NOPR, DOE is only addressing comments and analysis specific to the scope of motors provided in the December 2022 Joint Recommendation (
DOE used several analytical tools to estimate the impact of the standards proposed in this document. The first tool is a spreadsheet that presents the calculations of the LCC savings and PBP of potential new energy conservation standards. The national impacts analysis uses a second spreadsheet set that provides shipments projections and calculates national energy savings and net present value of total consumer costs and savings expected to result from potential energy conservation standards. DOE uses the third spreadsheet tool, the Government Regulatory Impact Model (“GRIM”), to assess manufacturer impacts of potential standards. These three spreadsheet tools are available on the DOE website for this rulemaking:
DOE develops information in the market and technology assessment that provides an overall picture of the market for the products concerned, including the purpose of the products, the industry structure, manufacturers, market characteristics, and technologies used in the products. This activity includes both quantitative and qualitative assessments, based primarily on publicly-available information. The subjects addressed in the market and technology assessment for this proposed rulemaking include (1) a determination of the scope of the proposed rulemaking and equipment classes, (2) manufacturers and industry structure, (3) existing efficiency programs, (4) shipments information, (5) market and industry trends; and (6) technologies or design options that could improve the energy efficiency of ESEMs. The key findings of DOE's market assessment are summarized in the following sections. See chapter 3 of the NOPR TSD for further discussion of the market and technology assessment.
This document covers ESEMs, a category of electric motors. The term “electric motor” is defined at 10 CFR 431.12. Specifically, the definition for “electric motor” is “a machine that converts electrical power into rotational mechanical power.” 10 CFR 431.12.
In the March 2022 Preliminary Analysis, DOE presented analysis for the current scope of electric motors regulated at 10 CFR 431.25, in addition to certain expanded scope, including air-over electric motors, and ESEMs and AO-ESEMs. See chapter 2 of the March 2022 Preliminary TSD. Since then, DOE has published the October 2022 Final Rule, which established test procedures for expanded scope, as discussed in detail in section III.B of this NOPR. Additionally, DOE has also published the June 2023 DFR, which established energy conservations standards for MEMs and AO-MEMs.
In response to the scope presented in the March 2022 Preliminary Analysis, DOE received a number of comments, which are discussed in the subsections below. In this NOPR, DOE is only addressing comments and analysis specific to the scope of motors proposed in this NOPR, which includes ESEMs and AO-ESEMs.
NEEA supported the inclusion of ESEMs in the scope of the standards. NEEA noted that including ESEMs will allow comparison of performance and informed purchase decisions. (NEEA, No. 33 at p. 2)
AHAM and AHRI strongly opposed DOE's plan to expand the existing scope of coverage of electric motors to include motors destined for particular applications in finished goods, and instead recommended that DOE should apply a finished-product approach to energy efficiency regulations. (AHAM and AHRI, No. 25 at pp. 7-9) Lennox added that it strongly objects to any expansion of coverage (including development of test procedures, energy conservation requirements, and/or certification requirements) for electric motors that would circumvent the statutory exemption that Congress provided for small electric motors that are components of EPCA-covered products/equipment. (Lennox, No. 29 at p. 3) AHAM and AHRI commented that they interpret the EPCA exemption for SEMs that are components of covered product and equipment as to also mean that small special and definite purpose motors, whether they are classified as small electric motors or as an ESEM, should not be subject to energy conservation standards. AHAM and AHRI stated that such motors are, by definition, destined for particular products, and when that product is a covered product/piece of equipment, that motor is destined for a product already subject to energy conservation standards and has defining features to identify it as such. (AHAM and AHRI, No. 25 at pp. 1,6)
AHRI and AHAM further commented that regulating ESEMs could affect the following product categories: clothes washers (top and front load), clothes dryers, food waste disposers, refrigerators, room air conditioners, and stick vacuums. Apart from stick vacuums and food waste disposers, AHAM and AHRI noted that the products listed are already subject to energy conservation standards. AHAM and AHRI also commented that
HI recommended that dedicated-purpose ESEMs should be regulated as part of their final product instead of as motors specifically. (HI, No. 31 at p. 1)
The Joint Industry Stakeholders commented that they strongly object to any expansion of coverage (including development of test procedures, energy conservation requirements, and/or certification requirements) for electric motors that would circumvent the statutory exemption that Congress provided for small electric motors that are components of EPCA-covered products/equipment. They stated that embedded motor testing, and ultimately energy conservation standards, would save minimal energy and would create needless testing, paperwork, and record-keeping requirements that would raise costs for consumers. (Joint Industry Stakeholders, No. 23 at pp. 3-4) The Joint Industry Stakeholders and AHAM and AHRI agreed with the previous determination in which DOE recognized that Congress intentionally excluded these motors from coverage by DOE regulation when such motors are used as components of products and equipment that are already subject to DOE regulation, and they noted that these are the motors that DOE now seeks to regulate as ESEMs and by expanding the scope of the test procedure to
As discussed in the October 2022 Final Rule, EPCA, as amended through EISA 2007, provides DOE with the authority to regulate the expanded scope of motors addressed in this rule. 87 FR 63588, 63596. Before the enactment of EISA 2007, EPCA defined the term “electric motor” as any motor that is a general purpose T-frame, single-speed, foot-mounting, polyphase squirrel-cage induction motor of the NEMA, Design A and B, continuous rated, operating on 230/460 volts and constant 60 Hertz line power as defined in NEMA Standards Publication MG1-1987. (
Some electric motors included in this proposed rule may be sold embedded into covered products and equipment or sold alone as replacements. DOE is proposing new energy conservation standards for ESEMs in this proposed rule that apply to the motor's efficiency regardless of whether the ESEM is being sold alone or embedded into a covered product or equipment. As discussed in section III.D of this document, DOE has determined that energy savings from the standard levels proposed in this NOPR are “significant” within the meaning of 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o)(3)(B)
The provisions of EPCA make clear that DOE may regulate electric motors “alone or as a component of another piece of equipment.” (
Congress defined what equipment comprises a SEM—specifically, “a NEMA general purpose alternating current single-speed induction motor, built in a two-digit frame number series in accordance with NEMA Standards Publication MG1-1987.”
In addition, ESEMs are built in standard NEMA frame sizes and are not common in currently regulated consumer products including those listed by AHAM and AHRI (
Furthermore, EPCA requires that any new or amended standard for covered equipment must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(3)(B)) In this NOPR, DOE performs the necessary analyses to determine what new standards would meet the aforementioned criteria. Further, DOE has determined that the proposed standards provide cost-effective standards that would result in the significant conservation of energy. Further discussion on the analytical results and DOE's justification is provided in section V of this document.
NEEA commented that the term “small, non-small electric motors” is confusing and recommended using “Other Small HP Motors (OSHM)” or “Other Small Electric Motors (OSEM)” as alternative options. (NEEA, No. 33 at p. 2) DOE has opted to use the term “ESEM” in this NOPR.
The Joint Industry Stakeholders commented that the proposed definition for ESEMs used in the March 2022 Preliminary Analysis is vague. Specifically, the Joint Industry Stakeholders requested clarification regarding (1) the definition of full-rated load; (2) whether brushless permanent magnet motors were included; (3) whether some motors, which have motor assemblies that are connected to 60 Hz and which are rectified internally to DC power and require brush maintenance were included. (Joint Industry Stakeholders, No. 23 at pp. 1-2) In response, DOE notes that the October 2022 Final Rule finalized a definition for “rated load,” which is currently provided in 10 CFR 431.12 (87 FR 63588, 63623), and included specifications on what electric motors meet the definition of ESEM, which is currently provided in section 1 of appendix B (87 FR 63588, 63599). Specifically, 10 CFR 431.12 currently relates rated load to full-load, full rated load, or rated full-load, and defines it as “the rated output power of an electric motor.” Further, section 1.1 of appendix B states that an ESEM means a motor that “is a single-speed induction motor capable of operating without an inverter or is an inverter-only electric motor”; therefore, the ESEM scope does not include non-induction electric motors. However, DOE does separately include in scope “synchronous electric motors,” which entails an electric motor that is “synchronous” and “produces at least 0.25 hp but not greater than 750 hp”.
The Joint Industry Stakeholders recommended that DOE exclude refrigeration compressor motors from the scope of the ESEM rulemaking. The Joint Industry Stakeholders explained that such motors are hermetically sealed and are cooled by the refrigerant flowing within the appliance/equipment, and that there is no accurate way to measure the efficiency of just the motor and thus, it is not appropriate or feasible to include refrigeration compressor motors in the scope of this rulemaking. (Joint Industry Stakeholders, No. 23 at p. 9) DOE defines a liquid-cooled electric motor as a motor that is cooled by liquid circulated using a designated cooling apparatus such that the liquid or liquid-filled conductors come into direct contact with the parts of the motor but is not submerged in a liquid during operation. 10 CFR 431.12. DOE reviewed refrigeration compressor motors and understands that they would be considered a liquid-cooled electric motor according to this definition because they require flowing refrigerant to adequately cool during operation. The designated cooling apparatus in this case is shared with the greater refrigeration system. Liquid-cooled electric motors are currently exempt from DOE's standards for electric motors, generally.
Additionally, NEMA stated that there is no room for explosion proof motors to accommodate a run capacitor because of the added enclosure constraints associated with explosion proof motors. (NEMA, No. 22 at p. 3) DOE agrees with NEMA that the enclosure constraints for explosion proof motors do not allow for the addition of a run capacitor. The new standard levels proposed by this NOPR will not require CSIR motors to incorporate an additional run capacitor and will not require CSIR motors to be replaced by CSCR motors. Therefore, DOE believes NEMA's concern is addressed.
The CA IOUs recommended exploring stakeholder interest in convening an ASRAC Working Group to clearly define the scope of an ESEM regulation before moving forward with an energy conservation standard rulemaking. (CA IOUs, No. 30 at p. 2) In response, DOE notes that several members of industry and other stakeholders did convene on a negotiation, which ended in the December 2022 Joint Recommendation. The December 2022 Joint Recommendation limited its scope to high-torque and medium-torque ESEMs, low-torque ESEMs, and polyphase ESEMs.
The Joint Industry Stakeholders also commented that ESEMs are the same as SEMs and that DOE's reliance on the SEM data as an analog to ESEM performance demonstrates that the products are the same. Additionally, the Joint Industry Stakeholders said that DOE did not provide sufficient data to support its analysis or to allow commenters to fully understand, interpret, or analyze the March 2022 Preliminary TSD and provide meaningful comment. The Joint Industry Stakeholders also stated that DOE's reliance on old data for what DOE claims is a different product and its drawing of conclusions without providing further detail fails to meet the requirements of the Administrative Procedure Act (“APA”) or the Data Quality Act. (Joint Industry Stakeholders, No. 23 at pp. 2-3) As noted previously, EPCA provides a very specific definition for SEMs that DOE regulates under 10 CFR part 431 subpart X. ESEMs can be similar to SEMs in many aspects, but nevertheless fall outside of the EPCA-provided definition. Accordingly, ESEMs are treated differently for purposes of DOE's energy conservation standards. That DOE used SEMs data as an analog to ESEM performance to help construct the March 2022 Preliminary Analysis does not change the fact that they are treated differently under EPCA, or that, as electric motors, DOE may regulate ESEMs used as components in other covered equipment. Notably, in response to the comment from the Joint Stakeholders, DOE has made updates to the ESEMs analysis in this NOPR compared to what was presented in the March 2022 Preliminary Analysis; specifically, DOE has performed additional testing, teardowns, and modeling of electric motors that more closely align with the ESEM scope and updated the engineering analysis accordingly. In addition, DOE reviewed the latest motor catalog data to inform the updated analyses. Further discussion on this updated analysis is provided in section IV.C of this document. Therefore, DOE has met the APA's requirements as DOE has explained throughout this NOPR and in the NOPR TSD the details of the analysis conducted by DOE and the information DOE relied on in conducting that analysis. Further, DOE has complied with DOE's guidelines for implementing the Data Quality Act that ensure the quality, objectivity, utility, and integrity of the data presented in this document.
In response to the March 2022 Preliminary Analysis, AHRI commented that air-over motors are explicitly exempted from regulation in 10 CFR 431.25(l), and that DOE has not overcome the challenges to include these exempted products, procedurally or technically. AHRI added that the claimed similarities between SEMs and the newly proposed AO-ESEMs category warrant the same exemption for AO-ESEMs that Congress expressly provided for small electric motors, and AHRI referenced the requirement of EPCA, which says that energy conservation standards “shall not apply to any small electric motor which is a component of a covered product under section 6292(a) of this title or covered equipment under section 6311 of this title.” (AHRI, No. 26 at pp. 1, 2)
With regards to the comment from AHRI, DOE is covering AO-ESEMs under its “electric motors” authority. (42 U.S.C. 6311(1)(A); 42 U.S.C. 6313(b)) As discussed in section III.A of this document, the statute does not limit DOE's authority to regulate electric motors (that are not SEMs) with respect to whether they are stand-alone equipment items or as components of a covered product or covered equipment.
DOE's previous determination in the December 2013 Final Rule to exclude air-over electric motors from scope was due to insufficient information available to DOE at the time to support establishment of a test method. 78 FR 75962, 75974-75975. Since that time, NEMA published a test standard for air-over motors in Section IV, “Performance Standards Applying to All Machines,” Part 34 “Air-Over Motor Efficiency Test Method” of NEMA MG 1-2016 (“NEMA Air-over Motor Efficiency Test Method”). The air-over method was originally published as part of the 2017 NEMA MG-1 Supplements and is also included in the latest version of NEMA MG 1-2016. Accordingly, in the October 2022 Final Rule, DOE included air-over electric motors in the test procedure scope and established test procedures for such motors. 87 FR 63588, 63597. In this NOPR, DOE has analyzed the scope of electric motors based on the finalized test procedures and proposes new energy conservation standards for AO-ESEMs that align with the December 2022 Joint Recommendation.
When evaluating and establishing energy conservation standards, DOE may establish separate standards for a group of covered products (
In the March 2022 Preliminary Analysis, DOE considered potential equipment classes defined on the basis of motor horsepower rating, pole configuration (
Regarding horsepower, DOE has previously established separate equipment classes for electric motors on the basis of horsepower rating. In an electric motors final rule that published on May 29, 2014 (“May 2014 Electric Motors Final Rule”), DOE discussed that horsepower is a performance attribute of an electric motor that is directly related to the capacity of an electric motor to perform useful work, and that horsepower generally scales with efficiency. 79 FR 30934, 30958. For example, a 50-horsepower electric motor would generally be considered more efficient than a 10-horsepower electric motor.
Regarding pole configuration, DOE has also previously established separate equipment classes for electric motors on the basis of pole configuration. In the May 2014 Electric Motors Final Rule, DOE discussed that the number of poles in an induction motor determines the synchronous speed (
Regarding enclosure type, DOE has also previously established separate equipment classes for electric motors on the basis of enclosure type. In the May 2014 Electric Motors Final Rule, DOE discussed that electric motors manufactured with open construction allow a free interchange of air between the electric motor's interior and exterior.
Regarding locked-rotor torque level, DOE considered three classifications of locked-rotor torque in the March 2022 Preliminary Analysis: high, medium, and low. The high locked-rotor torque motor topologies included CSCR and CSIR motors; the medium locked-rotor torque topologies included split phase motors; and the low locked-rotor torque topologies included PSC and shaded pole motors. Locked-rotor torque refers to torque developed by an electric motor whose rotor is locked in place,
In response to the equipment classes presented in the March 2022 Preliminary Analysis, NEMA agreed that locked-rotor torque (or alternatively, the motor technology) is necessary to maintain as an equipment class factor even if the high locked-rotor torque ESEMs can reach the highest efficiencies among the full range of ESEMs (regardless of locked-rotor torque categorization). They substantiated their recommendation by stating that certain high locked-rotor torque motors are often not interchangeable with lower locked-rotor torque motors in specific applications because of the larger physical size of the high locked-rotor torque motor due to the presence of additional capacitors. (NEMA, No. 22 at pp. 6-7) The December 2022 Joint Recommendation recommended equipment classes with locked-rotor torque as one of the differentiators among equipment classes, although in contrast to the March 2022 Preliminary Analysis, it merged the high and medium locked-rotor torque classes to form a single high locked-rotor torque class. DOE infers from this recommendation that the performance of split phase motors does not inherently differ substantially from the performance of CSCR and CSIR motors, such that a higher or lower energy conservation standard for split phase motors would not be warranted in relation to a standard established for CSCR and CSIR motors. As such, DOE has tentatively determined that separate equipment classes for ESEMs are warranted for two groupings of locked-rotor torque: high and medium locked-rotor torque (represented by the grouping of CSCR, CSIR, and split phase topologies) and low locked-rotor torque (represented by the grouping of PSC and shaded pole topologies).
Regarding motor cooling approach, DOE discussed the differentiation between air-over and non-air-over motors in the March 2022 Preliminary Analysis.
Based on the above considerations, DOE is proposing to establish equipment class groupings for ESEMs based on the following characteristics: horsepower rating, pole configuration (
DOE requests comment on the proposed equipment classes for this NOPR.
In the March 2022 Preliminary Analysis market and technology assessment, DOE identified several technology options that were initially determined to improve the efficiency of ESEMs, as measured by the DOE test procedure. Table IV-2 presents the technology options considered in the March 2022 Preliminary Analysis.
DOE maintains the same technology options from the March 2022 Preliminary Analysis in this NOPR. DOE received a number of comments regarding technology options. As these options are applicable to electric motors, broadly, DOE responded to these comments in the June 2023 DFR and refers to that discussion for purposes of technology options considered in this NOPR.
In response to the March 2022 Preliminary Analysis, DOE received comments regarding compliance logistics and general issues regarding embedded motors being imported into the United States. NEMA commented that they estimate between 30 and 60 percent of ESEMs will be imported as a motor or embedded in a piece of equipment, and that the importers of these equipment are the responsible parties to comply. NEMA stated that if DOE ignores these importers, the rule will harm American equipment manufacturers incorporating ESEMs who compete with offshore suppliers and will not maintain a “level playing field” amongst motor manufacturers. NEMA added that they believe that adding the ESEM categories as defined in the March 2022 Preliminary TSD will have significant negative effects on U.S. suppliers and jobs, giving offshore equipment producers an unfair advantage over American producers. NEMA continued by saying that if DOE does not provide a funded and feasible border enforcement plan, the energy savings estimates for a regulation for ESEM will need to be adjusted by removing the savings of the offshore motors that escape regulation. (NEMA, No. 22 at pp. 18-19) DOE recognizes that importing embedded motors within larger pieces of equipment poses logistical challenges regarding the compliance of these embedded motors with the new energy conservation standards. However, DOE notes that imported motors that meet the scope criteria proposed in this NOPR will be subject to the energy conservation standards that are being promulgated regardless of whether the motor is imported on its own or embedded in a separate piece of equipment. DOE is committed to enforcing its regulations in a fair and equitable manner to ensure a level playing field is preserved for domestic manufacturers.
DOE uses the following five screening criteria to determine which technology options are suitable for further consideration in an energy conservation standards rulemaking:
10 CFR 431.4; 10 CFR part 430, subpart C, appendix A, 6(c)(3) and 7(b).
In summary, if DOE determines that a technology, or a combination of technologies, fails to meet one or more of the listed five criteria, it will be excluded from further consideration in the engineering analysis. The reasons for eliminating any technology are discussed in the following sections.
The subsequent sections include comments from interested parties pertinent to the screening criteria, DOE's evaluation of each technology option against the screening analysis criteria, and whether DOE determined that a technology option should be excluded (“screened out”) based on the screening criteria.
In the March 2022 Preliminary TSD, DOE screened out amorphous metal laminations and plastic bonded iron powder (“PBIP”) from the analysis. DOE requested further data on the feasibility of amorphous steel being used in electric motors at scale.
Accordingly, consistent with the March 2022 Preliminary Analysis and the June 2023 DFR, DOE is continuing to screen out amorphous metal laminations and PBIP in this NOPR.
In the March 2022 Preliminary TSD, DOE did not screen out the following technology options: increasing cross-sectional area of copper in stator slots; decreasing the length of coil extensions; increasing cross-sectional area of end rings; increasing cross-sectional area of rotor conductor bars; using a die-cast copper rotor cage; using electrical steel laminations with lower losses (watts/lb); using thinner steel laminations; increasing stack length; optimizing bearing and lubrication selection; improving cooling system design; reducing skew on rotor cage; and improving rotor bar insulation.
Otherwise, through a review of each technology, DOE concludes that all of the other identified technologies listed in this section met all five screening criteria to be examined further as design options in DOE's NOPR analysis. The design options screened-in are consistent with the design options from the March 2022 Preliminary Analysis. DOE determined that these technology options are technologically feasible because they are being used or have previously been used in commercially-available equipment or working prototypes. DOE also finds that all of the remaining technology options meet the other screening criteria (
DOE requests comment on the remaining technology options considered in this NOPR.
The purpose of the engineering analysis is to establish the relationship between the efficiency and cost of ESEMs. There are two elements to consider in the engineering analysis; the selection of efficiency levels to analyze (
DOE typically uses one of two approaches to develop energy efficiency levels for the engineering analysis: (1) relying on observed efficiency levels in the market (
In this proposed rulemaking, DOE applied a combination of the efficiency-level approach and the design-option approach to establish efficiency levels to
Due to the large number of equipment classes, DOE did not directly analyze all equipment classes of electric motors considered in this NOPR. Instead, DOE selected representative units based on two factors: (1) the quantity of motor models available within an equipment class and (2) the ability to scale to other equipment classes.
For this NOPR, DOE updated the horsepower output and pole configuration in response to feedback received on the March 2022 Preliminary Analysis and on feedback received through manufacturer interviews. For more information on the manufacturer interviews, see section IV.J.2 of this document. Table IV-3 presents the representative units analyzed, and the covered horsepower ranges for each of the representative units.
In response to the March 2022 Preliminary Analysis, DOE received a comment from NEMA stating that DOE should conduct more testing of motor efficiency at higher efficiency levels rather than relying so heavily on scaled results. (NEMA, No. 22 at pp. 15, 24) DOE notes that teardowns of motors at higher efficiency levels were conducted for each ECG that was directly analyzed. This comment was also discussed in section IV.C.1 of the June 2023 DFR.
DOE requests comment on the representative units used in this NOPR.
For each equipment class, DOE generally selects a baseline model as a reference point for each class and measures changes resulting from potential energy conservation standards against the baseline. The baseline model in each equipment class represents the characteristics of an equipment typical of that class (
In the March 2022 Preliminary Analysis, DOE generated a baseline efficiency level for ESEMs by creating a curve-fit of motor losses vs. hp based on the SEM energy conservation standards located at 10 CFR 431.446, and shifting this curve-fit down to fit what was observed in catalog data for a given ESEM ECG.
The Joint Advocates commented that DOE tested five ESEMs with and without the fan using the proposed NOPR test procedure to determine the difference in efficiency between AO and non-AO motors. Removing the motor fan resulted in baseline efficiencies several percent higher for the AO-ESEMs. As such, the Joint Advocates recommend that DOE analyze appropriate baseline efficiency levels for AO motors. (Joint Advocates, No. 27 at p. 3)
NEMA disagreed with how DOE created the baseline for ESEMs and suggested that the baseline be determined through testing and not rely on unverified performance models. (NEMA, No. 22 at p. 15) With regards to the comment from NEMA, DOE acknowledges that testing individual models is the most ideal way to gather performance data for electric motors. However, due to the very high volume of combinations of motor topologies, horsepower, frame sizes, pole counts, speeds, unique motor construction, and other parameters, DOE has recognized it to be unrealistic to test every possible motor available in the U.S. market. As such, DOE is modeling performance using a catalog of all electric motors (including ESEMs) available for sale in the U.S. market, which contains specific data for all relevant parameters of electric motor performance, including locked rotor torque, pole count, horsepower output, speed, nominal efficiency, current draw, as well as many others. DOE created the baseline using a similar combination of the catalog performance data and trends that DOE developed and modeled in the 2010 SEM standard rulemaking when DOE was similarly faced with a high volume of potential SEM model possibilities. Given the similarities between SEMs and ESEMs, DOE believes that a baseline created with a methodology parallel to the previous SEM rulemaking is a reasonable approach for creating energy conservation standards for ESEMs. Accordingly, in this NOPR, DOE used a mix of catalog data, current SEM standards, and test data to establish the baseline efficiencies. For ECGs 1-3, DOE began with the methodology that was used in March 2022 Preliminary Analysis to establish the baseline. For ECGs 1 and 3, DOE then shifted the baseline (
DOE requests comment on the baseline efficiencies used in this NOPR.
As part of DOE's analysis, the maximum available efficiency level is the highest efficiency unit currently available on the market. DOE also defines a “max-tech” efficiency level to represent the maximum possible efficiency for a given equipment.
In the March 2022 Preliminary Analysis, DOE established the higher efficiency levels by shifting the baseline efficiencies up a certain number of NEMA bands. In response to the March 2022 Preliminary Analysis, DOE received comments regarding the analysis used to determine efficiencies at higher levels, which were responded to in the June 2023 DFR. 88 FR 36066, 36096-36097. In that final rule, DOE determined that the approach used in the March 2022 Preliminary Analysis continued to be appropriate.
DOE requests comment on the proposal to constrain the frame size of all efficiency levels to that of the baseline unit.
For the max-tech efficiencies in the engineering analysis, DOE considered 35H210 silicon steel, which has the lowest theoretical maximum core loss of all steels considered in this engineering analysis, and the thinnest practical thickness for use in motor laminations. The max-tech designs also have the highest possible slot fill, maximizing the number of motor laminations that can fit inside the motor. Further details are provided in chapter 5 of the NOPR TSD.
The max-tech for all equipment classes was created by using the curve shape of motor losses vs. horsepower for the SEM energy conservation standards and shifting that curve up to intersect with the representative unit efficiencies for a given ECG. For intermediate efficiency levels that were higher than an ECG's baseline but not the max-tech efficiency considered, DOE used a consistent approach across all ECGs. EL 1 was an average of the full-load efficiencies of the baseline, EL 2 contained the levels recommended in the December 2022 Joint Recommendation, and EL 3 was an average of the full-load efficiencies of EL 2 and max-tech.
Table IV-4 presents a summary of the description of the higher efficiency levels analyzed in this NOPR. For additional details on the efficiency levels, see chapter 5 of the NOPR TSD.
The cost analysis portion of the engineering analysis is conducted using one or a combination of cost approaches. The selection of cost approach depends on a suite of factors, including the availability and reliability of public information, characteristics of the regulated equipment, the availability and timeliness of purchasing the equipment on the market. The cost approaches are summarized as follows:
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In the March 2022 Preliminary Analysis, DOE conducted the analysis using a combination of physical teardowns and software modeling. DOE contracted a professional motor laboratory to disassemble various electric motors and record what types of materials were present and how much of each material was present, recorded in a final bill of materials (“BOM”). To supplement the physical teardowns, software modeling by a subject matter expert was also used to generate BOMs for select efficiency levels of directly analyzed representative units. The resulting bill of materials provides the basis for the manufacturer production cost (“MPC”) estimates.
In response to the March 2022 Preliminary Analysis, DOE received a number of comments pertaining to the cost analysis, which were responded to in the June 2023 DFR. 88 FR 36066, 36098-36099. In that final rule, DOE determined that the approach used in the March 2022 Preliminary Analysis continued to be appropriate.
Finally, to account for manufacturers' non-production costs and profit margin, DOE applies a non-production cost multiplier (the manufacturer markup) to the MPC. The resulting manufacturer selling price (“MSP”) is the price at which the manufacturer distributes a unit into commerce. DOE developed an average manufacturer markup by examining the annual Securities and Exchange Commission (“SEC”) 10-K reports filed by publicly-traded manufacturers primarily engaged in ESEM manufacturing and whose combined product range includes ESEMs. DOE used a non-production markup of 37 percent for all ESEMs considered in this NOPR.
DOE received comments in response to the March 2022 Preliminary Analysis regarding the technical design and performance specifications of ESEMs analyzed in this NOPR. The Joint Industry Stakeholders and AHAM and AHRI commented that more-efficient motors become heavier and larger and that DOE needs to account for the loss of consumer demanded utility in terms of portability or ease of lifting by one person. (Joint Industry Stakeholders, No. 23 at p. 6; AHAM and AHRI, No. 25 at p. 12) The Joint Industry Stakeholders commented that DOE must factor portability into its calculations and considerations for technological feasibility or risk violation of EPCA provision 42 U.S.C. 6295(o)(2)(B)(i)(I)-(VII) The Joint Industry Stakeholders provided results of the AHAM Home Comfort Survey showing that portability is important to PAC owners. The Joint Industry Stakeholders added that DOE should screen out technology options that increase weight and should not use it as a design option in its analysis of higher efficiency levels. The Joint Industry Stakeholders added that DOE must account for physical growth (
In response to these comments, DOE notes that size increase of ESEMs analyzed as part of this NOPR is limited, and efficiency levels at or below the levels recommended in the December 2022 Joint Recommendation will not result in a significant weight increase relative to the present weight of ESEMs, specifically at the selected TSL 2 (
DOE requests comment on the assumption that higher ELs (particularly ELs 3 and 4) can be reached without significant increase in size.
DOE requests comment on the potential for market disruption at higher ELs and if manufacturers could design motors at ELs 3 and 4 that do not increase in size, or if for the final rule, DOE should model motors larger than what is considered in this NOPR.
The Joint Industry Stakeholders commented that if lower speed motors are no longer available, appliances may be forced to incorporate higher speed motors which may cause short-cycling in HVAC and refrigeration applications and result in negative impacts in other appliances. The Joint Industry Stakeholders provided the example of a vacuum cleaner where a higher speed motor could lead to increased suction and reduce the ability to move the vacuum. (Joint Industry Stakeholders, No. 23 at pp. 8-9)
DOE notes that the ESEM performance models generated by the subject matter expert for the representative units did not always increase in speed as efficiency increased and that the energy conservation standards proposed by this NOPR apply to motors of varying operating speeds across multiple pole-configurations. As such, DOE does not expect the respective standard levels and equipment classes to result in the unavailability of motors with specific speed characteristics. DOE has also found that many vacuum cleaners currently on the market utilize suction
AHAM and AHRI commented that they expect electric motors, particularly fractional horsepower electric motors, would increase in price because larger/faster motors will require additional materials for the motor stack, windings, and other components. Moreover, AHAM and AHRI commented that efficiency requirements could push manufacturers to different, more expensive, motor topologies. AHAM and AHRI added that the certification, testing, and reporting requirements will also add cost. AHAM and AHRI provided an estimate that 6,015 basic models of equipment would have one or more motors under the scope of this proposed regulation. Applying a $304,000 per basic model cost estimate to redesign the equipment to accommodate a redesigned motor, AHAM and AHRI estimate the cost of this regulation for OEMs will exceed $1.83 billion. (AHAM and AHRI, No. 25 at pp. 9-12)
The Joint Industry Stakeholders and Lennox stated that if a new ESEM cannot be incorporated into an existing, previously-purchased appliance or OEM product, the consumer must source salvage/repaired component motors or purchase new products entirely. The Joint Stakeholders and Lennox commented that consumers will either face significant repair bills due to field modifications to incorporate new ESEM or lost use of devices due to inability to repair with a new ESEM. The Joint Industry Stakeholders and Lennox commented that DOE did not incorporate the impact of consumers being forced to prematurely purchase new equipment. The Joint Industry Stakeholders and Lennox added that DOE fails to account for these additional OEM equipment repair costs and for the fact that many consumers will be left without a repair option and forced to prematurely purchase new equipment or a new appliance and place additional burden on low-income consumers. (Joint Industry Stakeholders, No. 23 at pp. 5-6; Lennox, No. 29 at p. 5) AHAM and AHRI commented that setting energy conservation standards on motors that are components of finished goods would result in unavailability of replacement motors and consumers would be forced to purchase a new appliance they cannot afford because the existing equipment can no longer be serviced. (AHAM and AHRI, No. 25 at p. 10)
Lennox commented that DOE must thoroughly evaluate the loss of repairability for installed/owned HVACR systems that contain newly regulated ESEMs, which could force consumers to undertake unnecessary and costly premature replacement of HVACR systems. (Lennox, No. 29 at p. 5)
As discussed previously in this section, DOE revised the engineering analysis from the March 2022 Preliminary Analysis, and, as such, the proposed standards in this NOPR result in no significant increases to the size of an affected ESEM, which means there is no loss in repairability for previously-purchased appliances because the form, fit, and function of the ESEMs are maintained at the proposed TSLs. In addition, the proposed levels would preserve key criteria that are used to identify suitable replacement motors,
Regarding the additional OEM testing and certification costs, while DOE conducts a MIA to address the industry burden on the manufacturer of the considered covered equipment, DOE typically does not include the impacts to other manufacturers. The MIA for this rulemaking specifically examined the conversion costs that electric motor manufacturers (including OEMs that also manufacture electric motors) would incur due to the analyzed energy conservation standards for electric motors in comparison to the revenue and free cash electric motor manufacturers receive. The OEM testing and certification costs were not included in the MIA, and neither were the OEM revenues and free cash flows, as these costs and revenue are not specific to electric motor manufacturers. However, as noted by the Electric Motors Working Group, the proposed standards for ESEMs are not expected to cause broad market disruption. In addition, DOE fixed the frame size, which remained the same across efficiency levels. As such, the energy conservation standards proposed in this NOPR would preserve the frame sizes of electric motors on the market today. Further, as discussed in section IV.A.1 of this document, ESEMs are built in standard NEMA frame sizes and are not common in currently regulated consumer products including those listed by AHAM and AHRI (
The results of the engineering analysis are reported as cost-efficiency data (or “curves”) in the form of MSP (in dollars) versus full-load efficiency (in %), which form the basis for subsequent analysis. DOE developed ten curves representing the six equipment class groups. The methodology for developing the curves started with determining the full-load efficiency and MPCs for baseline motors. Above the baseline, DOE implemented various combinations of design options to achieve each efficiency level. Design options were implemented until all available technologies were employed (
Due to the large number of equipment classes, DOE was not able to perform a detailed engineering analysis on each one. Instead, DOE focused its analysis on the representative units and scaled the results to equipment classes not directly analyzed in the engineering analysis. In the March 2022 Preliminary Analysis, DOE used the current standards at 10 CFR 431.25 as a basis to scale the efficiency of the representative units to all other equipment classes. In order to scale for efficiency levels above baseline, the efficiencies for the representative units were shifted up or down by however many NEMA bands, because these bands are commonly used by industry when describing motor efficiency, that efficiency level was above current standards. DOE received a number of comments regarding scaling methodology, to which DOE responded to in the June 2023 DFR. 88 FR 36066, 36099-36100. In that final rule, DOE determined that the approach used in the March 2022 Preliminary Analysis continued to be appropriate.
In this NOPR, to scale across horsepower, pole configuration, and enclosure, DOE again relied on industry-recognized levels of efficiency when possible, or shifted forms of these levels. For example: when an efficiency level for a representative unit was NEMA Premium, Table 12-12 of NEMA MG 1-2016 was used to determine the efficiency of all the non-representative unit equipment classes. This method of scaling was also done for IE4 levels of efficiency, electric motor fire pump levels, and shifted versions of NEMA Premium (see section IV.C.1 of this document for a description of efficiency levels analyzed). DOE relied on industry-recognized levels because they sufficiently capture the effects of enclosure, pole configuration, frame size, and horsepower on motor efficiency.
The markups analysis develops appropriate markups (
In the March 2022 Preliminary Analysis, DOE identified distribution channels for electric motors and their respective market shares (
DOE developed baseline and incremental markups for each actor in the distribution chain. Baseline markups are applied to the price of equipment with baseline efficiency, while incremental markups are applied to the difference in price between baseline and higher-efficiency models (the incremental cost increase). The incremental markup is typically less than the baseline markup and is designed to maintain similar per-unit operating profit before and after new or amended standards.
In the March 2022 Preliminary Analysis, DOE relied on economic data from the U.S. Census Bureau and on 2020 RS Means Electrical Cost Data to estimate average baseline and incremental markups. Specifically, DOE estimated the OEM markups for electric motors based on financial data of different sets of OEMs that use respective electric motors from the latest 2019 Annual Survey of Manufactures.
In response to the March 2022 Preliminary Analysis, NEMA agreed that 95 percent of ESEMs reach the market through the OEM equipment channel. NEMA further commented that Table 6.4.2 of the March 2022 Preliminary TSD should be replaced by Table IV.3 of the Import Data Declaration Proposed Rule.
For this NOPR, DOE revised the OEM baseline and incremental markups calculation to account for these additional NAICS codes. In addition, DOE relied on updated data from the economic data from the U.S. Census Bureau, 2023 RS Means Electrical Cost Data, and the updated data from the Sales Tax Clearinghouse.
Chapter 6 of the NOPR TSD provides details on DOE's development of markups for ESEMs.
DOE requests data and information to characterize the distribution channels for ESEMs and associated market shares.
The purpose of the energy use analysis is to determine the annual energy consumption of ESEMs at different efficiencies for a representative sample of residential, commercial, and industrial consumers, and to assess the energy savings potential of increased ESEM efficiency. The energy use analysis estimates the range of energy use of ESEMs in the field (
DOE created a consumer sample to represent consumers of electric motors in the commercial, industrial, and residential sectors. DOE used the sample to determine electric motor annual energy consumption as well as to conduct the LCC and PBP analyses. Each consumer in the sample was assigned a sector, an application, and a region. The sector and application determine the usage profile of the electric motor and the economic characteristics of the motor owner vary by sector and region. In addition, residential consumers were assigned household income groups. In the March 2022 Preliminary Analysis, DOE primarily relied on data from the 2018 Commercial Building Energy Consumption Survey (“CBECS”),
Specifically, in the March 2022 Preliminary Analysis, for ESEMs, DOE used information from the Small Electric Motors January 2021 Final Determination Technical Support Document to develop sector specific distributions. Since the publication of the March 2022 Preliminary Analysis, DOE updated the consumer sample to
In response to DOE's requests for feedback regarding consumer sample in the March 2022 Preliminary Analysis, NEMA referred DOE to the MSMA report (NEMA, No. 22 at p. 19) As previously described, DOE relied on information from the MSMA report to inform its consumer sample. DOE did not receive any additional comments related to the consumer sample developed in the March 2022 Preliminary Analysis and, in this NOPR, DOE continued to rely on the MSMA report to characterize motor use in the commercial and industrial sectors.
DOE requests data and information to characterize the distribution of ESEMs by sector (commercial, industrial, and residential sectors) as well as the distribution of ESEMs by application in each sector.
In the March 2022 Preliminary Analysis, DOE calculated the motor input power as the sum of (1) the electric motor's rated horsepower multiplied by its operating load (
In response to DOE's requests for feedback regarding distributions of average annual operating load by application and sector in the March 2022 Preliminary Analysis, NEMA referred DOE to the MSMA report. (NEMA, No. 22 at p. 19) As previously described, DOE relied on information from the MSMA report to characterize average annual operating loads. DOE did not receive any additional comments related to the distributions of operating loads developed in the March 2022 Preliminary Analysis and retained the same approach for this NOPR.
DOE did not receive any comments on its approach to determine part-load losses and retained the same methodology for this NOPR. However, DOE updated its analysis to account for more recent part-load efficiency information from 2022 manufacturer catalogs.
DOE seeks data and additional information to characterize ESEM operating loads.
In the March 2022 Preliminary Analysis, DOE used information from the MSMA report to establish distributions of motor annual hours of operation by application for the commercial and industrial sectors. See section 7.2.5 of the March 2022 Preliminary TSD. The MSMA report provided average, mean, median, minimum, maximum, and quartile boundaries for annual operating hours across industrial and commercial sectors by application and showed no significant difference in average annual hours of operation between horsepower ranges. DOE used this information to develop application-specific statistical distributions of annual operating hours in the commercial and industrial sectors.
For electric motors used in the agricultural sector (which were not included in the MSMA report), DOE derived statistical distributions of annual operating hours of irrigation pumps by region using data from the 2013 Census of Agriculture Farm and Ranch Irrigation Survey.
For ESEMs used in the residential sector (which is a sector that was not studied in the MSMA report), DOE did not receive any comments specific to the residential sector. DOE retained the approach used in the March 2022 Preliminary Analysis and relied on the distributions of operating hours by application as presented in chapter 7 of the January 2021 Final Determination Technical Support Document pertaining to SEMs.
In response to DOE's requests for feedback regarding distributions of average annual operating hours by application and sector in the March 2022 Preliminary Analysis, NEMA referred DOE to the MSMA report. (NEMA, No. 22 at p. 20) As previously described, DOE relied on information from the MSMA report to inform its distributions of annual operating hours in the commercial and industrial sectors. For other sectors not included in the MSMA report, DOE relied on additional data sources as previously described. DOE did not receive any additional comments related to the distributions of operating hours developed in the March 2022 Preliminary Analysis and retained the same approach for this NOPR.
DOE requests comment on the distribution of average annual operating hours by application and sector used to characterize the variability in energy use for ESEMs.
Any increase in operating speeds as the efficiency of the motor is increased could affect the energy saving benefits of more efficient motors in certain variable torque applications (
In response to the March 2022 Preliminary Analysis, the Joint Advocates requested clarifications regarding how DOE accounted for the impact of the increase motor speed on the energy use, as well as how motor slip was incorporated into the energy use analysis. (Joint Advocates, No. 27 at pp. 4-5)
DOE described the method and assumptions used to calculate the impact of higher speed on energy use in section 7.2.2.1 of the March 2022 Preliminary TSD. In this NOPR, DOE provided additional details on the methodology and equations used as part of Appendix 7A in the NOPR TSD.
NEMA commented that nearly 100 percent of fans, pumps and compressors using ESEMs would be negatively impacted by an increase in speed. In addition, NEMA commented that it would take up to two years for OEMs to redesign and recertify an equipment with a motor that has higher speed and provided an example calculation to illustrate the impacts of higher speed operation. (NEMA, No. 22 at pp. 20-21, 49)
The Joint Industry Stakeholders commented that DOE should consider the full impact of higher speed motors by considering new products as well as replacement. The Joint Industry Stakeholders added that DOE only incorporated the effect of increased speeds in currently regulated motors and air-over motors and that this effect should also be accounted for in ESEMs. The Joint Industry Stakeholders commented that if lower speed motors are no longer available, appliances may be forced to incorporate higher speed motors, which may cause short-cycling in HVAC and refrigeration applications and result in negative impacts in other appliances. (Joint Industry Stakeholders, No. 23 at pp. 8-9)
In this NOPR, DOE included the effect of increased speeds in the energy use calculation for all equipment classes. DOE reviewed information related to pump, fans, and compressor applications driven by electric motors
Chapter 7 of the NOPR TSD provides details on DOE's energy use analysis for ESEMs.
DOE seeks data and additional information to support the analysis of projected energy use impacts related to any increases in motor nominal speed.
DOE conducted LCC and PBP analyses to evaluate the economic impacts on individual consumers of potential energy conservation standards for ESEMs. The effect of new energy conservation standards on individual consumers usually involves a reduction in operating cost and an increase in purchase cost. DOE used the following two metrics to measure consumer impacts:
☐ The LCC is the total consumer expense of an equipment over the life of that equipment, consisting of total installed cost (manufacturer selling price, distribution chain markups, sales tax, and installation costs) plus operating costs (expenses for energy use, maintenance, and repair). To compute the operating costs, DOE discounts future operating costs to the time of purchase and sums them over the lifetime of the equipment.
☐ The PBP is the estimated amount of time (in years) it takes consumers to recover the increased purchase cost (including installation) of a more-efficient equipment through lower operating costs. DOE calculates the PBP by dividing the change in purchase cost at higher efficiency levels by the change in annual operating cost for the year that new standards are assumed to take effect.
For any given efficiency level, DOE measures the change in LCC relative to the LCC in the no-new-standards case, which reflects the estimated efficiency distribution of ESEMs in the absence of new energy conservation standards. In contrast, the PBP for a given efficiency level is measured relative to the baseline equipment.
For each considered efficiency level in each equipment class, DOE calculated the LCC and PBP for a nationally representative set of consumers. As stated previously, DOE developed consumer samples from various data sources (
Inputs to the calculation of total installed cost include the cost of the equipment—which includes MPCs, manufacturer markups, retailer and distributor markups, and sales taxes—and installation costs. Inputs to the calculation of operating expenses include annual energy consumption, energy prices and price projections, repair and maintenance costs, equipment lifetimes, and discount rates. DOE created distributions of values for equipment lifetime, discount rates, and sales taxes, with probabilities attached to each value, to account for their uncertainty and variability.
The computer model DOE uses to calculate the LCC relies on a Monte Carlo simulation to incorporate uncertainty and variability into the analysis. The Monte Carlo simulations randomly sample input values from the probability distributions and ESEM consumer samples. The model calculated the LCC for equipment at each efficiency level for 10,000 consumers per simulation run. The analytical results include a distribution of 10,000 data points showing the range of LCC savings for a given efficiency
Table IV-7 summarizes the approach and data DOE used to derive inputs to the LCC and PBP calculations. The subsections that follow provide further discussion. Details of the spreadsheet model, and of all the inputs to the LCC and PBP analyses, are contained in chapter 8 of the NOPR TSD and its appendices.
In response to the March 2022 Preliminary Analysis, the Joint Industry Stakeholders commented that double-regulation has no corresponding consumer benefits in the form of reduced power consumption given the appliance regulations being unchanged and the fact that a more efficient motor does not necessarily translate to a more efficient product when incorporated into a finished good. The Joint Industry Stakeholders commented that to potentially increase the cost of an OEM product, without a corresponding energy savings, would mean a net loss for consumers and negative national impacts. The Joint Industry Stakeholders noted that the DOE used operating hours for the following categories of equipment: air compressors, refrigeration compressors, fans and blowers, pumps material handling, material processing, other, and agricultural pumps. Of these, the Joint Industry Stakeholders noted that electric motors used in air compressors, refrigeration compressors, fans and blowers, pumps and agricultural pumps are already regulated to some extent and that DOE made no apparent effort to account for this and deduct a significant portion of those estimated hours. (Joint Industry Stakeholders, No. 23 at p. 5) AHAM and AHRI commented that expanding coverage to special and definite purpose motors would force manufacturers to incorporate more expensive motors and increase the cost of appliances and equipment, while not necessarily improving the energy performance of the finished product (whether it be a covered product/equipment or not). (AHAM and AHRI, No. 25 at p. 9) Lennox commented that DOE must accurately assess, and avoid double-counting, energy savings when assessing potential efficiency improvements from motors used in already-regulated HVAC equipment. Lennox commented that it is unclear in the LCC and PBP analysis if DOE accounted for double regulation and eliminated energy savings already achieved from system-level HVACR regulation. (Lennox, No. 29 at p. 4) HI commented that there is a potential for duplicate accounting of energy savings when regulating motors in general. HI stated that, in addition to the ESEMs, there is a potential for other motor product efficiencies to be counted twice such as the use of inverter-only products in pumps when the DOE calculates savings in their evaluations (one for inverter only motors, and another for pumps using those motors). (HI, No. 31 at p. 1)
As highlighted in a previous DOE report, motor energy savings potential and opportunities for higher efficiency electric motors in commercial and residential equipment would result in overall energy savings.
To calculate consumer equipment costs, DOE multiplied the MSPs developed in the engineering analysis by the distribution channel markups described previously (along with sales taxes). DOE used different markups for baseline equipment and higher-efficiency equipment, because DOE applies an incremental markup to the increase in MSP associated with higher-efficiency equipment.
To project an equipment price trend for electric motors, DOE obtained historical Producer Price Index (“PPI”) data for integral horsepower motors and generators manufacturing spanning the time period 1969-2022 and for fractional horsepower motors and generators manufacturing between 1967-2022 from the Bureau of Labor Statistics (“BLS”).
DOE did not receive any comments on price trends in response to the March 2022 Preliminary Analysis and retained the same approach in this NOPR.
DOE requests data and information regarding the most appropriate price trend to use to project ESEM prices.
Installation cost includes labor, overhead, and any miscellaneous materials and parts needed to install the equipment. Electric motor installation cost data from 2023 RS Means Electrical Cost Data show a variation in installation costs according to the motor horsepower (for three-phase electric motors), but not according to efficiency. DOE found no evidence that installation costs would be impacted with increased efficiency levels. Therefore, in the March 2022 Preliminary Analysis, DOE did not incorporate changes in installation costs for motors that are more efficient than baseline equipment. DOE assumed there is no variation in installation costs between a baseline efficiency motor and a higher efficiency motor except in terms of shipping costs. These shipping costs were based on weight data from the engineering analysis for the representative units.
In response to the March 2022 Preliminary Analysis, EASA commented that if a motor is replaced with a physically larger frame, the replacement would have higher installation costs because of the added complexity of modifying the mounting setup to accommodate the larger motor, and in some case would be impossible. (EASA, No. 21 at pp. 2-3)
As noted in section IV.C.1.c of this document, DOE fixed the frame size, which remains the same across efficiency levels in the analysis. Therefore, DOE did not account for any changes in installation costs due to changes in frame sizes and, in this NOPR, DOE retained the approach used in the March 2022 Preliminary Analysis and assumed there is no variation in installation costs between a baseline efficiency motor and a higher efficiency motor except in terms of shipping costs.
DOE requests comment on whether any of the efficiency levels considered in this NOPR might lead to an increase in installation costs, and if so, DOE seeks supporting data regarding the magnitude of the increased cost per unit for each relevant efficiency level and the reasons for those differences.
For each sampled consumer, DOE determined the energy consumption for an electric motor at different efficiency levels using the approach described previously in section IV.E of this document.
Because marginal electricity price more accurately captures the incremental savings associated with a change in energy use from higher efficiency, it provides a better representation of incremental change in consumer costs than average electricity prices. Therefore, DOE applied average electricity prices for the energy use of the equipment purchased in the no-new-standards case, and marginal electricity prices for the incremental change in energy use associated with the other efficiency levels considered.
DOE derived electricity prices in 2022 using data from EEI Typical Bills and Average Rates reports. Based upon comprehensive, industry-wide surveys, this semi-annual report presents typical monthly electric bills and average kilowatt-hour costs to the customer as charged by investor-owned utilities. For the residential sector, DOE calculated electricity prices using the methodology described in Coughlin and Beraki (2018).
DOE's methodology allows electricity prices to vary by sector, region and season. In the analysis, variability in electricity prices is chosen to be consistent with the way the consumer economic and energy use characteristics are defined in the LCC analysis. For electric motors, DOE relied on variability by region and sector. See chapter 8 of the NOPR TSD for more details.
To estimate energy prices in future years, DOE multiplied the 2022 energy prices by the projection of annual average price changes for each of the nine census divisions from the Reference case in
Repair costs are associated with repairing or replacing equipment components that have failed in an equipment; maintenance costs are associated with maintaining the operation of the equipment.
In the March 2022 Preliminary Analysis, for the maintenance costs, DOE did not find data indicating a variation in maintenance costs between baseline efficiency and higher efficiency motors. The cost of replacing bearings, which is the most common maintenance practice, is constant across efficiency levels. Therefore, DOE did not include maintenance costs in the LCC analysis. See Section 8.3.3 of the March 2022 Preliminary Analysis.
DOE did not receive any comments related to maintenance costs and retained the same approach in this NOPR.
DOE considers a motor repair as including rewinding and reconditioning. See section 8.3.3 of the March 2022 Preliminary Analysis TSD. In the March 2022 Preliminary Analysis, DOE only included repair costs for units with a horsepower greater than 20 horsepower and did not consider any repair for the ESEM representative units.
In response to the March 2022 Preliminary Analysis, EASA commented that the definition of repair must be clear for the purposes of estimating the number of repairs and should be provided in a separate “Definitions” section. (EASA, No. 21 at p. 5) As noted previously, DOE considers a motor repair as including rewinding and reconditioning and describes the term in chapter 8 of the NOPR TSD (this was also described in chapter 8 of the March 2022 Preliminary Analysis). Other non-rewinding related practices, such as bearing replacement, were considered as part of the maintenance costs.
DOE did not receive any comments supporting inclusion of repair costs for ESEMs and, in this NOPR, continued to exclude repair costs for ESEMs in line with the approach used in the March 2022 Preliminary Analysis.
DOE requests comment on whether any of the efficiency levels considered in this NOPR might lead to an increase in maintenance and repair costs, and if so, DOE seeks supporting data regarding the magnitude of the increased cost per unit for each relevant efficiency level and the reasons for those differences.
In the March 2022 Preliminary Analysis, DOE established separate average mechanical lifetime estimates for single phase and polyphase ESEMs and AO-ESEMs. DOE then developed Weibull distributions of mechanical lifetimes (in hours). The lifetime in years for a sampled electric motor is calculated by dividing the sampled mechanical lifetime by the sampled annual operating hours of the electric motor. In addition, DOE considered that ESEMs and AO-ESEMs are typically embedded in a piece of equipment (
In response to the March 2022 Preliminary Analysis, EASA commented that the definition of lifetime must be clear and should be provided in a separate “Definitions” section. (EASA, No. 21 at p. 5) In response, DOE notes that it considers a motor lifetime as the age at which an equipment is retired from service and describes the term in chapter 8 of the NOPR TSD (this was also described in chapter 8 of the March 2022 Preliminary Analysis).
DOE did not receive any comments regarding ESEMs and AO-ESEMs lifetimes and continued to apply the same approach in this NOPR as in the March 2022 Preliminary Analysis.
DOE requests comment on the equipment lifetimes (both in years and in mechanical hours) used for each representative unit considered in the LCC and PBP analyses.
In the calculation of LCC, DOE applies discount rates appropriate to consumers to estimate the present value of future operating cost savings. DOE estimated a distribution of sector-specific discount rates for ESEMs based on the opportunity cost of consumer funds.
DOE applies weighted average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.
To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumer's opportunity cost of funds related to appliance energy cost savings. It estimated the average percentage shares of the various types of debt and equity by household income group using data from the Federal Reserve Board's triennial Survey of Consumer Finances
To establish non-residential discount rates, DOE estimated the weighted-average cost of capital using data from Damodaran Online.
See chapter 8 of the NOPR TSD for further details on the development of consumer discount rates.
To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOE's LCC analysis considered the projected distribution (market shares) of equipment efficiencies under the no-new-standards case (
In the March 2022 Preliminary Analysis, DOE relied on model counts by efficiency from the 2016 and 2020 Manufacturer Catalog Data to estimate the energy efficiency distribution of electric motors for 2027 and assumed no changes in electric motor efficiency over time. For some AO-ESEM representative units, DOE did not have enough models with efficiency information and used the efficiency distributions of the corresponding non-AO equipment class instead. In the March 2022 Preliminary Analysis, DOE used a Monte Carlo simulation to draw from the efficiency distributions and randomly assign an efficiency to the electric motor purchased by each sample household in the no-new-standards case. The resulting percent shares within the sample match the market shares in the efficiency distributions.
In response to the March 2022 Preliminary Analysis, NEMA disagreed with the DOE estimates for ESEM and AO-ESEM efficiency distributions and commented that these distributions were modeled/estimated, rather than gathered properly and accurately through testing and other means. NEMA commented that DOE should not develop estimates and interpolations and instead finalize test procedures. NEMA added that energy efficiency information does not exist because Federal test procedures for some of these motors have not been established. (NEMA, No. 22 at p. 23)
As noted previously, due to the very high volume of combinations of motor topologies, horsepower, frame sizes, pole counts, speeds, unique motor construction, and other parameters, DOE has recognized it to be unrealistic to test every possible motor available in the U.S. market. In the absence of such data, DOE relied on model counts by efficiency from manufacturer Catalog Data and updated the data to reflect 2022 catalog offerings (using the 2022 Motor Database). In addition, the electric motors test procedure finalized in the October 2022 Final Rule relies on industry test methods published in 2016.
As previously noted, in the March 2022 Preliminary Analysis, DOE assumed no changes in electric motor efficiency over time. DOE did not receive any comment on this assumption and retained the same approach in this NOPR: to estimate the energy efficiency distribution of electric motors for 2029, DOE assumed no changes in electric motor efficiency over time. The estimated market shares for the no-new-standards case for electric motors are shown in Table IV-8 by equipment class group and horsepower range.
The LCC Monte Carlo simulations draw from the efficiency distributions and randomly assign an efficiency to the ESEM purchased by each sample household in the no-new-standards case. The resulting percent shares within the sample match the market shares in the efficiency distributions.
The existence of market failures in the commercial and industrial sectors is well supported by the economics literature and by a number of case studies as discussed in the remainder of this section. DOE did not receive any comments specific to the random assignment of no-new-standards case efficiencies (sampled from the developed efficiency distribution) in the LCC model and continued to rely on the same approach to reflect market failures in the ESEM market, as noted in the following examples. First, a recognized problem in commercial settings is the principal-agent problem, where the building owner (or building developer) selects the equipment and the tenant (or subsequent building owner) pays for energy costs.
Stole, L.A., and Zwiebel, J. (1996). “Organizational design and technology choice under intrafirm bargaining,”
Cummins, J.G., Hassett, K.A., Hubbard, R.G., Hall, R.E., and Caballero, R.J. (1994). “A reconsideration of investment behavior using tax reforms as natural experiments,”
DeCanio, S.J., and Watkins, W.E. (1998). “Investment in energy efficiency: do the characteristics of firms matter?”
Hubbard R.G. and Kashyap A. (1992). “Internal Net Worth and the Investment Process: An Application to U.S. Agriculture,”
See chapter 8 of the NOPR TSD for further information on the derivation of the efficiency distributions.
DOE seeks information and data to help establish efficiency distribution in the no-new standards case for ESEMs. DOE requests data and information on any trends in the electric motor market that could be used to forecast expected trends in market share by efficiency levels for each equipment class.
The payback period is the amount of time (expressed in years) it takes the consumer to recover the additional installed cost of more-efficient equipment, compared to baseline equipment, through energy cost savings. Payback periods that exceed the life of the equipment mean that the increased total installed cost is not recovered in reduced operating expenses.
The inputs to the PBP calculation for each efficiency level are the change in total installed cost of the equipment and the change in the first-year annual operating expenditures relative to the baseline. DOE refers to this as a “simple PBP” because it does not consider changes over time in operating cost savings. The PBP calculation uses the same inputs as the LCC analysis when deriving first-year operating costs.
As noted previously, EPCA establishes a rebuttable presumption that a standard is economically justified if the Secretary finds that the additional cost to the consumer of purchasing an equipment complying with an energy conservation standard level will be less than three times the value of the first year's energy savings resulting from the standard, as calculated under the applicable test procedure. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(iii)) For each considered efficiency level, DOE determined the value of the first year's energy savings by calculating the energy savings in accordance with the applicable DOE test procedure, and multiplying those savings by the average energy price projection for the year in which compliance with the new standards would be required.
DOE uses projections of annual equipment shipments to calculate the national impacts of potential new energy conservation standards on energy use, NPV, and future manufacturer cash flows.
First, in the March 2022 Preliminary Analysis, DOE estimated shipments in the base year (2020). DOE estimated the total shipments of ESEMs in 2020 to be 28.6 million units (including 7.9 million units of AO ESEMs). DOE developed a distribution of shipments by equipment class group and horsepower range based on model counts from the 2020 and 2016/2020 Manufacturer Catalog Data. See chapter 9 of the March 2022 Preliminary Analysis TSD.
DOE did not receive any comments related to the base year shipments estimates for ESEMs and retained the values estimated in the preliminary analysis in this NOPR, however, DOE only included motors up to 3hp, which were in the recommended scope of the December 2022 Joint Recommendation. For ESEMs (including AO ESEMs), DOE revised the distribution of shipments by horsepower range based on model counts from the 2022 Manufacturer Catalog Data.
In the March 2022 Preliminary Analysis, DOE projected shipments for ESEMs in the no-new standards case under the assumption that long-term growth of electric motor shipments will be driven the following sector-specific market drivers from
In response to the March 2022 Preliminary Analysis, NEMA commented that legacy induction motors are being replaced by PDS (or power drive systems) consisting of a motor and controls/drives as a means to dramatically reduce power and integrate motor driven systems into sophisticated control schemes that continuously monitor processes managing flow, pressure, etc., to reduce operating costs and emissions. (NEMA, No. 22 at p. 23) In the case of ESEMs, DOE agrees with NEMA that some ESEMs could be replaced by non-induction motors such as ECMs. However, DOE does not have sufficient data to quantify the magnitude of such substitution, which could result in lower ESEM shipments. Instead, DOE established two additional shipments sensitivity scenario to account for the impacts of lower/higher ESEMs shipments estimates.
DOE did not receive any other comments specific to ESEM shipments projections and retained the same methodology as in the March 2022 Preliminary Analysis in this NOPR and revised the projections based on
DOE requests comment and additional data on its 2020 shipments estimates for ESEMs. DOE seeks comment on the methodology used to project future shipments of ESEMs. DOE seeks information on other data sources that can be used to estimate future shipments.
The NIA assesses the NES and the NPV from a national perspective of total consumer costs and savings that would be expected to result from new standards at specific efficiency levels.
DOE evaluates the impacts of new standards by comparing a case without such standards with standards-case projections. The no-new-standards case characterizes energy use and consumer costs for each equipment class in the absence of new energy conservation standards. For this projection, DOE considers any historical trends in efficiency and various forces that are likely to affect the mix of efficiencies over time. DOE compares the no-new-standards case with projections characterizing the market for each equipment class if DOE adopted new standards at specific energy efficiency levels (
DOE uses a spreadsheet model to calculate the energy savings and the national consumer costs and savings from each TSL. Interested parties can review DOE's analyses by changing various input quantities within the spreadsheet. The NIA spreadsheet model uses typical values (as opposed to probability distributions) as inputs.
Table IV-9 summarizes the inputs and methods DOE used for the NIA analysis for the NOPR. Discussion of these inputs and methods follows the table. See chapter 10 of the NOPR TSD for further details.
A key component of the NIA is the trend in energy efficiency projected for the no-new-standards case and each of the standards cases. Section IV.F.8 of this document describes how DOE developed an energy efficiency distribution for the no-new-standards case (which yields a shipment-weighted average efficiency) for each of the considered equipment classes for the year of anticipated compliance with a new standard. To project the trend in efficiency absent new standards for ESEMs and AO-ESEMs over the entire shipments projection period, DOE applied a constant trend, similar to what was done in the March 2022 Preliminary Analysis. The approach is further described in chapter 10 of the NOPR TSD.
For the standards cases, DOE used a “roll-up” scenario to establish the shipment-weighted efficiency for the year that standards are assumed to become effective (2029). In this scenario, the market shares of equipment in the no-new-standards case that do not meet the standard under consideration would “roll up” to meet the new standard level, and the market share of products above the standard would remain unchanged.
To develop standards case efficiency trends after 2029, DOE assumed no change over the forecast period.
DOE did not receive any comments on the projected efficiency trends in response to the March 2022 Preliminary Analysis and retained the same approach in this NOPR.
The national energy savings analysis involves a comparison of national energy consumption of the considered products between each potential standards case (“TSL”) and the case with no new energy conservation standards. DOE calculated the national energy consumption by multiplying the number of units (stock) of each equipment (by vintage or age) by the unit energy consumption (also by vintage). DOE calculated annual NES based on the difference in national energy consumption for the no-new-standards case and for each higher efficiency standard case. DOE estimated energy consumption and savings based on site energy and converted the electricity consumption and savings to primary energy (
Use of higher-efficiency equipment is sometimes associated with a direct rebound effect, which refers to an increase in utilization of the equipment due to the increase in efficiency. In the March 2022 Preliminary Analysis, DOE requested comment and data regarding the potential increase in utilization of electric motors due to any increase in efficiency.
In 2011, in response to the recommendations of a committee on “Point-of-Use and Full-Fuel-Cycle Measurement Approaches to Energy Efficiency Standards” appointed by the National Academy of Sciences, DOE announced its intention to use FFC measures of energy use and greenhouse gas and other emissions in the national impact analyses and emissions analyses included in future energy conservation standards rulemakings. 76 FR 51281 (Aug. 18, 2011). After evaluating the approaches discussed in the August 18, 2011 notice, DOE published a statement of amended policy in which DOE explained its determination that EIA's National Energy Modeling System (“NEMS”) is the most appropriate tool for its FFC analysis and its intention to use NEMS for that purpose. 77 FR 49701 (Aug. 17, 2012). NEMS is a public domain, multi-sector, partial equilibrium model of the U.S. energy sector
The inputs for determining the NPV of the total costs and benefits experienced by consumers are (1) total annual installed cost, (2) total annual operating costs (energy costs and repair and maintenance costs), and (3) a discount factor to calculate the present value of costs and savings. DOE calculates net savings each year as the difference between the no-new-standards case and each standards case in terms of total savings in operating costs versus total increases in installed costs. DOE calculates operating cost savings over the lifetime of each equipment shipped during the projection period.
As discussed in section IV.F.1 of this document, DOE developed constant ESEM price trends based on historical PPI data. DOE applied the same trends to project prices for each equipment class at each considered efficiency level. DOE's projection of equipment prices is described in appendix 10C of the NOPR TSD.
To evaluate the effect of uncertainty regarding the price trend estimates, DOE investigated the impact of different equipment price projections on the consumer NPV for the considered TSLs for ESEMs. In addition to the default price trend, DOE considered two equipment price sensitivity cases: (1) a high price decline case and (2) a low price decline case based on historical PPI data. The derivation of these price trends and the results of these sensitivity cases are described in appendix 10C of the NOPR TSD.
The energy cost savings are calculated using the estimated energy savings in each year and the projected price of the appropriate form of energy. To estimate energy prices in future years, DOE multiplied the average regional energy prices by the projection of annual national-average residential energy price changes in the Reference case from
In calculating the NPV, DOE multiplies the net savings in future years by a discount factor to determine their present value. For this NOPR, DOE estimated the NPV of consumer benefits using both a 3-percent and a 7-percent real discount rate. DOE uses these discount rates in accordance with guidance provided by the Office of Management and Budget (“OMB”) to Federal agencies on the development of regulatory analysis.
DOE requests comment and data regarding the potential increase in utilization of electric motors due to any increase in efficiency (“rebound effect”).
In analyzing the potential impact of new energy conservation standards on consumers, DOE evaluates the impact on identifiable subgroups of consumers that may be disproportionately affected by a new national standard. The purpose of a subgroup analysis is to determine the extent of any such
In response to the March 2022 Preliminary Analysis, AHAM and AHRI commented that a forced redesign of motors used in finished goods will force changes by the OEM. AHAM and AHRI commented that this would be particularly damaging for small appliances and floor care products, which use special purpose motors and are sensitive to even small increases in component part costs. AHAM and AHRI commented that the increased cost could make some appliances and equipment too costly for low-income consumers to purchase and delay purchases of more efficient appliances and equipment for middle-income consumers. (AHAM and AHRI, No. 25 at pp. 9-10) In response to these comments, DOE performed a subgroup analysis for low-income consumers showing these consumers would not be disproportionately impacted.
Chapter 11 in the NOPR TSD describes the consumer subgroup analysis.
DOE requests comment and data on the overall methodology used for the consumer subgroup analysis. DOE requests comment on whether additional consumer subgroups may be disproportionately affected by a new standard and warrant additional analysis in the final rule.
DOE performed an MIA to estimate the financial impacts of new energy conservation standards on manufacturers of ESEMs and to estimate the potential impacts of such standards on employment and manufacturing capacity. The MIA has both quantitative and qualitative aspects and includes analyses of projected industry cash flows, the INPV, investments in research and development (“R&D”) and manufacturing capital, and domestic manufacturing employment. Additionally, the MIA seeks to determine how new energy conservation standards might affect manufacturing employment, capacity, and competition, as well as how standards contribute to overall regulatory burden. Finally, the MIA serves to identify any disproportionate impacts on manufacturer subgroups, including small business manufacturers.
The quantitative part of the MIA primarily relies on the GRIM, an industry cash flow model with inputs specific to this proposed rulemaking. The key GRIM inputs include data on the industry cost structure, unit production costs, equipment shipments, manufacturer markups, and investments in R&D and manufacturing capital required to produce compliant products. The key GRIM outputs are the INPV, which is the sum of industry annual cash flows over the analysis period, discounted using the industry-weighted average cost of capital, and the impact to domestic manufacturing employment. The model uses standard accounting principles to estimate the impacts of energy conservation standards on a given industry by comparing changes in INPV and domestic manufacturing employment between a no-new-standards case and the various standards cases (
The qualitative part of the MIA addresses manufacturer characteristics and market trends. Specifically, the MIA considers such factors as a potential standard's impact on manufacturing capacity, competition within the industry, the cumulative impact of other DOE and non-DOE regulations, and impacts on manufacturer subgroups. The complete MIA is outlined in chapter 12 of the NOPR TSD.
DOE conducted the MIA for this rulemaking in three phases. In Phase 1 of the MIA, DOE prepared a profile of the ESEMs manufacturing industry based on the market and technology assessment, preliminary manufacturer interviews, and publicly-available information. This included a top-down analysis of ESEM manufacturers that DOE used to derive preliminary financial inputs for the GRIM (
In Phase 2 of the MIA, DOE prepared a framework industry cash-flow analysis to quantify the potential impacts of new energy conservation standards. The GRIM uses several factors to determine a series of annual cash flows starting with the announcement of the standard and extending over a 30-year period following the compliance date of the standard. These factors include annual expected revenues, costs of sales, SG&A and R&D expenses, taxes, and capital expenditures. In general, energy conservation standards can affect manufacturer cash flow in three distinct ways: (1) creating a need for increased investment, (2) raising production costs per unit, and (3) altering revenue due to higher per-unit prices and changes in sales volumes.
In addition, during Phase 2, DOE developed interview guides to distribute to manufacturers of ESEMs in order to develop other key GRIM inputs, including product and capital conversion costs, and to gather additional information on the anticipated effects of energy conservation standards on revenues, direct employment, capital assets, industry competitiveness, and subgroup impacts.
In Phase 3 of the MIA, DOE conducted structured, detailed interviews with representative manufacturers. During these interviews, DOE discussed engineering, manufacturing, procurement, and financial topics to validate assumptions used in the GRIM and to identify key issues or concerns. See section IV.J.3 of this document for a description of the key issues raised by manufacturers during the interviews. As part of Phase 3, DOE also evaluated subgroups of manufacturers that may be disproportionately impacted by new standards or that may not be accurately represented by the average cost assumptions used to develop the industry cash flow analysis. Such manufacturer subgroups may include
DOE uses the GRIM to quantify the changes in cash flow due to new standards that result in a higher or lower industry value. The GRIM uses a standard, annual discounted cash-flow analysis that incorporates manufacturer costs, markups, shipments, and industry financial information as inputs. The GRIM models changes in costs, distribution of shipments, investments, and manufacturer margins that could result from new energy conservation standard. The GRIM spreadsheet uses the inputs to arrive at a series of annual cash flows, beginning in 2024 (the base year of the analysis) and continuing to 2058. DOE calculated INPVs by summing the stream of annual discounted cash flows during this period. For manufacturers of ESEMs, DOE initially estimated a real discount rate of 9.1 percent, which was the real discount rate used in the previous medium electric motors final rule that published on May 29, 2014 (“May 2014 Electric Motors Final Rule”). 79 FR 30934, 30938. DOE then asked for feedback on this value during manufacturer interviews. Manufacturers agreed this was still an appropriate value to use. Therefore, DOE used a real discount rate of 9.1 percent for the analysis in this NOPR.
The GRIM calculates cash flows using standard accounting principles and compares changes in INPV between the no-new-standards case and each standards case. The difference in INPV between the no-new-standards case and a standards case represents the financial impact of new energy conservation standards on manufacturers. As discussed previously, DOE developed critical GRIM inputs using a number of sources, including publicly available data, results of the engineering analysis, and information gathered from industry stakeholders during the course of manufacturer interviews and subsequent working group meetings. The GRIM results are presented in section V.B.2 of this document. Additional details about the GRIM, the discount rate, and other financial parameters can be found in chapter 12 of the NOPR TSD.
Manufacturing more efficient equipment is typically more expensive than manufacturing baseline equipment due to the use of more complex components, which are typically more costly than baseline components. The changes in the MPCs of covered equipment can affect the revenues, gross margins, and cash flow of the industry.
DOE conducted the engineering analysis using a combination of physical teardowns and software modeling. DOE contracted a professional motor laboratory to disassemble various ESEMs and record what types of materials were present and how much of each material was present, recorded in a final BOM. To supplement the physical teardowns, software modeling by a subject matter expert was also used to generate BOMs for select efficiency levels of directly analyzed representative units.
For a complete description of the MPCs, see chapter 5 of the NOPR TSD.
The GRIM estimates manufacturer revenues based on total unit shipment projections and the distribution of those shipments by efficiency level. Changes in sales volumes and efficiency mix over time can significantly affect manufacturer finances. For this analysis, the GRIM uses the NIA's annual shipment projections derived from the shipments analysis from 2024 (the base year) to 2058 (the end year of the analysis period). See chapter 9 of the NOPR TSD for additional details.
New energy conservation standards could cause manufacturers to incur conversion costs to bring their production facilities and equipment designs into compliance. DOE evaluated the level of conversion-related expenditures that would be needed to comply with each considered efficiency level in each equipment class. For the MIA, DOE classified these conversion costs into two major groups: (1) product conversion costs; and (2) capital conversion costs. Product conversion costs are investments in research, development, testing, marketing, and other non-capitalized costs necessary to make equipment designs comply with new energy conservation standards. Capital conversion costs are investments in property, plant, and equipment necessary to adapt or change existing production facilities such that new compliant equipment designs can be fabricated and assembled.
DOE calculated the product and capital conversion costs using a bottom-up approach based on feedback from manufacturers during manufacturer interviews. During manufacturer interviews, DOE asked manufacturers questions regarding the estimated equipment and capital conversion costs needed to produce ESEMs within an equipment class at each specific EL. DOE used the feedback provided by manufacturers to estimate the approximate amount of engineering time, testing costs, and capital equipment that would need to be purchased in order to redesign a single frame size for each EL. Some of the types of capital conversion costs manufacturers identified were the purchase of lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs. The two main types of product conversion costs manufacturers shared with DOE during interviews were the number of engineer hours necessary to re-engineer frames to meet higher efficiency standards and the testing costs, including thermal protection testing, to comply with higher efficiency standards.
DOE then took average values (
In response to the March 2022 Preliminary Analysis, the Joint Industry Stakeholders and Lennox commented that there may be instances where substitution of a newer, larger, heavier, faster ESEM is feasible, but that it was not reasonable to assume this is always the case. The Joint Industry Stakeholders and Lennox added that OEM companies would be forced to expend significant resources seeking retrofit and repair options for recently purchased end-use OEM goods to account for unnecessary motor subcomponent changes. (Joint Industry Stakeholders, No. 23 at pp. 5-6; Lennox, No. 29 at p. 5) The Joint Industry
In this NOPR, as noted in section IV.C.1 of this document, DOE assumes higher efficiency levels can be reached without resulting in any significant size increase and without changing the key electrical and mechanical characteristics of the motor. Therefore, DOE disagrees with the Joint Stakeholders and Lennox that the higher efficiency levels would force OEMs to redesign their equipment and result in redesign and re-tooling costs.
As previously discussed, DOE revised the March 2022 Preliminary Analysis to account for space-constrained and non-space constrained motor designs, which will continue to provide repair options to consumers. As stated in the December 2022 Joint Recommendation, motor manufacturers believe that efficiency levels higher than EL 2 could result in significant increases in the physical size of certain motors. (Electric Motors Working Group, No. 38 at p. 4) As part of the engineering analysis, DOE models representative units that are able to meet the efficiency requirements of EL 2 and below that would not result in a significantly increase in the physical size of the ESEMs. For ELs higher than EL 2 (
In response to the March 2022 Preliminary Analysis, NEMA stated that many ESEMs have agency listings for thermal protection and any redesign of the motor will require retesting with the respective agencies. NEMA commented additionally that the time needed to complete this testing should be considered when setting the compliance date of any ESEM energy conservation standards, and that the cost associated with this agency testing must be accounted for in the cost analysis. (NEMA, No. 22 at pp. 3, 17) As previously stated in this section, DOE accounted for additional thermal protection testing in addition to the costs associated with redesigning each ESEM model as part of the product conversion costs. These product conversion costs, in addition to the capital conversion costs, are included when calculating the potential change in manufacturer INPV.
NEMA also commented that DOE must capture the OEM impacts in terms of costs of redesigning and retooling. NEMA noted that these costs will have a very wide variation: some will involve a few hours' worth of work while others could require several hundred hours plus material and recertification to regulating bodies and safety testers. NEMA commented further that single phase (and some small three phase) motors with agency certified overload protection will need several years to be recertified. In addition, NEMA noted that DOE should capture the installation cost impacts on end-users trying to repair appliances with larger, heavier, or faster replacement motors built to meet new standards. (NEMA, No. 22 at p. 21)
In response to these comments and as noted in section IV.F of this document, DOE determined that the installation costs for ESEMs would not change at higher efficiency levels compared to the baseline as DOE is maintaining the frame size of ESEMs constant across all efficiency levels analyzed. DOE is further limiting the stack length to be no greater than 20 percent longer than the baseline unit for that representative unit. In addition, as noted in section IV.C.3 of this document, the speed of the ESEMs across efficiency levels did not always increase with increasing efficiency and DOE accounted for speed variations in its energy use analysis (see section IV.E.4 of this document for more details).
In general, DOE assumes all conversion-related investments occur between the year of publication of the final rule and the year by which manufacturers must comply with new standards. The conversion cost figures used in the GRIM can be found in section V.B.2 of this document. For additional information on the estimated capital and product conversion costs, see chapter 12 of the NOPR TSD.
MSPs include direct manufacturing production costs (
Under the preservation of gross margin scenario, DOE applied a single uniform “gross margin percentage” across all efficiency levels, which assumes that manufacturers would be able to maintain the same amount of profit as a percentage of revenues at all efficiency levels within an equipment class. DOE initially estimated a manufacturer markup of 1.37 for all ESEMs covered by this rulemaking in the no-new-standards case, which was the manufacturer markup for medium electric motors under 5 hp used in the May 2014 Electric Motors Final Rule. 79 FR 30934, 30938. DOE then asked for feedback on this manufacturer markup during manufacturer interviews. Manufacturers agreed this was an appropriate manufacturer markup to use for ESEMs covered by this rulemaking. Therefore, DOE used this same manufacturer markup of 1.37 for all equipment classes and ELs at each TSL (
Under the preservation of operating profit scenario, DOE modeled a situation in which manufacturers are not able to increase per-unit operating profit in proportion to increases in MPCs. Under this scenario, as MPCs increase, manufacturers reduce their manufacturer margins to maintain a cost competitive offering in the market. However, in this scenario manufacturers maintain their total operating profit in absolute dollars in the standards case, despite higher product costs and investment. Therefore, gross margin (as a percentage) shrinks in the standards cases for this manufacturer markup
A comparison of industry financial impacts under the two markup scenarios is presented in section V.B.2.a of this document.
DOE conducted additional interviews with manufacturers following the publication of the March 2022 Preliminary TSD in preparation for this analysis. In interviews, DOE asked manufacturers to describe their major concerns regarding this rulemaking. The following section highlights manufacturer concerns that helped inform the projected potential impacts of new standards on the industry. Manufacturer interviews are conducted under NDAs, so DOE does not document these discussions in the same way that it does public comments in the comment summaries and DOE's responses throughout the rest of this document.
During these interviews, most manufacturers stated that they were concerned that if energy conservation standards were set at the higher ELs, ESEM manufacturers may have to increase the size and footprint of potentially non-compliant ESEM models to meet these higher ELs. While ESEM manufacturers stated it is possible for them to meet higher ELs by increasing the size or footprint of their ESEMs, many of the ESEMs that they manufacture are embedded or incorporated in another product or equipment. They further stated that several of these products or equipment with embedded ESEMs are not able to accommodate a larger ESEMs into these space-constrained products or equipment.
As previously discussed, DOE revised the engineering analysis for this NOPR based on comments from the December 2022 Joint Recommendation, to assume that ESEMs at EL 2 or below would not result in a significant increase in physical size. (
The emissions analysis consists of two components. The first component estimates the effect of potential energy conservation standards on power sector and site (where applicable) combustion emissions of CO
The analysis of electric power sector emissions of CO
FFC upstream emissions, which include emissions from fuel combustion during extraction, processing, and transportation of fuels, and “fugitive” emissions (direct leakage to the atmosphere) of CH
The emissions intensity factors are expressed in terms of physical units per MWh or MMBtu of site energy savings. For power sector emissions, specific emissions intensity factors are calculated by sector and end use. Total emissions reductions are estimated using the energy savings calculated in the national impact analysis.
DOE's no-new-standards case for the electric power sector reflects the
SO
However, beginning in 2016, SO
CSAPR also established limits on NO
The MATS limit mercury emissions from power plants, but they do not include emissions caps and, as such, DOE's energy conservation standards would be expected to slightly reduce Hg emissions. DOE estimated mercury emissions reduction using emissions factors based on
As part of the development of this NOPR, for the purpose of complying with the requirements of Executive Order 12866, DOE considered the estimated monetary benefits from the reduced emissions of CO
To monetize the benefits of reducing GHG emissions, this analysis uses the interim estimates presented in the
DOE estimates the monetized benefits of the reductions in emissions of CO
DOE exercises its own judgment in presenting monetized climate benefits as recommended by applicable Executive orders, and DOE would reach the same conclusion presented in this NOPR in the absence of the social cost of greenhouse gases. That is, the social costs of greenhouse gases, whether measured using the February 2021 interim estimates presented by the Interagency Working Group on the Social Cost of Greenhouse Gases or by another means, did not affect this NOPR by DOE.
DOE estimated the global social benefits of CO
The SC-GHGs estimates presented here were developed over many years, using transparent process, peer-reviewed methodologies, the best science available at the time of that process, and with input from the public. Specifically, in 2009, the IWG, that included the DOE and other executive branch agencies and offices was established to ensure that agencies were using the best available science and to promote consistency in the social cost of carbon (“SC-CO
On January 20, 2021, President Biden issued Executive Order 13990, which re-established the IWG and directed it to ensure that the U.S. Government's estimates of the social cost of carbon and other greenhouse gases reflect the best available science and the recommendations of in the National Academies 2017 report. The IWG was tasked with first reviewing the SC-GHG estimates currently used in Federal analyses and publishing interim estimates within 30 days of the E.O. that reflect the full impact of GHG emissions, including by taking global damages into account. The interim SC-GHG estimates published in February 2021 are used here to estimate the climate benefits for this proposed rulemaking. The E.O. instructs the IWG to undertake a fuller update of the SC-GHG estimates that takes into consideration the advice in the National Academies 2017 report and other recent scientific literature. The February 2021 SC-GHG TSD provides a complete discussion of the IWG's initial review conducted under E.O. 13990. In particular, the IWG found that the SC-GHG estimates used under E.O. 13783 fail to reflect the full impact of GHG emissions in multiple ways.
First, the IWG found that the SC-GHG estimates used under E.O. 13783 fail to fully capture many climate impacts that affect the welfare of U.S. citizens and residents, and those impacts are better reflected by global measures of the SC-GHG. Examples of omitted effects from the E.O. 13783 estimates include direct effects on U.S. citizens, assets, and investments located abroad, supply chains, U.S. military assets and interests abroad, and tourism, and spillover pathways such as economic and political destabilization and global migration that can lead to adverse impacts on U.S. national security, public health, and humanitarian concerns. In addition, assessing the benefits of U.S. GHG mitigation activities requires consideration of how those actions may affect mitigation activities by other countries, as those international mitigation actions will provide a benefit to U.S. citizens and residents by mitigating climate impacts that affect U.S. citizens and residents. A wide range of scientific and economic experts have emphasized the issue of reciprocity as support for considering global damages of GHG emissions. If the United States does not consider impacts on other countries, it is difficult to convince other countries to consider the impacts of their emissions on the United States. The only way to achieve an efficient allocation of resources for emissions reduction on a global basis—and so benefit the U.S. and its citizens—is for all countries to base their policies on global estimates of damages. As a member of the IWG involved in the development of the February 2021 SC-GHG TSD, DOE agrees with this assessment and, therefore, in this NOPR, DOE centers attention on a global measure of SC-GHG. This approach is the same as that taken in DOE regulatory analyses from 2012 through 2016. A robust estimate of climate damages that accrue only to U.S. citizens and residents does not currently exist in the literature. As explained in the February SC-GHG 2021 TSD, existing estimates are both incomplete and an underestimate of total damages that accrue to the citizens and residents of the U.S. because they do not fully capture the regional interactions and spillovers discussed above, nor do they include all of the important physical, ecological, and economic impacts of climate change recognized in the climate change literature. As noted in the February 2021 SC-GHG TSD, the IWG will continue to review developments in the literature, including more robust methodologies for estimating a U.S.-specific SC-GHG value, and explore ways to better inform the public of the full range of carbon impacts. As a member of the IWG, DOE will continue to follow developments in the literature pertaining to this issue.
Second, the IWG found that the use of the social rate of return on capital (7 percent under current OMB Circular A-4 guidance) to discount the future benefits of reducing GHG emissions inappropriately underestimates the impacts of climate change for the purposes of estimating the SC-GHG. Consistent with the findings of the National Academies and the economic literature, the IWG continued to conclude that the consumption rate of interest is the theoretically appropriate discount rate in an intergenerational context,
Furthermore, the damage estimates developed for use in the SC-GHG are estimated in consumption-equivalent terms, and so an application of OMB Circular A-4's guidance for regulatory analysis would then use the consumption discount rate to calculate the SC-GHG. DOE agrees with this assessment and will continue to follow developments in the literature pertaining to this issue. DOE also notes
To calculate the present and annualized values of climate benefits, DOE uses the same discount rate as the rate used to discount the value of damages from future GHG emissions, for internal consistency. That approach to discounting follows the same approach that the February 2021 TSD recommends “to ensure internal consistency—
As a member of the IWG involved in the development of the February 2021 SC-GHG TSD, DOE agrees with the above assessment and will continue to follow developments in the literature pertaining to this issue. While the IWG works to assess how best to incorporate the latest, peer reviewed science to develop an updated set of SC-GHG estimates, it set the interim estimates to be the most recent estimates developed by the IWG prior to the group being disbanded in 2017. The estimates rely on the same models and harmonized inputs and are calculated using a range of discount rates. As explained in the February 2021 SC-GHG TSD, the IWG has recommended that agencies revert to the same set of four values drawn from the SC-GHG distributions based on three discount rates as were used in regulatory analyses between 2010 and 2016 and were subject to public comment. For each discount rate, the IWG combined the distributions across models and socioeconomic emissions scenarios (applying equal weight to each) and then selected a set of four values recommended for use in benefit-cost analyses: an average value resulting from the model runs for each of three discount rates (2.5 percent, 3 percent, and 5 percent), plus a fourth value, selected as the 95th percentile of estimates based on a 3 percent discount rate. The fourth value was included to provide information on potentially higher-than-expected economic impacts from climate change. As explained in the February 2021 SC-GHG TSD, and DOE agrees, this update reflects the immediate need to have an operational SC-GHG for use in regulatory benefit-cost analyses and other applications that was developed using a transparent process, peer-reviewed methodologies, and the science available at the time of that process. Those estimates were subject to public comment in the context of dozens of proposed rulemakings as well as in a dedicated public comment period in 2013.
There are a number of limitations and uncertainties associated with the SC-GHG estimates. First, the current scientific and economic understanding of discounting approaches suggests discount rates appropriate for intergenerational analysis in the context of climate change are likely to be less than 3 percent, near 2 percent or lower.
DOE's derivations of the SC-CO
In response to the March 2022 Preliminary Analysis, NEMA disagreed with DOE's approach for estimating monetary benefits associated with emissions reductions. NEMA commented that this topic is too convoluted and subjective to be included in a rulemaking analysis for electric motor standards. NEMA added that DOE does not adequately examine or account for the significant impacts from ever-increasing investment in and use of renewable energy sources and associated decrease in emissions. (NEMA, No. 22 at p. 25)
DOE acknowledges that increasing use of renewable electricity sources will reduce CO
The SC-CO
DOE multiplied the CO
The SC-CH
DOE multiplied the CH
For this NOPR, DOE estimated the monetized value of NO
DOE multiplied the site emissions reduction (in tons) in each year by the associated $/ton values, and then discounted each series using discount rates of 3 percent and 7 percent as appropriate.
DOE requests comment on how to address the climate benefits and non-monetized effects of the proposal.
In the March 2022 Preliminary Analysis, DOE described the approach for conducting the utility impact analysis. See chapter 15 of the March 2022 Preliminary TSD. In response, NEMA commented that the proposed approach for assessing utility impacts appears to be sufficient. (NEMA, No. 22 at p. 25) In this NOPR, DOE continues to follow the same approach.
The utility impact analysis estimates the changes in installed electrical capacity and generation projected to result for each considered TSL. The analysis is based on published output from the NEMS associated with
The output of this analysis is a set of time-dependent coefficients that capture the change in electricity generation, primary fuel consumption, installed capacity and power sector emissions due to a unit reduction in demand for a given end use. These coefficients are multiplied by the stream of electricity savings calculated in the NIA to provide estimates of selected utility impacts of potential new energy conservation standards.
In the March 2022 Preliminary Analysis, DOE described the approach for conducting the employment impact analysis.
DOE considers employment impacts in the domestic economy as one factor in selecting a proposed standard. Employment impacts from new energy conservation standards include both direct and indirect impacts. Direct employment impacts are any changes in the number of employees of manufacturers of the products subject to standards, their suppliers, and related service firms. The MIA addresses those impacts. Indirect employment impacts are changes in national employment that occur due to the shift in expenditures and capital investment caused by the purchase and operation of more-efficient appliances. Indirect employment impacts from standards consist of the net jobs created or eliminated in the national economy, other than in the manufacturing sector being regulated, caused by (1) reduced spending by consumers on energy, (2) reduced spending on new energy supply by the utility industry, (3) increased consumer spending on the products to which the new standards apply and other goods and services, and (4) the effects of those three factors throughout the economy.
One method for assessing the possible effects on the demand for labor of such shifts in economic activity is to compare sector employment statistics developed by the Labor Department's BLS. BLS regularly publishes its estimates of the number of jobs per million dollars of economic activity in different sectors of the economy, as well as the jobs created elsewhere in the economy by this same economic activity. Data from BLS indicate that expenditures in the utility sector generally create fewer jobs (both directly and indirectly) than expenditures in other sectors of the economy.
DOE estimated indirect national employment impacts for the standard levels considered in this NOPR using an input/output model of the U.S. economy called Impact of Sector Energy Technologies version 4 (“ImSET”).
DOE notes that ImSET is not a general equilibrium forecasting model, and that the uncertainties involved in projecting employment impacts, especially changes in the later years of the analysis. Because ImSET does not incorporate price changes, the employment effects predicted by ImSET may over-estimate actual job impacts over the long run for this proposed rule. Therefore, DOE used ImSET only to generate results for near-term timeframes (2034), where these uncertainties are reduced. For more details on the employment impact analysis, see chapter 16 of the NOPR TSD.
The following section addresses the results from DOE's analyses with respect to the considered energy conservation standards for ESEMs. It addresses the TSLs examined by DOE, the projected impacts of each of these levels if adopted as energy conservation standards for ESEMs, and the standards levels that DOE is proposing to adopt in this NOPR. Additional details regarding DOE's analyses are contained in the NOPR TSD supporting this document.
In general, DOE typically evaluates potential new standards for products
In the analysis conducted for this NOPR, DOE analyzed the benefits and burdens of four TSLs for ESEMs. DOE developed TSLs that combine efficiency levels for each analyzed equipment class. DOE presents the results for the TSLs in this document, while the results for all efficiency levels that DOE analyzed are in the NOPR TSD.
Table V-1 presents the TSLs and the corresponding efficiency levels that DOE has identified for potential new energy conservation standards for ESEMs. TSL 4 represents the maximum technologically feasible (“max-tech”) energy efficiency for all equipment classes. TSL 3 is equivalent to EL 3 for all equipment classes. TSL 2 is equivalent to EL 2 for all equipment classes and corresponds to the Electric Motors Working Group recommended levels. TSL 1 is equivalent to EL 1 for all equipment classes.
DOE constructed the TSLs for this NOPR to include ELs representative of ELs with similar characteristics (
DOE analyzed the economic impacts on ESEM consumers by looking at the effects that potential ESEM standards at each TSL would have on the LCC and PBP. DOE also examined the impacts of potential standards on selected consumer subgroups. These analyses are discussed in the following sections.
In general, higher-efficiency equipment affect consumers in two ways: (1) purchase price increases and (2) annual operating costs decrease. Inputs used for calculating the LCC and PBP include total installed costs (
Table V-2 through Table V-21 show the LCC and PBP results for the TSLs considered for each equipment class. In the first of each pair of tables, the simple payback is measured relative to the baseline product. In the second table, the impacts are measured relative to the efficiency distribution in the no-new-standards case in the compliance year (see section IV.F.8 of this document). Because some consumers purchase equipment with higher efficiency in the no-new-standards case, the average savings are less than the difference between the average LCC of the baseline equipment and the average LCC at each TSL. The savings refer only to consumers who are affected by a standard at a given TSL. Those who already purchase an equipment with efficiency at or above a given TSL are not affected. Consumers for whom the LCC increases at a given TSL experience a net cost.
In the consumer subgroup analysis, DOE estimated the impact of the considered TSLs on low-income households (for representative units with consumers in the residential sector
As discussed in section IV.F.9 of this document, EPCA establishes a rebuttable presumption that an energy conservation standard is economically justified if the increased purchase cost for a product that meets the standard is less than three times the value of the first-year energy savings resulting from the standard. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(iii)) In calculating a rebuttable presumption payback period for each of the considered TSLs, DOE used discrete values, and, as required by EPCA, based the energy use calculation on the DOE test procedures for ESEMs. In contrast, the PBPs presented in section V.B.1.a of this document were calculated using distributions that reflect the range of energy use in the field.
Table V-25 presents the rebuttable-presumption payback periods for the considered TSLs for ESEMs. While DOE examined the rebuttable-presumption criterion, it considered whether the standard levels considered for this proposed rule are economically justified through a more detailed analysis of the economic impacts of those levels, pursuant to 42 U.S.C. 6313(a) and 42 U.S.C. 6295(o)(2)(B)(i), that considers the full range of impacts to the consumer, manufacturer, Nation, and environment. The results of that analysis serve as the basis for DOE to definitively evaluate the economic justification for a potential standard level, thereby supporting or rebutting the results of any preliminary determination of economic justification.
DOE performed an MIA to estimate the impact of new energy conservation standards on manufacturers of ESEM. The following section describes the expected impacts on manufacturers at each considered TSL. Chapter 12 of the NOPR TSD explains the analysis in further detail.
In this section, DOE provides GRIM results from the analysis, which examines changes in the industry that would result from new standards. The following tables summarize the estimated financial impacts (represented by changes in INPV) of potential new energy conservation standards on manufacturers of ESEMs, as well as the conversion costs that DOE estimates manufacturers of ESEMs would incur at each TSL.
To evaluate the range of cash flow impacts on the ESEM industry, DOE modeled two manufacturer markup scenarios that correspond to the range of possible market responses to new standards. Each manufacturer markup scenario results in a unique set of cash flows and corresponding INPVs at each TSL.
In the following discussion, the INPV results refer to the difference in industry value between the no-new-standards case and the standards cases that result from the sum of discounted cash flows from the base year (2024) through the end of the analysis period (2058). The results also discuss the difference in cash flows between the no-new standards case and the standards cases in the year before the estimated compliance date for new energy conservation standards. This figure represents the size of the required conversion costs relative to the cash flow generated by the ESEM industry in the absence of new energy conservation standards.
To assess the upper (less severe) end of the range of potential impacts on ESEM manufacturers, DOE modeled a preservation of gross margin scenario. This scenario assumes that, in the standards cases, ESEM manufacturers will be able to pass along all the higher MPCs required for more efficient equipment to their customers. Specifically, the industry will be able to maintain its average no-new-standards case gross margin (as a percentage of revenue) despite the higher MPCs in the standards cases. In general, the larger the MPC increases, the less likely manufacturers are to achieve the cash flow from operations calculated in this scenario because it is less likely that manufacturers will be able to fully pass on these larger production cost increases.
To assess the lower (more severe) end of the range of potential impacts on the ESEM manufacturers, DOE modeled a preservation of operating profit scenario. This scenario represents the lower end of the range of impacts on manufacturers because no additional operating profit is earned on the higher MPCs, eroding profit margins as a percentage of total revenue.
TSL 4 sets the efficiency level at EL 4 for all ESEM equipment classes. At TSL 4, DOE estimates the impacts to INPV will range from a decrease of $1,946 million to a decrease of $309 million, which represents decreases to INPV by approximately 96.4 percent and 15.3 percent, respectively. At TSL 4, industry free cash flow (operating cash flow minus capital expenditures) is estimated to decrease to −$764 million, or a drop of 595 percent, compared to the no-new-standards case value of $154 million in 2028, the year leading up to the compliance date of new energy conservation standards. The significantly negative free cash flow in the years leading up to the compliance date implies that most, if not all, ESEM manufacturers will need to borrow funds in order to make the investments necessary to comply with standards at TSL 4. This has the potential to significantly alter the market dynamics as some smaller ESEM manufacturers may not be able to secure this funding and could exit the market as a result of standards set at TSL 4.
In the absence of new energy conservation standards, DOE estimates that less than 1 percent of ESEM (High/Med Torque), no ESEM (Low Torque), less than 1 percent of ESEM (Polyphase), 6 percent of AO-ESEM (High/Med Torque), no AO-ESEM (Low Torque), and no AO-ESEM (Polyphase) shipments will meet the ELs required at TSL 4 in 2029, the compliance year of new standards. Therefore, DOE estimates that manufacturers will have to redesign models representing over 99 percent of all ESEM shipments by the compliance date. It is unclear if most ESEM manufacturers would have the engineering capacity to complete the necessary redesigns within the 4-year compliance period. If manufacturers require more than 4 years to redesign their non-compliant ESEM models, they will likely prioritize redesigns based on sales volume, which could result in customers not being able to obtain compliant ESEMs covering the entire range of horsepower and motor configurations that they require.
Almost all ESEMs covered by this rulemaking will need to be redesigned at TSL 4. Therefore, DOE estimates that manufacturers will have to make significant investments in their manufacturing production equipment and the engineering resources dedicated to redesigning ESEM models. DOE estimates that manufacturers will incur approximately $572 million in product conversion costs and approximately $1,584 million in capital conversion costs. Product conversion costs include the engineering time to redesign almost all ESEM models and to re-test these newly redesigned models to meet the standards set at TSL 4. Capital conversion costs include the purchase of almost all new lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs to accommodate almost all ESEM models covered by this proposed rulemaking that will need to be redesigned.
At TSL 4, under the preservation of gross margin scenario, the shipment weighted average MPC significantly increases by approximately 117.7 percent relative to the no-new-standards case MPC. While this price increase results in additional revenue for manufacturers, the $2,156 million in total conversion costs estimated at TSL 4 outweighs this increase in manufacturer revenue and results in moderately negative INPV impacts at TSL 4 under the preservation of gross margin scenario.
Under the preservation of operating profit scenario, manufacturers earn the same nominal operating profit as would be earned in the no-new-standards case, but manufacturers do not earn additional profit from their investments. The significant increase in the shipment weighted average MPC results in a lower average manufacturer margin. This lower average manufacturer margin and the significant $2,156 million in total conversion costs result in significantly negative INPV impacts at TSL 4 under the preservation of operating profit scenario.
TSL 3 sets the efficiency level at EL 3 for all ESEM equipment classes. At TSL 3, DOE estimates the impacts to INPV will range from a decrease of $984 million to a decrease of $199 million, which represents decreases to INPV by approximately 48.7 percent and 9.9 percent, respectively. At TSL 3, industry free cash flow is estimated to decrease to −$313 million, or a drop of 303 percent, compared to the no-new-standards case value of $154 million in 2028, the year leading up to the compliance date of new energy conservation standards. The negative free cash flow in the years leading up to the compliance date implies that most, if not all, ESEM manufacturers will need to borrow funds in order to make the investments necessary to comply with standards. This has the potential to significantly alter the market dynamics as some smaller ESEM manufacturers may not be able to secure this funding and could exit the market as a result of standards set at TSL 3.
In the absence of new energy conservation standards, DOE estimates that 8 percent of ESEM (High/Med Torque), 8 percent of ESEM (Low Torque), 14 percent of ESEM (Polyphase), 15 percent of AO-ESEM (High/Med Torque), 11 percent of AOESEM (Low Torque), and 3 percent of AO-ESEM (Polyphase) shipments will meet or exceed the ELs requires at TSL 3 in 2029, the compliance year of new standards. Therefore, DOE estimates that manufacturers will have to redesign models representing approximately 91 percent of all ESEM shipments by the compliance date. It is unclear if most ESEM manufacturers would have the engineering capacity to complete the necessary redesigns within the 4-year compliance period. If manufacturers require more than 4 years to redesign their non-compliant ESEM models, they will likely prioritize redesigns based on sales volume, which could result in customers not being able
The majority of ESEMs covered by this rulemaking will need to be redesigned at TSL 3. Therefore, DOE estimates that manufacturers will have to make significant investments in their manufacturing production equipment and the engineering resources dedicated to redesigning ESEM models. DOE estimates that manufacturers will incur approximately $326 million in product conversion costs and approximately $792 million in capital conversion costs. Product conversion costs include the engineering time to redesign approximately 91 percent of all ESEM models and to re-test these newly redesigned models to meet the standards set at TSL 3. Capital conversion costs include the purchase of almost all new lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs for approximately 91 percent of all ESEM models covered by this proposed rulemaking.
At TSL 3, under the preservation of gross margin scenario, the shipment weighted average MPC significantly increases by approximately 56.4 percent relative to the no-new-standards case MPC. While this price increase results in additional revenue for manufacturers, the $1,118 million in total conversion costs estimated at TSL 3 outweighs this increase in manufacturer revenue and results in moderately negative INPV impacts at TSL 3 under the preservation of gross margin scenario.
Under the preservation of operating profit scenario, manufacturers earn the same nominal operating profit as would be earned in the no-new-standards case, but manufacturers do not earn additional profit from their investments. The significant increase in the shipment weighted average MPC results in a lower average manufacturer margin. This lower average manufacturer margin and the significant $1,118 million in total conversion costs result in significantly negative INPV impacts at TSL 3 under the preservation of operating profit scenario.
TSL 2 sets the efficiency level at EL 2 for all ESEM equipment classes, which is the recommended level from the December 2022 Joint Recommendation. At TSL 2, DOE estimates the impacts to INPV will range from a decrease of $264 million to a decrease of $131 million, which represents decreases to INPV by approximately 13.1 percent and 6.5 percent, respectively. At TSL 2, industry free cash flow is estimated to decrease to $17 million, or a drop of 89 percent, compared to the no-new-standards case value of $154 million in 2028, the year leading up to the compliance date of new energy conservation standards.
In the absence of new energy conservation standards, DOE estimates that 22 percent of ESEM (High/Med Torque), 45 percent of ESEM (Low Torque), 67 percent of ESEM (Polyphase), 34 percent of AO-ESEM (High/Med Torque), 67 percent of AO-ESEM (Low Torque), and 36 percent of AO-ESEM (Polyphase) shipments will meet or exceed the ELs requires at TSL 2 in 2029, the compliance year of new standards. Therefore, DOE estimates that manufacturers will have to redesign models representing approximately 55 percent of all ESEM shipments by the compliance date.
DOE estimates that manufacturers will incur approximately $141 million in product conversion costs and approximately $198 million in capital conversion costs. Product conversion costs primarily include engineering time to redesign non-compliance ESEM models and to re-test these newly redesigned models to meet the standards set at TSL 2. Capital conversion costs include the purchase of lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs for all non-compliant ESEM models covered by this proposed rulemaking.
At TSL 2, under the preservation of gross margin scenario, the shipment weighted average MPC increases by approximately 9.6 percent relative to the no-new-standards case MPC. While this price increase results in additional revenue for manufacturers, the $339 million in total conversion costs estimated at TSL 2 outweighs this increase in manufacturer revenue and results in moderately negative INPV impacts at TSL 2 under the preservation of gross margin scenario.
Under the preservation of operating profit scenario, manufacturers earn the same nominal operating profit as would be earned in the no-new-standards case, but manufacturers do not earn additional profit from their investments. The increase in the shipment weighted average MPC results in a slightly lower average manufacturer margin. This lower average manufacturer margin and the $339 million in total conversion costs result in moderately negative INPV impacts at TSL 2 under the preservation of operating profit scenario.
TSL 1 sets the efficiency level at EL 1 for all ESEM equipment classes. At TSL 1, DOE estimates the impacts to INPV will range from a decrease of $201 million to a decrease of $136 million, which represents decreases to INPV by approximately 9.9 percent and 6.7 percent, respectively. At TSL 1, industry free cash flow is estimated to decrease to $45 million, or a drop of 71 percent, compared to the no-new-standards case value of $154 million in 2028, the year leading up to the compliance date of new energy conservation standards.
In the absence of new energy conservation standards, DOE estimates that 68 percent of ESEM (High/Med Torque), 66 percent of ESEM (Low Torque), 90 percent of ESEM (Polyphase), 70 percent of AO-ESEM (High/Med Torque), 92 percent of AO-ESEM (Low Torque), and 62 percent of AO-ESEM (Polyphase) shipments will meet or exceed the ELs requires at TSL 1 in 2029, the compliance year of new standards. Therefore, DOE estimates that manufacturers will have to redesign models representing approximately 26 percent of all ESEM shipments by the compliance date.
DOE estimates that manufacturers will incur approximately $125 million in product conversion costs and approximately $149 million in capital conversion costs. Product conversion costs primarily include engineering time to redesign non-compliance ESEM models and to re-test these newly redesigned models to meet the standards set at TSL 1. Capital conversion costs include the purchase of lamination die sets, winding machines, frame casts, and assembly equipment, as well as other retooling costs for all non-compliant ESEM models covered by this proposed rulemaking.
At TSL 1, under the preservation of gross margin scenario, the shipment weighted average MPC increases slightly by approximately 4.7 percent relative to the no-new-standards case MPC. While this price increase results in additional revenue for manufacturers, the $274 million in total conversion costs estimated at TSL 1 outweighs this increase in manufacturer revenue and results in moderately negative INPV impacts at TSL 1 under the preservation of gross margin scenario.
Under the preservation of operating profit scenario, manufacturers earn the same nominal operating profit as would be earned in the no-new-standards case, but manufacturers do not earn additional profit from their investments. The increase in the shipment weighted average MPC results in a slightly lower average manufacturer margin. This lower average manufacturer margin and the $274 million in total conversion costs result in moderately negative INPV impacts at TSL 1 under the preservation of operating profit scenario.
To quantitatively assess the potential impacts of new energy conservation standards on direct employment in the ESEM industry, DOE used the GRIM to estimate the domestic labor expenditures and number of direct employees in the no-new-standards case and in each of the standards cases during the analysis period.
DOE used statistical data from the U.S. Census Bureau's 2021 Annual Survey of Manufacturers (“ASM”), the results of the engineering analysis, and interviews with manufacturers to determine the inputs necessary to calculate industry-wide labor expenditures and domestic employment levels. Labor expenditures involved with the manufacturing of ESEMs are a function of the labor intensity of the product, the sales volume, and an assumption that wages remain fixed in real terms over time.
In the GRIM, DOE used the labor content of each piece of equipment and the MPCs to estimate the annual labor expenditures of the industry. DOE used Census data and interviews with manufacturers to estimate the portion of the total labor expenditures attributable to domestic labor.
The production worker estimates in this employment section cover only workers up to the line-supervisor level who are directly involved in fabricating and assembling ESEMs within a motor facility. Workers performing services that are closely associated with production operations, such as material handling with a forklift, are also included as production labor. DOE's estimates account for only production workers who manufacture the specific equipment covered by this proposed rulemaking.
The employment impacts shown in Table V-29 represent the potential production employment impacts resulting from new energy conservation standards. The upper bound of the results estimates the maximum change in the number of production workers that could occur after compliance with new energy conservation standards when assuming that manufacturers continue to produce the same scope of covered equipment in the same production facilities. It also assumes that domestic production does not shift to lower-labor-cost countries. Because there is a real risk of manufacturers evaluating sourcing decisions in response to new energy conservation standards, the lower bound of the employment results includes the estimated total number of U.S. production workers in the industry who could lose their jobs if some existing ESEM production was moved outside of the U.S. While the results present a range of employment impacts following 2029, this section also includes qualitative discussions of the likelihood of negative employment impacts at the various TSLs. Finally, the employment impacts shown are independent of the indirect employment impacts from the broader U.S. economy, which are documented in chapter 16 of the NOPR TSD.
Based on 2021 ASM data and interviews with manufacturers, DOE estimates approximately 15 percent of ESEMs covered by this proposed rulemaking sold in the U.S. are manufactured domestically. Using this assumption, DOE estimates that in the absence of new energy conservation standards, there would be approximately 784 domestic production workers involved in manufacturing all ESEMs covered by this rulemaking in 2029. Table V-29 shows the range of potential impacts of new energy conservation standards on U.S. production workers involved in the production of ESEMs covered by this rulemaking.
At the upper end of the range, all examined TSLs show an increase in the number of domestic production workers for ESEMs. The upper end of the range represents a scenario where manufacturers increase production hiring due to the increase in the labor associated with adding the required components and additional labor (
At the lower end of the range, all examined TSLs show a decrease in domestic production employment. The lower end of the domestic employment range assumes that some, or all, ESEM domestic production employment may shift to lower labor-cost countries in response to energy conservation standards. DOE estimates that approximately 85 percent of all ESEMs sold in the U.S. are manufactured abroad. At max-tech, TSL 4, DOE conservatively estimates that the remaining 15 percent of domestic production could shift to foreign production locations. DOE estimated this lower bound potential change in domestic employment based on the percent change in the MPC at each TSL.
The December 2022 Joint Recommendation stated that standards set at EL 2 for the ESEM High/Med Torque equipment class would minimize potential market disruptions by allowing CSIR and split-phase topologies to remain on the market, but only at smaller (0.25-0.5 hp) horsepower ratings. (Electric Motors Working Group, No. 38 at p. 3) The December 2022 Joint Recommendation also stated that standards set at EL 2 for the ESEM Low Torque equipment class would not create widespread market disruptions and that standards set at higher ELs could result in significant increases in the physical size, unavailability of product, and in some cases, may be extremely difficult to
Many ESEM manufacturers do not offer any ESEM models that would meet max-tech levels or one EL below max-tech (
Lastly, during manufacturer interviews, most manufacturers stated they would not be able to provide a full portfolio of any ESEM equipment class for any standards that would be met using copper rotors. In DOE's engineering analysis, all representative units, except the ESEM—Low Torque, 0.5 hp and AO-ESEM—Low Torque, 0.5 hp representative units, are modeled to use copper rotors at the max-tech efficiency design (
Manufacturers also pointed out that there is substantial uncertainty surrounding the global availability and price of copper, which has the potential to constrain capacity. Several manufacturers expressed concern that the combination of all of these factors would make it impossible to support existing customers while redesigning equipment lines and retooling.
DOE estimates there is a strong likelihood of manufacturer capacity constraints in the near term for any standards that would likely require the use of copper rotors for any equipment classes both due to the uncertainty of the global supply of copper and due to the quantity of machinery that would need to be purchased and the engineering resources that would be required to produce copper rotors. Therefore, there could be significant market disruption for any standards set at EL 4 for any equipment class, except for the ESEM—Low Torque, 0.25-3 hp and the AO-ESEM—Low Torque, 0.25-3 hp equipment classes.
Using average cost assumptions to develop an industry cash-flow estimate may not be adequate for assessing differential impacts among manufacturer subgroups. Small manufacturers, niche equipment manufacturers, and manufacturers exhibiting cost structures substantially different from the industry average could be affected disproportionately. DOE discusses the impacts on small businesses in section VI.B of this document and did not identify any other adversely impacted ESEM-related manufacturer subgroups for this proposed rulemaking based on the results of the industry characterization.
One aspect of assessing manufacturer burden involves looking at the cumulative impact of multiple DOE standards and the product-specific regulatory actions of other Federal agencies that affect the manufacturers of a covered product or equipment. While any one regulation may not impose a significant burden on manufacturers, the combined effects of several existing or impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. In addition to energy conservation standards, other regulations can significantly affect manufacturers' financial operations. Multiple regulations affecting the same manufacturer can strain profits and lead companies to abandon equipment lines or markets with lower expected future returns than competing products. For these reasons, DOE conducts an analysis of cumulative regulatory burden as part of its rulemakings pertaining to appliance efficiency. DOE requests information regarding the impact of cumulative regulatory burden on manufacturers of ESEMs associated with multiple DOE standards or product-specific regulatory actions of other Federal agencies.
DOE evaluates product-specific regulations that will take effect approximately 3 years before or after the 2029 compliance date of any new energy conservation standards for ESEMs. This information is presented in Table V.30.
In response to the March 2022 Preliminary Analysis, the Joint Stakeholders commented that regulating motors that are components significantly increases the burden on manufacturers if all products using special and definite purpose motors were suddenly forced to certify compliance with standards for component parts, including the testing, paperwork, and record-keeping requirements that accompany certification. (Joint Stakeholders, No. 23 at p. 5) As stated in section II.A and section IV.A.1 of this document, EPCA, as amended through EISA 2007, provides DOE with the authority to regulate the expanded scope of motors addressed in this rule, whether those electric motors are manufactured alone or as a component of another piece of equipment. DOE believes this ESEM proposed rulemaking would not impact manufacturers of consumer products. For commercial equipment, DOE identified the following equipment as potentially incorporating ESEMs: walk-in coolers and freezers, circulator pumps, air circulating fans, and commercial unitary air conditioning equipment. If the proposed energy conservation standards for these rules finalize as proposed, DOE identified that these rules would all: (1) have a compliance year that is at or before the ESEM standard compliance year (2029) and/or (2) require a motor that is either outside of the scope of ESEM (
This section presents DOE's estimates of the national energy savings and the NPV of consumer benefits that would result from each of the TSLs considered as potential new standards.
To estimate the energy savings attributable to potential new standards for ESEMs, DOE compared their energy consumption under the no-new-standards case to their anticipated energy consumption under each TSL. The savings are measured over the entire lifetime of products purchased in the 30-year period that begins in the year of anticipated compliance with new standards (2029-2058). Table V-31 presents DOE's projections of the national energy savings for each TSL considered for ESEMs. The savings were calculated using the approach described in section IV.H.2 of this document.
OMB Circular A-4
DOE estimated the cumulative NPV of the total costs and savings for consumers that would result from the TSLs considered for ESEMs. In accordance with OMB's guidelines on regulatory analysis,
The NPV results based on the aforementioned 9-year analytical period are presented in Table V-34. The impacts are counted over the lifetime of equipment purchased in 2029-2037. As mentioned previously, such results are presented for informational purposes only and are not indicative of any change in DOE's analytical methodology or decision criteria.
The previous results reflect the use of a default trend to estimate the change in price for ESEMs over the analysis period (see section IV.F.1 of this document). DOE also conducted a sensitivity analysis that considered one scenario with a price decline and one scenario with a price increase compared to the reference case. The results of these alternative cases are presented in appendix 10C of the NOPR TSD. In the decreasing price case, the NPV of consumer benefits is higher than in the default case. In the increasing price case, the NPV of consumer benefits is lower than in the default case.
DOE estimates that new energy conservation standards for ESEMs will reduce energy expenditures for consumers of those equipment, with the resulting net savings being redirected to other forms of economic activity. These expected shifts in spending and economic activity could affect the demand for labor. As described in section IV.N of this document, DOE used an input/output model of the U.S. economy to estimate indirect
The results suggest that the proposed standards are likely to have a negligible impact on the net demand for labor in the economy. The net change in jobs is so small that it would be imperceptible in national labor statistics and might be offset by other, unanticipated effects on employment. Chapter 16 of the NOPR TSD presents detailed results regarding anticipated indirect employment impacts.
As discussed in section IV.C.1.c of this document, DOE has tentatively concluded that the standards proposed in this NOPR would not lessen the utility or performance of the ESEMs under consideration in this proposed rulemaking. Manufacturers of these products currently offer units that meet or exceed the proposed standards.
DOE considered any lessening of competition that would be likely to result from new or amended standards. As discussed in section III.F.1.e of this document, the Attorney General determines the impact, if any, of any lessening of competition likely to result from a proposed standard, and transmits such determination in writing to the Secretary, together with an analysis of the nature and extent of such impact. To assist the Attorney General in making this determination, DOE has provided DOJ with copies of this NOPR and the accompanying NOPR TSD for review. DOE will consider DOJ's comments on the proposed rule in determining whether to proceed to a final rule. DOE will publish and respond to DOJ's comments in that document. DOE invites comment from the public regarding the competitive impacts that are likely to result from this proposed rule. In addition, stakeholders may also provide comments separately to DOJ regarding these potential impacts. See the
Enhanced energy efficiency, where economically justified, improves the Nation's energy security, strengthens the economy, and reduces the environmental impacts (costs) of energy production. Reduced electricity demand due to energy conservation standards is also likely to reduce the cost of maintaining the reliability of the electricity system, particularly during peak-load periods. Chapter 15 in the NOPR TSD presents the estimated impacts on electricity generating capacity, relative to the no-new-standards case, for the TSLs that DOE considered in this proposed rulemaking.
Energy conservation resulting from potential energy conservation standards for ESEMs is expected to yield environmental benefits in the form of reduced emissions of certain air pollutants and greenhouse gases. Table V-35 provides DOE's estimate of cumulative emissions reductions expected to result from the TSLs considered in this NOPR. The emissions were calculated using the multipliers discussed in section IV.L of this document. DOE reports annual emissions reductions for each TSL in chapter 13 of the NOPR TSD.
As part of the analysis for this rulemaking, DOE estimated monetary benefits likely to result from the reduced emissions of CO
As discussed in section IV.L.2 of this document, DOE estimated the climate benefits likely to result from the reduced emissions of methane and N
DOE is well aware that scientific and economic knowledge about the contribution of CO
DOE also estimated the monetary value of the health benefits associated with NO
Not all the public health and environmental benefits from the reduction of greenhouse gases, NO
The Secretary of Energy, in determining whether a standard is economically justified, may consider any other factors that the Secretary deems to be relevant. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)(VII)) No other factors were considered in this analysis.
Table V-41 presents the NPV values that result from adding the estimates of the potential economic benefits resulting from reduced GHG and NO
When considering new or amended energy conservation standards, the standards that DOE adopts for any type (or class) of covered equipment must be designed to achieve the maximum improvement in energy efficiency that the Secretary determines is technologically feasible and economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A)) In determining whether a standard is economically justified, the Secretary must determine whether the benefits of the standard exceed its burdens by, to the greatest extent practicable, considering the seven statutory factors discussed previously. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(B)(i)) The new or amended standard must also result in significant conservation of energy. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(3)(B))
For this NOPR, DOE considered the impacts of new standards for ESEMs at each TSL, beginning with the maximum technologically feasible level, to determine whether that level was economically justified. Where the max-tech level was not justified, DOE then considered the next most efficient level and undertook the same evaluation until it reached the highest efficiency level that is both technologically feasible and economically justified and saves a significant amount of energy.
To aid the reader as DOE discusses the benefits and/or burdens of each TSL, tables in this section present a summary
Table V-42 and Table V-43 summarize the quantitative impacts estimated for each TSL for ESEMs. The national impacts are measured over the lifetime of ESEMs purchased in the 30-year period that begins in the anticipated year of compliance with new standards (2029-2058). The energy savings, emissions reductions, and value of emissions reductions refer to full-fuel-cycle results. The efficiency levels contained in each TSL are described in section V.A of this document.
DOE first considered TSL 4, which represents the max-tech efficiency levels. TSL 4 would save an estimated 24.2 quads of energy, an amount DOE considers significant. Under TSL 4, the NPV of consumer benefit would be $11.24 billion using a discount rate of 7 percent and $36.8 billion using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 4 are 437.8 Mt of CO
Using a 7-percent discount rate for consumer benefits and costs, health benefits from reduced SO
At TSL 4, the average LCC impact for non-air over ESEMs is a savings of −$107 and −$145 for high/medium torque ESEMs (0.25 and 1 hp, respectively); −$17 and $73 for low torque ESEMs (0.25 and 0.5 hp, respectively); and −$107 for Polyphase ESEMs. At TSL 4, the average LCC impact for AO-ESEMs is a savings of −$61 and −$128 for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); −$13 and $52 for low torque AO-ESEMs (0.25 and 0.5 hp, respectively); and −$85 for Polyphase AO-ESEMs. Overall, the shipments-weighted average LCC impact is a savings of −$10. The simple payback period for non-air-over ESEMs is 6.9 and 6.3 years for high/medium torque ESEMs (0.25 and 1 hp, respectively); 2.0 and 3.0 years for low torque ESEMs (0.25 and 0.5 hp, respectively); and 9.7 years for polyphase ESEMs. The simple payback period for AO-ESEMs is 4.3 and 5.1 years for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); 1.9 and 2.7 years for low torque AO-ESEMs (0.25 and 0.5 hp, respectively); and 8.3 years for polyphase AO-ESEMs. Overall, the shipments-weighted average PBP is 4.0 years. The fraction of consumers experiencing a net LCC cost for non-air-over ESEMs is 85.9 and 82.5 percent for high/medium torque ESEMs (0.25 and 1 hp, respectively); 67.7 and 40.1 percent
At TSL 4, the projected change in INPV ranges from a decrease of $1,946 million to a decrease of $309 million, which corresponds to decreases of 96.4 percent and 15.3 percent, respectively. DOE estimates that industry must invest $2,156 million to redesign almost all ESEM models and to purchase new lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs to manufacturer compliant ESEM models at TSL 4. An investment of $2,156 million in conversion costs represents over 3.3 times the sum of the annual free cash flows over the years between the expected publication of the final rule and the compliance year (
In the no-new-standards case, free cash flow is estimated to be $154 million in 2028, the year before the compliance date. At TSL 4, the estimated free cash flow is −$764 million in 2028. This represents a decrease in free cash flow of 595 percent, or a decrease of $919 million, in 2028. A negative free cash flow implies that most, if not all, manufacturers will need to borrow substantial funds to be able to make investments necessary to comply with energy conservation standards at TSL 4. The extremely large drop in free cash flows could cause some ESEM manufacturers to exit the ESEM market entirely, even though recovery may be possible over the 30-year analysis period. At TSL 4, models representing less than 1 percent of all ESEM shipments are estimated to meet the efficiency requirements at this TSL in the no-new-standards case by 2029, the compliance year. Therefore, models representing over 99 percent of all ESEM shipments will need be remodeled in the 4-year compliance period.
Manufacturers are unlikely to have the engineering capacity to conduct this massive redesign effort in 4 years. Instead, they will likely prioritize redesigns based on sales volume, which could leave market gaps in equipment offered by manufacturers and even the entire ESEMs industry. The resulting market gaps in equipment offerings could result in sub-optimal selection of ESEMs for some applications. Lastly, although DOE's analysis assumes that TSL 4 can be reached without significant increase in size, as discussed in sections IV.C.3 and IV.J.2.c of this NOPR and in the December 2022 Joint Recommendation, the Electric Motor Working group expressed that in order to meet the efficiency requirements at TSL 4, some manufacturers may choose to rely on design options that could significantly increase the physical size of ESEMs. This could result in a significant and widespread disruption to the OEM markets that used ESEMs as an embedded product, as those OEMs may have to make significant changes to their equipment that use ESEMs because those ESEMs could become larger in physical size.
DOE requests comment on if manufacturers would have the engineering capacity to conduct design efforts to be able to offer a full portfolio of complaint ESEM at TSL 4. If not, please provide any data or information on the potential impacts that could arise due to these market gaps in equipment offerings.
Under 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o)(2)(B)(i), DOE determines whether a standard is economically justified after considering seven factors. Based on these factors, the Secretary tentatively concludes that at TSL 4 for ESEMs, the benefits of energy savings, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions would be outweighed by the economic burden on many consumers and the impacts on manufacturers, including the extremely large conversion costs (representing over 3.3 times the sum of the annual free cash flows during the time period that these conversion costs will be incurred and over 100 percent of the entire no-new-standards case INPV), profitability impacts that could result in a large reduction in INPV (up to a decrease of 96.4 percent), the large negative free cash flows in the years leading up to the compliance date (annual free cash flow is estimated to be −$764 million in the year before the compliance date), the lack of manufacturers currently offering equipment meeting the efficiency levels required at TSL 4 (models representing over 99 percent of shipments will need to be redesigned to meet this TSL), and the likelihood of the significant disruption in the ESEM market. Due to the limited amount of engineering resources each manufacturer has, it is unclear if most manufacturers will be able to redesign models representing on average 99 percent of their ESEM shipments covered by this rulemaking in the 4-year compliance period. Consequently, the Secretary has tentatively concluded that TSL 4 is not economically justified.
DOE then considered TSL 3, which represents efficiency level 3 for all equipment class groups. TSL 3 would save an estimated 17 quads of energy, an amount DOE considers significant. Under TSL 3, the NPV of consumer benefit would be $11.2 billion using a discount rate of 7 percent and $36.8 billion using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 3 are 306.0 Mt of CO
Using a 7-percent discount rate for consumer benefits and costs, health benefits from reduced SO
At TSL 3, the average LCC impact for non-air over ESEMs is a savings of −$1 and $21 for high/medium torque ESEMs (0.25 and 1 hp, respectively); $24 and $78 for low torque ESEMs (0.25 and 0.5 hp, respectively); and −$8 for Polyphase ESEMs. At TSL 3, the average LCC impact for AO-ESEMs is a savings of $37 and $37 for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); $32 and $50 for low
At TSL 3, the projected change in INPV ranges from a decrease of $1,035 million to a decrease of $199 million, which corresponds to decreases of 48.7 percent and 9.9 percent, respectively. DOE estimates that industry must invest $1,118 million to redesign the majority of ESEM models and to purchase new lamination die sets, winding machines, frame casts, and assembly equipment as well as other retooling costs to manufacturer compliant ESEM models at TSL 3. An investment of $1,118 million in conversion costs represents over 1.7 times the sum of the annual free cash flows over the years between the expected publication of the final rule and the compliance year (
In the no-new-standards case, free cash flow is estimated to be $154 million in 2028, the year before the compliance date. At TSL 3, the estimated free cash flow is −$313 million in 2028. This represents a decrease in free cash flow of 303 percent, or a decrease of $468 million, in 2028. A negative free cash flow implies that most, if not all, manufacturers will need to borrow substantial funds to be able to make investments necessary to comply with energy conservation standards at TSL 3. The extremely large drop in free cash flows could cause some ESEM manufacturers to exit the ESEM market entirely, even though recovery may be possible over the 30-year analysis period. At TSL 3, models representing approximately 9 percent of all ESEM shipments are estimated to meet the efficiency requirements at this TSL in the no-new-standards case by 2029, the compliance year. Therefore, models representing approximately 91 percent of all ESEM shipments will need be remodeled in the 4-year compliance period.
Manufacturers are unlikely to have the engineering capacity to conduct this massive redesign effort in 4 years. Instead, they will likely prioritize redesigns based on sales volume, which could leave market gaps in equipment offered by manufacturers and even the entire ESEMs industry. The resulting market gaps in equipment offerings could result in sub-optimal selection of ESEMs for some applications. Lastly, although DOE's analysis assumes that TSL 3 can be reached without significant increase in size, as discussed in sections IV.C.3 and IV.J.2.c of this NOPR and in the December 2022 Joint Recommendation, the Electric Motor Working group expressed that in order to meet the efficiency requirements at TSL 3, some manufacturers may choose to rely on design options that would significantly increase the physical size of ESEMs. This could result in a significant and widespread disruption to the OEM markets that used ESEMs as an embedded product, as those OEMs may have to make significant changes to their equipment that use ESEMs since those ESEMs could become larger in physical size.
DOE requests comment on if manufacturers would have the engineering capacity to conduct design efforts to be able to offer a full portfolio of compliant ESEMs at TSL 3. If not, please provide any data or information on the potential impacts that could arise due to these market gaps in equipment offerings.
Under 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o)(2)(B)(i), DOE determines whether a standard is economically justified after considering seven factors. Based on these factors, the Secretary tentatively concludes that at TSL 3 for ESEMs, the benefits of energy savings, the economic benefit on many consumers, positive NPV of consumer benefits, emission reductions, and the estimated monetary value of the emissions reductions would be outweighed by the impacts on manufacturers, including the extremely large conversion costs (representing over 1.7 times the sum of the annual free cash flows during the time period that these conversion costs will be incurred and over 55 percent of the entire no-new-standards case INPV), profitability impacts that could result in a large reduction in INPV (up to a decrease of 48.7 percent), the large negative free cash flows in the years leading up to the compliance date (annual free cash flow is estimated to be −$313 million in the year before the compliance date), the lack of manufacturers currently offering equipment meeting the efficiency levels required at this TSL (models representing approximately 91 percent of shipments will need to be redesigned to meet this TSL), and the likelihood of the significant disruption in the ESEM market. Due to the limited amount of engineering resources each manufacturer has, it is unclear if most manufacturers will be able to redesign models representing on average 91 percent of their ESEM shipments covered by this rulemaking in the 4-year compliance period. Consequently, the Secretary has tentatively concluded that TSL 3 is not economically justified.
DOE then considered TSL 2, the standards level recommended in the December 2022 Joint Recommendation, which represents EL 2 for all equipment class groups. TSL 2 would save an estimated 8.9 quads of energy, an amount DOE considers significant. Under TSL 2, the NPV of consumer benefit would be $21.0 billion using a discount rate of 7 percent and $45.0 billion using a discount rate of 3 percent.
The cumulative emissions reductions at TSL 2 are 160.5 Mt of CO
Using a 7-percent discount rate for consumer benefits and costs, health benefits from reduced SO
At TSL 2, the average LCC impact for non-air over ESEMs is a savings of $51 and $138 for high/medium torque ESEMs (0.25 and 1 hp, respectively); $147 and $100 for low torque ESEMs (0.25 and 0.5 hp, respectively); and $26 for Polyphase ESEMs. At TSL 2, the average LCC impact for AO-ESEMs is a savings of $83 and $160 for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); $121 and $88 for low torque AO-ESEMs (0.25 and 0.5 hp, respectively); and $40 for Polyphase AO-ESEMs. Overall, the shipments-weighted average LCC impact is a savings of $102. The simple payback period for non-air-over ESEMs is 1.1 and 0.9 years for high/medium torque ESEMs (0.25 and 1 hp, respectively); 0.7 and 1.5 years for low torque ESEMs (0.25 and 0.5 hp, respectively); and 2.0 years for polyphase ESEMs. The simple payback period for AO-ESEMs is 0.8 and 0.8 years for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); 0.7 and 1.3 years for low torque AO-ESEMs (0.25 and 0.5 hp, respectively); and 1.8 years for polyphase AO-ESEMs. Overall, the shipments-weighted average PBP is 1.2 years. The fraction of consumers experiencing a net LCC cost, for non-air-over ESEMs is 16.7 and 11.7 percent for high/medium torque ESEMs (0.25 and 1 hp, respectively); 3.0 and 7.8 percent for low torque ESEMs (0.25 and 0.5 hp, respectively); and 7.2 percent for polyphase ESEMs. The fraction of consumers experiencing a net LCC cost for AO-ESEMs is 7.8 and 5.9 percent for high/medium torque AO-ESEMs (0.25 and 1 hp, respectively); 3.7 and 2.9 percent for low torque AO-ESEMs (0.25 and 0.5 hp, respectively); and 9.7 percent for polyphase AO-ESEMs. Overall, the shipments-weighted average fraction of consumers experiencing a net LCC cost is 7.8 percent.
At TSL 2, the projected change in INPV ranges from a decrease of $264 million to a decrease of $131 million, which corresponds to decreases of 13.1 percent and 6.5 percent, respectively. DOE estimates that industry must invest $339 million to comply with standards set at TSL 2. An investment of $339 million in conversion costs represents approximately 53 percent of the sum of the annual free cash flows over the years between the expected publication date of the final rule and the standards year (
Under 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o)(2)(B)(i), DOE determines whether a standard is economically justified after considering seven factors. After considering the seven factors and weighing the benefits and burdens, the Secretary has tentatively concluded that standards set at TSL 2, the recommended TSL from the Electric Motors Working Group, for ESEMs would be economically justified. At this TSL, the average LCC savings for all equipment classes is positive. An estimated 7.8 percent of ESEM consumers experience a net cost. The FFC national energy savings are significant and the NPV of consumer benefits is positive using both a 3-percent and 7-percent discount rate. Notably, the benefits to consumers vastly outweigh the cost to manufacturers. At TSL 2, the NPV of consumer benefits, even measured at the more conservative discount rate of 7 percent is over 79 times higher than the maximum estimated manufacturers' loss in INPV. The proposed standard levels at TSL 2 are economically justified even without weighing the estimated monetary value of emissions reductions. When those emissions reductions are included—representing $9.4 billion in climate benefits (associated with the average SC-GHG at a 3-percent discount rate), and $18.3 billion (using a 3-percent discount rate) or $7.9 billion (using a 7-percent discount rate) in health benefits—the rationale becomes stronger still.
Accordingly, the Secretary has tentatively concluded that TSL 2, the TSL recommended by the Electric Motors Working Group, would offer the maximum improvement in efficiency that is technologically feasible and economically justified and would result in the significant conservation of energy. In addition, as discussed in section V.A of this document, DOE is establishing the TSLs by equipment class groups and aligning the AO-ESEM levels with the non-AO-ESEMs. Although results are presented here in terms of TSLs, DOE analyzes and evaluates all possible ELs for each equipment class in its analysis. For all equipment classes, TSL 2 is comprised of EL 2, and represents two levels below max-tech. The max tech efficiency levels (TSL 4) result in negative LCC savings for most equipment classes and a large percentage of consumers that experience a net LCC cost for most equipment classes, in addition to significant manufacturer impacts. The ELs one level below max tech (TSL 3) result in negative LCC savings for some equipment classes and a large percentage of consumers that experience a net LCC cost for most equipment classes. Additionally, the impact to manufacturers is significantly reduced at TSL 2. While manufacturers will have to invest $339 million to comply with standards at TSL 2, annual free cash flows remain positive for all years leading up to the modeled compliance date. DOE also estimates that most ESEM manufacturers will have the engineering capacity to complete these redesigns in a 4-year compliance period. Lastly, as discussed in the December 2022 Joint Recommendation,
The ELs two levels below max-tech (TSL 2), which represents the proposed standard levels as recommended by the Electric Motors Working Group, result in positive LCC savings for all equipment classes, significantly reduce the number of consumers experiencing a net cost, and reduce the decrease in INPV and conversion costs to the point where DOE has tentatively concluded they are economically justified, as discussed for TSL 2 in the preceding paragraphs.
As presented in section V.A in this document, DOE developed TSLs that aligned the efficiency levels for air-over and non-air-over ESEMs because of the similarities in the manufacturing processes between air-over and non-air-over ESEMs. In some cases, an air-over ESEM could be manufactured on the same line as a non-air-over ESEM by omitting the steps of manufacturing associated with the fan of a motor.
While DOE did not explicitly analyze a TSL that would require TSL 3 efficiency levels for AO-ESEMs and
DOE seeks comment on these alternative proposed standard levels. DOE requests comment on the unintended market consequences and the changes industry would make as a result of standards that require the use of different motor technologies for non-air over and AO-ESEMs. In addition, if DOE were to consider a TSL that would require TSL 2 for all equipment classes except TSL3 efficiency levels for low torque ESEMs, DOE seeks information related to potential ESEM size increase and impact on OEM markets at TSL 3 and above.
As stated, DOE conducts the walk-down analysis to determine the TSL that represents the maximum improvement in energy efficiency that is technologically feasible and economically justified as required under EPCA. The walk-down is not a comparative analysis, as a comparative analysis would result in the maximization of net benefits instead of energy savings that are technologically feasible and economically justified, which would be contrary to EPCA. 86 FR 70892, 70908 (Dec. 12, 2021). Although DOE has not conducted a comparative analysis to select the proposed new energy conservation standards, DOE notes that as compared to TSL 3 and TSL 4, TSL 2 has higher average LCC savings for consumers, significantly smaller percentages of consumers experiencing a net cost, a lower maximum decrease in INPV, lower manufacturer conversion costs, and a significant decrease in the likelihood of a major disruption to the both the ESEM market and the OEM markets that use ESEMs as an embedded product in their equipment, as DOE does not anticipate gaps in ESEM equipment offerings or a significant increase in the physical size of ESEMs at TSL 2.
Although DOE considered proposing new standard levels for ESEMs by grouping the efficiency levels for each equipment class into TSLs, DOE evaluates all analyzed efficiency levels in its analysis. For all equipment classes, TSL 2 represents the maximum energy savings that does not result in significant negative economic impacts to ESEM manufacturers. At TSL 2, conversion costs are estimated to be $339 million, significantly less than at TSL 3 ($1,118 million) or at TSL 4 ($2,156 million). At TSL 2, conversion costs represent a significantly smaller size of the sum of ESEM manufacturers' annual free cash flows for 2025 to 2028 (53 percent), than at TSL 3 (176 percent) or at TSL 4 (339 percent) and a significantly smaller portion of ESEM manufacturers' no-new-standards case INPV (17 percent), than at TSL 3 (55 percent) or at TSL 4 (107 percent). At TSL 2, ESEM manufacturers will have to redesign a significantly smaller portion of their ESEM models to meet the ELs set at TSL 2 (models representing 55 percent of all ESEM shipments), than at TSL 3 (91 percent) or at TSL 4 (99 percent). Lastly, ESEM manufacturers' free cash flow remains positive at TSL 2 for all years leading up to the compliance date. Whereas at TSL 3 annual free cash flow is estimated to be −$313 million and at TSL 4 annual free cash flow is estimated to be −$764 million in 2028, the year before the compliance year. Additionally, the ELs at the proposed TSL result in average positive LCC savings for all equipment class groups and significantly reduce the number of consumers experiencing a net cost to the point where DOE has tentatively concluded they are economically justified, as discussed for TSL 2 in the preceding paragraphs.
Therefore, based on the previous considerations, DOE proposes to adopt the energy conservation standards for ESEMs at TSL 2, which was the recommended TSL by the Electric Motors Working Group. The proposed energy conservation standards for ESEMs, which are expressed as average full-load efficiency, are shown in Table V-44 through Table V-46.
The benefits and costs of the proposed standards can also be expressed in terms of annualized values. The annualized net benefit is (1) the annualized national economic value (expressed in 2022$) of the benefits from operating equipment that meet the proposed standards (consisting primarily of operating cost savings from using less energy, minus increases in equipment purchase costs, and (2) the annualized monetary value of the climate and health benefits from emission reductions.
Table V-47 shows the annualized values for ESEMs under TSL 2, expressed in 2022$. The results under the primary estimate are as follows.
Using a 7-percent discount rate for consumer benefits and costs and NO
Using a 3-percent discount rate for all benefits and costs, the estimated cost of the proposed standards for ESEMs is $556 million per year in increased equipment costs, while the estimated annual benefits are $3,140 million in reduced operating costs, $542 million in climate benefits, and $1,052 million in health benefits. In this case, the net benefit amounts to $4,179 million per year.
Manufacturers, including importers, must use equipment-specific certification templates to certify compliance to DOE. For currently regulated electric motors, the certification template is specified at 10 CFR 429.36. DOE is not proposing new product-specific certification reporting requirements for ESEMs. However, as discussed in section III.C of this document, DOE proposes to amend the determinations of represented values for ESEMs.
Executive Order (“E.O.”) 12866, “Regulatory Planning and Review,” as supplemented and reaffirmed by E.O. 13563, “Improving Regulation and Regulatory Review,” 76 FR 3821 (Jan. 21, 2011) and amended by E.O. 14094, “Modernizing Regulatory Review,” 88 FR 21879 (April 11, 2023), requires agencies, to the extent permitted by law, to (1) propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs (recognizing that some benefits and costs are difficult to quantify); (2) tailor regulations to impose the least burden on society, consistent with obtaining regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations; (3) select, in choosing among alternative regulatory approaches, those approaches that maximize net benefits (including potential economic, environmental, public health and safety, and other advantages; distributive impacts; and equity); (4) to the extent feasible, specify performance objectives, rather than specifying the behavior or manner of compliance that regulated entities must adopt; and (5) identify and assess available alternatives to direct regulation, including providing economic incentives to encourage the desired behavior, such as user fees or marketable permits, or providing information upon which choices can be made by the public. DOE emphasizes as well that E.O. 13563 requires agencies to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible. In its guidance, the Office of Information and Regulatory Affairs (“OIRA”) in the Office of Management and Budget (“OMB”) has emphasized
Section 6(a) of E.O. 12866 also requires agencies to submit “significant regulatory actions” to OIRA for review. OIRA has determined that this proposed regulatory action constitutes a “significant regulatory action” within the scope of section 3(f)(1) of E.O. 12866. Accordingly, pursuant to section 6(a)(3)(C) of E.O. 12866, DOE has provided to OIRA an assessment, including the underlying analysis, of benefits and costs anticipated from the proposed regulatory action, together with, to the extent feasible, a quantification of those costs; and an assessment, including the underlying analysis, of costs and benefits of potentially effective and reasonably feasible alternatives to the planned regulation, and an explanation why the planned regulatory action is preferable to the identified potential alternatives. These assessments are summarized in this preamble and further detail can be found in the technical support document for this proposed rulemaking.
The Regulatory Flexibility Act (5 U.S.C. 601
For manufacturers of ESEMs, the Small Business Administration (“SBA”) has set a size threshold, which defines those entities classified as “small businesses” for the purposes of the statute. DOE used the SBA's small business size standards to determine whether any small entities would be subject to the requirements of the rule. (See 13 CFR part 121.) The size standards are listed by North American Industry Classification System (“NAICS”) code and industry description and are available at
DOE previously established energy conservation standards for some types of electric motors at 10 CFR 431.25. These previous rulemakings did not establish energy conservation standards for ESEMs when establishing or amending energy conservation standards for other electric motors. In the March 2022 Preliminary Analysis, DOE analyzed potential efficiency levels for ESEMs.
EPCA authorizes DOE to regulate the energy efficiency of a number of consumer products and certain industrial equipment. Title III, Part C of EPCA, added by Public Law 95-619, Title IV, section 441(a) (42 U.S.C. 6311-6317, as codified), established the Energy Conservation Program for Certain Industrial Equipment, which sets forth a variety of provisions designed to improve the energy efficiency of certain types of industrial equipment, including ESEMs, a category of electric motors, the subject of this notice. (42 U.S.C. 6311(1)(A)).
DOE must follow specific statutory criteria for prescribing new or amended standards for covered equipment, including electric motors. Any new or amended standard for covered equipment must be designed to achieve the maximum improvement in energy efficiency that the Secretary of Energy determines is technologically feasible and economically justified. (42 U.S.C. 6316(a); 42 U.S.C. 6295(o)(2)(A) and 42 U.S.C. 6295(o)(3)(B))
To estimate the number of companies that could be small business manufacturers of ESEMs covered by this rulemaking, DOE conducted a market survey using publicly available information. DOE's research involved DOE's publicly available Compliance Certification Database (“CCD”), industry trade association membership directories (including NEMA), and information from previous rulemakings. DOE also asked stakeholders and industry representatives if they were aware of any other small manufacturers during manufacturer interviews and DOE working groups. DOE used information from these sources to create a list of companies that potentially manufacture ESEMs covered by this proposed rulemaking. As necessary, DOE contacted companies to determine whether they met the SBA's definition of a small business manufacturer. DOE screened out companies that do not offer equipment covered by this proposed rulemaking, do not meet the definition of a “small business,” or are foreign owned and operated.
DOE initially identified approximately 74 unique potential manufacturers of ESEMs sold in the U.S that are covered by this proposed rulemaking. DOE screened out companies that had more than 1,250 employees or companies that were completely foreign-owned and operated. Of the 74 manufacturers that potentially manufacture ESEMs covered by this proposed rulemaking, DOE identified 3 companies that meet SBA's definition of a small business.
In this NOPR, DOE is proposing new energy conservation standards for ESEMs. The primary value added by these 3 small businesses is creating ESEMs that serve an application specific purpose that the OEMs require. This includes combining an ESEM with specific mechanic couplings, weatherproofing, or controls to suit the OEM's needs. Most small businesses manufacture motor housing and couplings but do not manufacture the rotors and stators used in the ESEMs they sell. While these small businesses may have to create new ESEM housings and/or couplings if the ESEM characteristics change in response to the proposed energy conservation
The 3 small businesses identified do not manufacture the rotors and stators of their ESEMs and instead purchase these components from other manufacturers. Thus, they would not need to purchase the machinery necessary to manufacture these components (
DOE estimated conversion costs associated with redesigning an equipment line for ESEM housings. DOE estimates this will cost approximately $50,000 in molding equipment per ESEM housing; $37,330 in engineering design effort per ESEM housing;
$54.83 (hourly wage) ÷ 0.705 (wage as a percentage of total compensation) = $77.77 (fully burdened hourly labor rate).
$77.77 × 8 (hours in a workday) × 20 (working days in a month) × 3 (months) = $37,330
DOE displays in Table VI-1 the estimated average conversion costs per small business compared to the annual revenue for each small business. DOE used D&B Hoovers
As described in section IV.A. of this document, DOE believes the standards proposed in this NOPR would not impact manufacturers of consumer products. In commercial equipment, DOE identified the following equipment as potentially incorporating ESEMs: walk-in coolers and freezers, circulator pumps, air circulating fans, and commercial unitary air conditioning equipment. If the proposed energy conservation standards for these rules finalize as proposed, DOE has identified that these rules would all: (1) have a compliance year that is at or before the ESEM standard compliance year (2029) and/or (2) require a motor that is either outside of the scope of this rule (
The discussion in the previous section analyzes impacts on small businesses that would result from DOE's proposal to adopt standards represented by TSL 2. In reviewing alternatives to the proposed rule, DOE examined energy conservation standards set at lower efficiency levels. While TSL 1 would reduce the impacts on small business manufacturers, it would come at the expense of a reduction in energy savings and consumer NPV. TSL 1 achieves 65 percent lower energy savings and 69 percent lower consumer NPV compared to the energy savings at TSL 2.
Based on the presented discussion, proposing standards at TSL 2 balances the benefits of the energy savings at TSL 2 with the potential burdens placed on ESEM manufacturers, including small business manufacturers. Accordingly, DOE does not propose one of the other TSLs considered in the analysis, or the other policy alternatives examined as part of the regulatory impact analysis and included in chapter 17 of the NOPR TSD.
Additional compliance flexibilities may be available through other means. Manufacturers subject to DOE's energy efficiency standards may apply to DOE's Office of Hearings and Appeals for exception relief under certain circumstances. Manufacturers should refer to 10 CFR part 1003 for additional details.
Manufacturers of expanded scope electric motors must test their equipment according to the DOE test procedures for ESEMs, including any amendments adopted for those test procedures, and use the results of the test procedure and applicable sampling plan if they choose to make representations of the energy efficiency or energy use of ESEMs. DOE has established regulations for recordkeeping requirements for all covered consumer products and commercial equipment, including ESEMs. (
Currently, DOE is seeking comment on DOE's renewal of its paperwork reduction approval under OMB control number 1910-1400.
Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA, unless that collection of information displays a currently valid OMB Control Number.
DOE is analyzing this proposed regulation in accordance with the National Environmental Policy Act of 1969 (“NEPA”) and DOE's NEPA implementing regulations (10 CFR part 1021). DOE's regulations include a categorical exclusion for rulemakings that establish energy conservation standards for consumer products or industrial equipment. 10 CFR part 1021, subpart D, appendix B5.1. DOE anticipates that this proposed rulemaking qualifies for categorical exclusion B5.1 because it is a rulemaking that establishes energy conservation standards for consumer products or industrial equipment, none of the exceptions identified in categorical exclusion B5.1(b) apply, no extraordinary circumstances exist that require further environmental analysis, and it otherwise meets the requirements for application of a categorical exclusion.
E.O. 13132, “Federalism,” 64 FR 43255 (Aug. 10, 1999), imposes certain requirements on Federal agencies formulating and implementing policies or regulations that preempt state law or that have federalism implications. The Executive order requires agencies to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion of the states and to carefully assess the necessity for such actions. The Executive order also requires agencies to have an accountable process to ensure meaningful and timely input by state and local officials in the development of regulatory policies that have federalism implications. On March 14, 2000, DOE published a statement of policy describing the intergovernmental consultation process it will follow in the development of such regulations. 65 FR 13735. DOE has examined this proposed rule and has tentatively determined that it would not have a substantial direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. EPCA governs and prescribes Federal preemption of state regulations as to energy conservation for the equipment that are the subject of this proposed rule. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA. (
With respect to the review of existing regulations and the promulgation of new regulations, section 3(a) of E.O. 12988, “Civil Justice Reform,” imposes on Federal agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity, (2) write regulations to minimize litigation, (3) provide a clear legal standard for affected conduct rather than a general standard, and (4) promote simplification and burden reduction. 61 FR 4729 (Feb. 7, 1996). Regarding the review required by section 3(a), section 3(b) of E.O. 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if any, (2) clearly specifies any effect on existing Federal law or regulation, (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction, (4) specifies the retroactive effect, if any, (5) adequately defines key terms, and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) of Executive Order 12988 requires Executive agencies to review regulations in light of applicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more of them. DOE has completed the required review and determined that, to the extent permitted by law, this proposed rule meets the relevant standards of E.O. 12988.
Title II of the Unfunded Mandates Reform Act of 1995 (“UMRA”) requires each Federal agency to assess the effects of Federal regulatory actions on state, local, and Tribal governments and the private sector. Public Law 104-4, section 201 (codified at 2 U.S.C. 1531). For a proposed regulatory action likely to result in a rule that may cause the expenditure by state, local, and Tribal governments, in the aggregate, or by the private sector of $100 million or more in any one year (adjusted annually for inflation), section 202 of UMRA requires a Federal agency to publish a written statement that estimates the resulting costs, benefits, and other effects on the national economy. (2 U.S.C. 1532(a), (b)) The UMRA also requires a Federal agency to develop an effective process to permit timely input by elected officers of state, local, and Tribal governments on a proposed “significant intergovernmental mandate,” and requires an agency plan for giving notice and opportunity for timely input to potentially affected small governments before establishing any requirements that might significantly or uniquely affect them. On March 18, 1997, DOE published a statement of policy on its process for intergovernmental consultation under UMRA. 62 FR 12820. DOE's policy statement is also available at
Although this proposed rule does not contain a Federal intergovernmental mandate, it may require expenditures of $100 million or more in any one year by the private sector. Such expenditures may include: (1) investment in research and development and in capital expenditures by ESEM manufacturers in the years between the final rule and the compliance date for the new standards and (2) incremental additional expenditures by consumers to purchase higher-efficiency ESEMs, starting at the compliance date for the applicable standard.
Section 202 of UMRA authorizes a Federal agency to respond to the content requirements of UMRA in any other statement or analysis that accompanies the proposed rule. (2 U.S.C. 1532(c)) The content requirements of section 202(b) of UMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(o) of EPCA and
Under section 205 of UMRA, DOE is obligated to identify and consider a reasonable number of regulatory alternatives before promulgating a rule for which a written statement under section 202 is required. (2 U.S.C. 1535(a)) DOE is required to select from those alternatives the most cost-effective and least burdensome alternative that achieves the objectives of the proposed rule unless DOE publishes an explanation for doing otherwise, or the selection of such an alternative is inconsistent with law. As required by 42 U.S.C. 6316(a) and 42 U.S.C. 6295(o), this proposed rule would establish new energy conservation standards for that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economically justified. A full discussion of the alternatives considered by DOE is presented in chapter 17 of the TSD for this proposed rule.
Section 654 of the Treasury and General Government Appropriations Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any rule that may affect family well-being. This proposed rule would not have any impact on the autonomy or integrity of the family as an institution. Accordingly, DOE has concluded that it is not necessary to prepare a Family Policymaking Assessment.
Pursuant to E.O. 12630, “Governmental Actions and Interference with Constitutionally Protected Property Rights,” 53 FR 8859 (Mar. 15, 1988), DOE has determined that this proposed rule would not result in any takings that might require compensation under the Fifth Amendment to the U.S. Constitution.
Section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note) provides for Federal agencies to review most disseminations of information to the public under information quality guidelines established by each agency pursuant to general guidelines issued by OMB. OMB's guidelines were published at 67 FR 8452 (Feb. 22, 2002), and DOE's guidelines were published at 67 FR 62446 (Oct. 7, 2002). Pursuant to OMB Memorandum M-19-15, Improving Implementation of the Information Quality Act (April 24, 2019), DOE published updated guidelines which are available at
E.O. 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use,” 66 FR 28355 (May 22, 2001), requires Federal agencies to prepare and submit to OIRA at OMB, a Statement of Energy Effects for any proposed significant energy action. A “significant energy action” is defined as any action by an agency that promulgates or is expected to lead to promulgation of a final rule, and that (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use of energy, or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement of any adverse effects on energy supply, distribution, or use should the proposal be implemented, and of reasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.
DOE has tentatively concluded that this proposed regulatory action, which proposes new energy conservation standards for ESEMs, is not a significant energy action because the proposed standards are not likely to have a significant adverse effect on the supply, distribution, or use of energy, nor has it been designated as such by the Administrator at OIRA. Accordingly, DOE has not prepared a Statement of Energy Effects on this proposed rule.
On December 16, 2004, OMB, in consultation with the Office of Science and Technology Policy (“OSTP”), issued its Final Information Quality Bulletin for Peer Review (“the Bulletin”). 70 FR 2664 (Jan. 14, 2005). The Bulletin establishes that certain scientific information shall be peer reviewed by qualified specialists before it is disseminated by the Federal Government, including influential scientific information related to agency regulatory actions. The purpose of the bulletin is to enhance the quality and credibility of the Government's scientific information. Under the Bulletin, the energy conservation standards rulemaking analyses are “influential scientific information,” which the Bulletin defines as “scientific information the agency reasonably can determine will have, or does have, a clear and substantial impact on important public policies or private sector decisions.” 70 FR 2664, 2667.
In response to OMB's Bulletin, DOE conducted formal peer reviews of the energy conservation standards development process and the analyses that are typically used and has prepared a report describing that peer review.
The time, date, and location of the public meeting are listed in the
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Due to the REAL ID Act implemented by the Department of Homeland Security (“DHS”), there have been recent changes regarding ID requirements for individuals wishing to enter Federal buildings from specific states and U.S. territories. DHS maintains an updated website identifying the state and territory driver's licenses that currently are acceptable for entry into DOE facilities at
In addition, you can attend the public meeting via webinar. Webinar registration information, participant instructions, and information about the capabilities available to webinar participants will be published on DOE's website at
Any person who has plans to present a prepared general statement may request that copies of his or her statement be made available at the public meeting. Such persons may submit requests, along with an advance electronic copy of their statement in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) file format, to the appropriate address shown in the
DOE will designate a DOE official to preside at the public meeting and may also use a professional facilitator to aid discussion. The meeting will not be a judicial or evidentiary-type public hearing, but DOE will conduct it in accordance with section 336 of EPCA. (42 U.S.C. 6306) A court reporter will be present to record the proceedings and prepare a transcript. DOE reserves the right to schedule the order of presentations and to establish the procedures governing the conduct of the public meeting. There shall not be discussion of proprietary information, costs or prices, market share, or other commercial matters regulated by U.S. anti-trust laws. After the public meeting, interested parties may submit further comments on the proceedings, as well as on any aspect of the proposed rulemaking, until the end of the comment period.
The public meeting will be conducted in an informal, conference style. DOE will present a general overview of the topics addressed in this rulemaking, allow time for prepared general statements by participants, and encourage all interested parties to share their views on issues affecting this proposed rulemaking. Each participant will be allowed to make a general statement (within time limits determined by DOE), before the discussion of specific topics. DOE will allow, as time permits, other participants to comment briefly on any general statements.
At the end of all prepared statements on a topic, DOE will permit participants to clarify their statements briefly. Participants should be prepared to answer questions by DOE and by other participants concerning these issues. DOE representatives may also ask questions of participants concerning other matters relevant to this proposed rulemaking. The official conducting the public meeting will accept additional comments or questions from those attending, as time permits. The presiding official will announce any further procedural rules or modification of the previous procedures that may be needed for the proper conduct of the public meeting.
A transcript of the public meeting will be included in the docket, which can be viewed as described in the
DOE will accept comments, data, and information regarding this proposed rule before or after the public meeting, but no later than the date provided in the
However, your contact information will be publicly viewable if you include it in the comment itself or in any documents attached to your comment. Any information that you do not want to be publicly viewable should not be included in your comment, nor in any document attached to your comment. Otherwise, persons viewing comments will see only first and last names, organization names, correspondence containing comments, and any documents submitted with the comments.
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Include contact information each time you submit comments, data, documents, and other information to DOE. If you submit via postal mail or hand delivery/courier, please provide all items on a CD, if feasible, in which case it is not necessary to submit printed copies. No telefacsimiles (“faxes”) will be accepted.
Comments, data, and other information submitted to DOE electronically should be provided in PDF (preferred), Microsoft Word or Excel, WordPerfect, or text (ASCII) file format. Provide documents that are not secured, that are written in English, and that are free of any defects or viruses. Documents should not contain special characters or any form of encryption and, if possible, they should carry the electronic signature of the author.
It is DOE's policy that all comments may be included in the public docket, without change and as received, including any personal information provided in the comments (except information deemed to be exempt from public disclosure).
Although DOE welcomes comments on any aspect of this proposal, DOE is particularly interested in receiving comments and views of interested parties concerning the following issues:
(1) DOE requests comments on the proposal to use a represented value of average full-load efficiency for ESEMs and proposed revisions to 10 CFR 429.64 and 429.70(j).
(2) DOE requests comment on the proposed equipment classes for this NOPR.
(3) DOE requests comment on the remaining technology options considered in this NOPR.
(4) DOE requests comment on the representative units used in this NOPR.
(5) DOE requests comment on the baseline efficiencies used in this NOPR.
(6) DOE requests comment on the proposal to constrain the frame size of all efficiency levels to that of the baseline unit.
(7) DOE requests comment on the assumption that higher ELs (particularly ELs 3 and 4) can be reached without significant increase in size.
(8) DOE requests comment on the potential for market disruption at higher ELs and if manufacturers could design motors at ELs 3 and 4 that do not increase in size, or if for the final rule, DOE should model motors larger than what is considered in this NOPR.
(9) DOE requests data and information to characterize the distribution channels for ESEMs and associated market shares.
(10) DOE requests data and information to characterize the distribution of ESEMs by sector (commercial, industrial, and residential sectors) as well as the distribution of ESEMs by application in each sector.
(11) DOE seeks data and additional information to characterize ESEM operating loads.
(12) DOE requests comment on the distribution of average annual operating hours by application and sector used to characterize the variability in energy use for ESEMs
(13) DOE seeks data and additional information to support the analysis of projected energy use impacts related to any increases in motor nominal speed.
(14) DOE requests data and information regarding the most appropriate price trend to use to project ESEM prices.
(15) DOE requests comment on whether any of the efficiency levels considered in this NOPR might lead to an increase in installation costs, and if so, DOE seeks supporting data regarding the magnitude of the increased cost per unit for each relevant efficiency level and the reasons for those differences.
(16) DOE requests comment on whether any of the efficiency levels considered in this NOPR might lead to an increase in maintenance and repair costs, and if so, DOE seeks supporting data regarding the magnitude of the increased cost per unit for each relevant efficiency level and the reasons for those differences.
(17) DOE requests comment on the equipment lifetimes (both in years and in mechanical hours) used for each representative unit considered in the LCC and PBP analyses
(18) DOE seeks information and data to help establish efficiency distribution in the no-new standards case for ESEMs. DOE requests data and information on any trends in the electric motor market that could be used to forecast expected trends in market share by efficiency levels for each equipment class.
(19) DOE requests comment and additional data on its 2020 shipments estimates for ESEMs. DOE seeks comment on the methodology used to project future shipments of ESEMs. DOE seeks information on other data sources that can be used to estimate future shipments.
(20) DOE requests comment and data regarding the potential increase in utilization of electric motors due to any increase in efficiency (“rebound effect”).
(21) DOE requests comment and data on the overall methodology used for the consumer subgroup analysis. DOE requests comment on whether additional consumer subgroups may be disproportionately affected by a new standard and warrant additional analysis in the final rule.
(22) DOE requests comment on how to address the climate benefits and non-monetized effects of the proposal.
(23) DOE requests comment on if manufacturers would have the engineering capacity to conduct design efforts to be able to offer a full portfolio of complaint ESEM at TSL 4. If not, please provide any data or information on the potential impacts that could arise due to these market gaps in equipment offerings.
(24) DOE requests comment on if manufacturers would have the engineering capacity to conduct design efforts to be able to offer a full portfolio of compliant ESEMs at TSL 3. If not, please provide any data or information
(25) DOE seeks comment on these alternative proposed standard levels. DOE requests comment on the unintended market consequences and the changes industry would make as a result of standards that require the use of different motor technologies for non-air over and AO-ESEMs. In addition, if DOE were to consider a TSL that would require TSL 2 for all equipment classes except TSL3 efficiency levels for low torque ESEMs, DOE seeks information related to potential ESEM size increase and impact on OEM markets at TSL 3 and above.
Additionally, DOE welcomes comments on other issues relevant to the conduct of this proposed rulemaking that may not specifically be identified in this document.
The Secretary of Energy has approved publication of this notice of proposed rulemaking and announcement of public meeting.
Administrative practice and procedure, Confidential business information, Energy conservation, Household appliances, Reporting and recordkeeping requirements.
Administrative practice and procedure, Confidential business information, Energy conservation test procedures, and Reporting and recordkeeping requirements.
This document of the Department of Energy was signed on November 21, 2023, by Jeffrey Marootian, Principal Deputy Assistant Secretary for Energy Efficiency and Renewable Energy, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the
For the reasons set forth in the preamble, DOE is proposing to amend parts 429 and 431 of chapter II, subchapter D, of title 10 of the Code of Federal Regulations, as set forth below:
2 U.S.C. 6291-6317; 28 U.S.C. 2461 note.
The revisions and addition read as follows:
(a) * * *
(3) On or after April 17, 2023, manufacturers of electric motors that are subject to the test procedures in appendix B of subpart B of part 431 but are not subject to the energy conservation standards in subpart B of part 431 of this subchapter, must, if they chose to voluntarily make representations of energy efficiency, follow the provisions in paragraph (e) of this section.
(d) * * *
(2) Testing was conducted using a laboratory other than an accredited laboratory that meets the requirements of paragraph (f) of this section, or the represented value of the electric motor basic model was determined through the application of an AEDM pursuant to the requirements of § 429.70(j), and a third-party certification organization that is nationally recognized in the United States under § 429.73 has certified the represented value of the electric motor basic model through issuance of a certificate of conformity for the basic model.
(e)
(1) * * *
(iii)
(iv)
(2)
(ii) For electric motors subject to energy conservation standards in subpart B of part 431 of this subchapter and for which minimum values of nominal full-load efficiency are prescribed the represented value is the nominal full-load efficiency of a basic model of electric motor and is to be used in marketing materials and all public representations, as the certified value of efficiency, and on the nameplate. (See § 431.31(a) of this subchapter) Determine the nominal full-load efficiency by selecting a value from the “Nominal Full-Load Efficiency” table in appendix B to subpart B of this part, that is no greater than the simulated full-load efficiency predicted by the AEDM for the basic model. For electric motors subject to energy conservation standards in subpart B of part 431 of this subchapter and for which minimum values of average full-load efficiency are prescribed the represented value is the average full-load efficiency of a basic model of electric motor and is to be used in marketing materials and all public representations, as the certified value of efficiency, and on the nameplate. (See § 431.31(a) of this subchapter.)
(j) * * *
(2) * * *
(i) * * *
(D) Each basic model must have the lowest represented value of nominal full-load efficiency or represented value of average full-load efficiency, as applicable, among the basic models within the same equipment class.
42 U.S.C. 6291-6317; 28 U.S.C. 2461 note.
(a) For purposes of determining the required minimum nominal full-load efficiency or minimum average full-load efficiency of an electric motor that has a horsepower or kilowatt rating between two horsepower or two kilowatt ratings listed in any table of energy conservation standards in paragraphs (b) through (d) of this section, each such electric motor shall be deemed to have a listed horsepower or kilowatt rating, determined as follows:
(1) A horsepower at or above the midpoint between the two consecutive horsepowers shall be rounded up to the higher of the two horsepowers;
(2) A horsepower below the midpoint between the two consecutive horsepowers shall be rounded down to the lower of the two horsepowers; or
(3) A kilowatt rating shall be directly converted from kilowatts to horsepower using the formula 1 kilowatt = (
(b) This section applies to electric motors manufactured (alone or as a component of another piece of equipment) on or after June 1, 2016, but before June 1, 2027, that satisfy the criteria in paragraph (b)(1)(i) of this section, with the exclusion listed in paragraph (b)(1)(ii) of this section.
(1)
(A) Are single-speed, induction motors;
(B) Are rated for continuous duty (MG 1) operation or for duty type S1 (IEC);
(C) Contain a squirrel-cage (MG 1) or cage (IEC) rotor;
(D) Operate on polyphase alternating current 60-hertz sinusoidal line power;
(E) Are rated 600 volts or less;
(F) Have a 2-, 4-, 6-, or 8-pole configuration,
(G) Are built in a three-digit or four-digit NEMA frame size (or IEC metric equivalent), including those designs between two consecutive NEMA frame sizes (or IEC metric equivalent), or an enclosed 56 NEMA frame size (or IEC metric equivalent),
(H) Produce at least one horsepower (0.746 kW) but not greater than 500 horsepower (373 kW); and
(I) Meet all of the performance requirements of one of the following motor types: A NEMA Design A, B, or C motor or an IEC Design N, NE, NEY, NY or H, HE, HEY, HY motor.
(ii) The standards in paragraph (b)(2) of this section do not apply to the following electric motors exempted by the Secretary, or any additional electric motors that the Secretary may exempt:
(A) Air-over electric motors;
(B) Component sets of an electric motor;
(C) Liquid-cooled electric motors;
(D) Submersible electric motors; and
(E) Inverter-only electric motors.
(2)
(ii) Each NEMA Design C motor and IEC Design H (including HE, HEY, or HY variants) electric motor meeting the criteria in paragraph (b)(1) of this section and with a power rating from 1 horsepower through 200 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(iii) Each fire pump electric motor meeting the criteria in paragraph (b)(1) of this section and with a power rating of 1 horsepower through 500 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(c) This section applies to electric motors manufactured (alone or as a component of another piece of equipment) on or after June 1, 2027, but before January 1, 2029, that satisfy the criteria in paragraph (c)(1)(i) of this section, with the exclusion listed in paragraph (c)(1)(ii) of this section.
(1)
(A) Are single-speed, induction motors;
(B) Are rated for continuous duty (MG 1) operation or for duty type S1 (IEC);
(C) Contain a squirrel-cage (MG 1) or cage (IEC) rotor;
(D) Operate on polyphase alternating current 60-hertz sinusoidal line power;
(E) Are rated 600 volts or less;
(F) Have a 2-, 4-, 6-, or 8-pole configuration,
(G) Are built in a three-digit or four-digit NEMA frame size (or IEC metric equivalent), including those designs between two consecutive NEMA frame sizes (or IEC metric equivalent), or an enclosed 56 NEMA frame size (or IEC metric equivalent), or have an air-over enclosure and a specialized frame size,
(H) Produce at least one horsepower (0.746 kW) but not greater than 750 horsepower (559 kW); and
(I) Meet all of the performance requirements of one of the following motor types: A NEMA Design A, B, or C motor or an IEC Design N, NE, NEY, NY or H, HE, HEY, HY motor.
(ii) The standards in paragraph (c)(2) of this section do not apply to the following electric motors exempted by the Secretary, or any additional electric motors that the Secretary may exempt:
(A) Component sets of an electric motor;
(B) Liquid-cooled electric motors;
(C) Submersible electric motors; and
(D) Inverter-only electric motors.
(2)
(ii) Each NEMA Design A motor, NEMA Design B motor, and IEC Design N (including NE, NEY, or NY variants) motor that is an air-over electric motor meeting the criteria in paragraph (c)(1) of this section, but excluding fire pump electric motors, and with a power rating from 1 horsepower through 250 horsepower, built in a standard frame size, shall have a nominal full-load efficiency of not less than the following:
(iii) Each NEMA Design A motor, NEMA Design B motor, and IEC Design N (including NE, NEY, or NY variants) motor that is an air-over electric motor meeting the criteria in paragraph (c)(1) of this section, but excluding fire pump electric motors, and with a power rating from 1 horsepower through 20 horsepower, built in a specialized frame size, shall have a nominal full-load efficiency of not less than the following:
(iv) Each NEMA Design C motor and IEC Design H (including HE, HEY, or HY variants) electric motor meeting the criteria in paragraph (c)(1) of this section but excluding air-over electric motors and with a power rating from 1 horsepower through 200 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(v) Each fire pump electric motor meeting the criteria in paragraph (c)(1) of this section, but excluding air-over electric motors, and with a power rating of 1 horsepower through 500 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(d) This section applies to electric motors manufactured (alone or as a component of another piece of equipment) on or after January 1, 2029.
(1) The standards in paragraph (d)(1)(ii) of this section apply only to electric motors that satisfy the criteria in paragraph (d)(1)(i)(A) of this section and with the exclusion listed in paragraph (d)(1)(i)(B) of this section.
(i)
(
(
(
(
(
(
(
(
(
(B) The standards in paragraph (d)(1)(ii) of this section do not apply to the following electric motors exempted by the Secretary, or any additional electric motors that the Secretary may exempt:
(
(
(
(
(ii)
(B) Each NEMA Design A motor, NEMA Design B motor, and IEC Design N (including NE, NEY, or NY variants) motor that is an air-over electric motor meeting the criteria in paragraph (d)(1)(i) of this section, but excluding fire pump electric motors, and with a power rating from 1 horsepower through 250 horsepower, built in a standard frame size, shall have a nominal full-load efficiency of not less than the following:
(C) Each NEMA Design A motor, NEMA Design B motor, and IEC Design N (including NE, NEY, or NY variants) motor that is an air-over electric motor meeting the criteria in paragraph (d)(1)(i) of this section, but excluding fire pump electric motors, and with a power rating from 1 horsepower through 20 horsepower, built in a specialized frame size, shall have a nominal full-load efficiency of not less than the following:
(D) Each NEMA Design C motor and IEC Design H (including HE, HEY, or HY variants) electric motor meeting the criteria in paragraph (d)(1)(i) of this section but excluding air-over electric motors and with a power rating from 1 horsepower through 200 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(E) Each fire pump electric motor meeting the criteria in paragraph (d)(1)(i) of this section, but excluding air-over electric motors, and with a power rating of 1 horsepower through 500 horsepower, shall have a nominal full-load efficiency that is not less than the following:
(2) The standards in paragraph (d)(2)(ii) of this section apply only to electric motors that satisfy the criteria in paragraph (d)(2)(i)(A) of this section and with the exclusion listed in paragraph (d)(2)(i)(B) of this section
(i)
(
(
(
(
(
(
(
(B) The standards in paragraph (d)(2)(ii) of this section do not apply to the following electric motors exempted by the Secretary, or any additional electric motors that the Secretary may exempt:
(
(
(
(
(ii)
(B) Each low-torque electric motor (
(C) Each polyphase electric motor meeting the criteria in paragraph (d)(2)(i) of this section and with a power rating of greater than or equal to 0.25 horsepower and less than or equal to 3 horsepower, shall have an average full-load efficiency of not less than the following:
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (“SEC” or “Commission”) is adopting a set of rules and forms under the Securities Exchange Act of 1934 (“SEA”) that would create a regime for the registration and regulation of security-based swap execution facilities (“SBSEFs”) and address other issues relating to security-based swap (“SBS”) execution generally. One of the rules being adopted implements an element of the Dodd-Frank Act that is intended to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS (“SBS exchanges”). Other rules being adopted address the cross-border application of the SEA's trading venue registration requirements and the trade execution requirement for SBS. In addition, the Commission is amending an existing rule to exempt, from the SEA definition of “exchange,” certain registered clearing agencies, as well as registered SBSEFs that provide a market place only for SBS. The Commission is also adopting a new rule that, while affirming that an SBSEF would be a broker under the SEA, exempts a registered SBSEF from certain broker requirements. Further, the Commission is adopting certain new rules and amendments to its Rules of Practice to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission. Finally, the Commission is delegating new authority to the Director of the Division of Trading and Markets and to the General Counsel to take actions necessary to carry out the rules being adopted.
Michael E. Coe, Assistant Director; David Liu, Special Counsel; Leah Mesfin, Special Counsel; Michou Nguyen, Special Counsel; or Geoffrey Pemble, Special Counsel, at (202) 551-5000, Office of Market Supervision, Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
The Commission is adopting new 17 CFR 242.800 through 242.835 (“Regulation SE”) to create a regime for the registration and regulation of SBSEFs and to address other issues relating to SBS execution generally. Regulation SE consists of 17 CFR 242.800 through 242.835 (Rules 800 through 835). Key rules within Regulation SE include Rule 803, which establishes a process for SBSEF registration; Rules 804 to 810, which establish procedures for rule and product filings by SBSEFs; Rule 815, which establishes permissible execution methods for SBS that are subject to the SEA's trade execution requirement; Rule 816, which sets out a procedure for SBSEFs to make an SBS available to trade and establish certain exemptions from the trade execution requirement; Rules 818 to 831, which implement the 14 Core Principles for SBSEFs set forth in section 3D(d) of the SEA; Rules 832 to 833, which address cross-border matters; and Rule 834, which imposes requirements addressing conflicts of interest involving SBSEFs and SBS exchanges, as required by section 765 of the Dodd-Frank Act.
In addition to the rules described above, the Commission is also adopting 17 CFR 249.1701 (Form SBSEF), which is the form that an entity will use to register with the Commission as an SBSEF; 17 CFR 249.1702 (a submission cover sheet), which will be required to accompany filings with the Commission made by SBSEFs for rule and rule amendments and for product listings; adopting amendments to 17 CFR 232.405 (Rule 405 of Regulation S-T) to require various SBSEF filings to be provided in Inline eXtensible Business Reporting Language (“Inline XBRL”), a structured data language; adopting amendments to 17 CFR 240.3a1-1 (Rule 3a1-1) to exempt from the SEA definition of “exchange” certain registered clearing agencies, as well as registered SBSEFs that provide a market place only for SBS; adopting 17 CFR 240.15a-12 (Rule 15a-12), which, while affirming that an SBSEF would also be a broker under the SEA, exempts a registered SBSEF from certain broker requirements; providing for the sunset of existing temporary exemptions from the requirement to register as a clearing agency that, among other things, applies to an entity performing the functions of an SBSEF but that is not yet registered as such, and from the requirement to register as an SBSEF or a national securities exchange for entities that meet the statutory definition of SBSEF; adopting certain new rules and amendments to 17 CFR part 201 (Rules of Practice) to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission; and adopting amendments to 17 CFR 200.30-3 and 17 CFR 200.30-14 regarding delegations of authority to the Director of the Division of Trading and Markets and to the General Counsel.
A. Summary of Collection of Information
B. Proposed Use of Information
C. Respondents
The Commission is adopting Regulation SE,
Section 3D(a)(1) of the SEA provides that no person may operate a facility for the trading or processing of SBS unless the facility is registered as an SBSEF or as a national securities exchange. Section 3D(d) enumerates 14 Core Principles with which SBSEFs must comply.
On April 6, 2022, the Commission proposed Regulation SE, relating to the registration and regulation of SBSEFs and to SBS execution generally.
The SBS market is closely related to the swaps market, which is regulated by the Commodity Futures Trading Commission (“CFTC”).
In addition, the Commission recognized that the entities that are most likely to register with the Commission as SBSEFs are existing, CFTC-registered SEFs, which have already made substantial investments in systems, policies, and procedures to comply with and adapt to the regulatory system developed by the CFTC. Harmonization between the Commission's SBSEF rules and the CFTC's SEF rules could facilitate the ability of entities to dually register and minimize costs by allowing incumbent SEFs to use their existing systems, policies, and procedures to comply with the Commission's SBSEF rules.
Thus, in proposing Regulation SE, the Commission took the general approach of harmonizing closely with analogous CFTC SEF rules, except where differences in the SEC's statutory authority relative to the CFTC's statutory authority, or differences in the SBS market relative to the swaps market, necessitated differences between the Commission's rules and the CFTC's, or where the benefits of deviating from the CFTC's rules would otherwise justify the burdens and costs associated with imposing different or additional requirements than the corresponding CFTC rule. And the Commission sought public comment on this approach.
One commenter opposes this harmonization approach, and argues that it does not make sense to harmonize with the “looser” rules of SEFs, which he believes would allow “more fraud and false narratives to creep into the market,” and instead advocates that the Commission start from scratch with new rules.
The Commission disagrees with the comment that harmonizing with the CFTC approach would allow for more fraud and false narratives in the SBS markets. Standing up a formal regulatory framework for SBSEFs where none yet exists will provide greater accountability and oversight for the SBS market and should, contrary to this commenter's views, serve to detect and deter abusive and manipulative trading practices by providing for a set of Commission rules that SBSEFs must adhere to in operating their platforms and by requiring SBSEFs to make filings with the Commission regarding the operation of their platforms and to make their rules publicly available, as described in detail in sections II through XVII below.
Given the relative size of the SBS market as compared to the swaps market, the fact that the CFTC's SEF regulation has been in place for many years now, and the cost efficiencies and reduced burdens that would result from harmonized rules for dually registered SEFs/SBSEFs, it is appropriate to generally harmonize the Commission's SBSEF regulatory framework with the CFTC's SEF regulatory framework. At the same time, where appropriate, adopted Regulation SE differs in certain targeted respects from the CFTC's regulatory framework for SEFs. This includes areas where differences in the Commission's statutory authority relative to the CFTC's statutory authority or differences in the SBS market relative to the swaps market necessitate differences between the
As discussed below, the Commission is modifying the proposed provisions of Regulation SE regarding the definition of “block trade,”
Proposed Rule 800 is based on 17 CFR 37.1, which provides that part 37 of the CFTC's regulations applies to every SEF that is registered or applying to become registered as a SEF under section 5h of the CEA. Proposed Rule 800 would provide that the provisions of Regulation SE apply to every SBSEF that is registered or is applying to become registered as an SBSEF under section 3D of the SEA.
The Commission received no comments on Proposed Rule 800 and is adopting Rule 800 as proposed, with minor technical modifications,
Proposed Rule 801 is based on § 37.2 of the CFTC's rules, which provides that a SEF shall comply with the requirements of part 37 and all other applicable CFTC regulations, including 17 CFR 1.60 and part 9, and including any related definitions and cross-referenced sections. Proposed Rule 801 would require an SBSEF to comply with the requirements of Regulation SE and all other applicable Commission rules, including any related definitions and cross-referenced sections.
The Commission did not receive any comments on Proposed Rule 801 and is adopting Rule 801 as proposed, with minor technical modifications.
Proposed Rule 802 would set forth the definitions of terms that are used in multiple rules in proposed Regulation SE. The majority of these terms were adapted from the CFTC's swaps rules. Other terms were taken from section 3 of the SEA
Although the Commission received comments regarding the proper application of the proposed definitions with respect to registration requirements, discussed below in section III.A.2, and the proposed amendments to Rule 3a1-1, discussed below in section X, the Commission did not receive comments suggesting a modification of the definitions themselves. The term “security-based swap execution facility” is defined directly in section 3(a)(77) of the SEA as “a trading system or platform in which multiple participants have the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system. . . ,”
Specifically, it is necessary or appropriate in the public interest, and is consistent with the protection of investors, to exempt a registered clearing agency that utilizes a forced trading functionality for SBS from the definition of “security-based swap execution facility.” Such an entity will continue to be registered as a clearing agency and subject to the requirements of section 17A of the SEA. Furthermore, a registered clearing agency is a self-regulatory organization (“SRO”); therefore, all of its rules—including
Proposed Rule 802 would have defined the term “block trade” to be an SBS transaction that, among other requirements, is an SBS based on a single credit instrument (or issuer of credit instruments) or a narrow-based index of credit instruments (or issuers of credit instruments) having a notional size of $5 million or greater.
Therefore, the Commission is adopting Rule 802 as proposed, except for the definition of “block trade,” which it is reserving, and minor technical modifications.
Section 3D(a)(1) of the SEA
Proposed Rule 803 of Regulation SE is closely modeled on § 37.3 of the CFTC's rules and would set forth a process for registration with the Commission as an SBSEF.
Paragraph (a)(1) of Proposed Rule 803 would track the language of § 37.3(a)(1) closely, and would provide that any person operating a facility that offers a trading system or platform in which more than one market participant has the ability to execute or trade security-based swaps with more than one other market participant on the system or platform shall register the facility as a security-based swap execution facility under this section or as a national securities exchange pursuant to section 6 of the SEA.
Paragraph (a)(2) of Rule 803, like § 37.3(a)(2), would require an SBSEF, at a minimum, to offer an order book, which would be defined in Rule 802 to mean an electronic trading facility, a trading facility, or a trading system or platform in which all market participants in the trading system or platform have the ability to enter multiple bids and offers, observe or receive bids and offers entered by other market participants, and transact on such bids and offers.
Paragraph (a)(3) of Rule 803 is closely modeled on § 37.3(a)(4) and would provide a narrow exception to the requirement to provide an order book for a Required Transaction
Paragraph (b) of Proposed Rule 803 is closely modeled on § 37.3(b) and would set out procedures for full registration of an SBSEF. Paragraph (b)(1), like § 37.3(b)(1), would provide that an applicant requesting registration must file electronically a complete Form SBSEF or any successor forms, and all information and documentation described in such forms with the Commission using the Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system as an Interactive Data File in accordance with Rule 405 of Regulation S-T, and must provide to the Commission, upon the Commission's request, any additional information and documentation necessary to review an application.
Paragraph (b)(2) of Proposed Rule 803, like § 37.3(b)(2), would provide that an applicant requesting registration as an SBSEF must identify with particularity any information in the application that will be subject to a request for confidential treatment pursuant to Rule 24b-2 under the SEA.
Paragraph (b)(3) of Proposed Rule 803 would address amendments to the SBSEF registration application. Like § 37.3(b)(3), Rule 803(b)(3) would provide that an applicant amending a pending application or requesting an amendment to an order of registration shall file an amended application electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. Subsequent to being registered, an SBSEF would be required to submit rule and product filings under Rule 806 or Rule 807, as well as provide other updates as may be required pursuant to other rules for SBSEFs.
Paragraph (b)(4) of Proposed Rule 803 would address the effect of an incomplete application. Like § 37.3(b)(4), Proposed Rule 803(b)(4) would provide that, if an application is incomplete, the Commission shall notify the applicant that its application will not be deemed to have been submitted for purposes of the Commission's review.
Paragraph (b)(5) of Proposed Rule 803 would establish the Commission review period for an application to register as an SBSEF. Proposed Rule 803(b)(5) is closely modeled on § 37.3(b)(5) and would require the Commission to approve or deny an application for registration as an SBSEF within 180 days of the filing of the application. Proposed Rule 803(b)(5) would further provide that, if the Commission notifies the person that its application is materially incomplete and specifies the deficiencies in the application, the running of the 180-day period would be stayed from the time of that notification until the application is resubmitted in completed form. In such a case, the Commission would have not less than 60 days to approve or deny the application from the time the application is resubmitted in completed form.
Paragraph (b)(6)(i) of Proposed Rule 803, like § 37.3(b)(6)(i), would provide that the Commission shall issue an order granting registration upon a Commission determination, in its discretion, that the applicant has demonstrated compliance with the SEA and the Commission's rules applicable to SBSEFs. Paragraph (b)(6)(i) would allow the Commission to issue an order granting registration, subject to conditions. Paragraph (b)(6)(ii) of Proposed Rule 803, modeled on § 37.3(b)(6)(ii), would provide that the Commission may issue an order denying registration upon a Commission determination, in its own discretion, that the applicant has not demonstrated compliance with the SEA and the Commission's rules applicable to SBSEFs. If the Commission denies an application under Rule 803(b)(6)(ii), it would be required to specify the grounds for the denial.
Paragraph (c) of Proposed Rule 803, like § 37.3(d), would address reinstatement of a dormant registration. Proposed Rule 803(c) would provide that a dormant SBSEF
Paragraph (d) of Proposed Rule 803, like § 37.3(e), would set out procedures for an SBSEF to request a transfer of registration. Paragraph (d)(1), which is closely modeled on § 37.3(e)(1), would provide that an SBSEF seeking to transfer its registration from its current legal entity to a new legal entity as a result of a corporate change shall file a request for approval to transfer such registration with the Commission in the form and manner specified by the Commission. Paragraph (d)(2), modeled on § 37.3(e)(2), would provide that a request for transfer of registration shall be filed no later than three months prior to the anticipated corporate change; or in the event that the SBSEF could not have known of the anticipated change three months prior to the anticipated change, as soon as it knows of that change.
Paragraph (d)(3) of Proposed Rule 803, like § 37.3(e)(3), would require an SBSEF's request for a transfer of registration to include the underlying agreement governing the corporate change, a description of the corporate change, a discussion of the transferee's ability to comply with the SEA, the governing documents of the transferee, the transferee's rules marked to show changes from the rules of the SBSEF, and specified representations by the transferee.
Paragraph (d)(4) of Proposed Rule 803, modeled on § 37.3(e)(4), would provide that, upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request.
Paragraph (e) of Proposed Rule 803, like § 37.3(f), would provide that an applicant for registration as an SBSEF may withdraw its application by filing a withdrawal request electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T.
Paragraph (f) of Proposed Rule 803, like § 37.3(g), would provide that an SBSEF may request that its registration be vacated by filing a vacation request electronically with the Commission using the EDGAR system and must be provided as an Interactive Data File in accordance with Rule 405 of Regulation S-T at least 90 days prior to the date that the vacation is requested to take effect.
Two commenters support the proposed SBSEF registration requirements under Rule 803 being modeled on the CFTC's rules and state that, as market participants are familiar with CFTC's requirements, they appreciate the Commission's attempts to minimize registration burdens and expedite the establishment of the SBSEF regime.
One commenter states that the Commission should ensure that all multilateral trading venues for SBS are required to register as an SBSEF, regardless of the specific trading protocol used.
One commenter asks the Commission to “make clear that the SBSEF registration requirement applies only to these types of platforms that are within the statutory and proposed regulatory definition and does not include any broader CFTC staff interpretations purporting to expand the SEF definition.”
The Commission agrees with the comment that the definition of SBSEF applies to multilateral trading facilities regardless of the specific trading protocol used. As the statutory definition of SBSEF makes clear, a trading facility would fall under the definition of SBSEF if it offers “multiple participants the ability to execute or trade security-based swaps by accepting bids and offers made by multiple participants in the facility or system,
It is not necessary to incorporate the guidance in CFTC Staff Letter 21-19 into this release, because the CFTC staff letter in large part refers to fact-specific circumstances that the Commission has yet to encounter since Reg SE is not yet effective and the application of the SBSEF definition depends on the particular facts and circumstances of a platform's structure and operations. For the same reason, it would be premature to reject the possibility of taking a position similar to that of the CFTC guidance with regard to SBSEFs, as one commenter suggested.
Several commenters state that the Commission should use its exemptive authority to provide a streamlined registration process for SBSEFs that are already registered with the CFTC as
One commenter that supports a streamlined SBSEF registration process for SEFs states that a prolonged registration process, particularly for venues already registered with the CFTC, only further delays the introduction of regulated price discovery, liquidity formation, and trade execution for SBS.
Another commenter states that SEFs that are currently registered and in good standing with the CFTC should be permitted to register with the Commission utilizing their current documentation filed pursuant to the requirements of Form SEF.
One commenter, however, stated that “relaxing or eliminating any registration requirements would be highly inappropriate,” and argued that the Commission must be “rigorous in reviewing and approving SBSEFs applicants while upholding complete impartiality.”
In the Proposing Release, the Commission stated that it was considering that, after adopting final rules establishing a registration process for SBSEFs, it could exercise its exemptive authority under section 36(a)(1) of the SEA
While one commenter states that it would be inappropriate to relax or eliminate any SBSEF registration requirements for CFTC-registered SEFs,
For the reasons discussed above, the Commission is adopting Rule 803 as proposed, with minor technical modifications.
The Commission proposed new § 249.2001 to require that entities use Form SBSEF to register with the Commission as an SBSEF. Form SBSEF would also be used for submitting any
Under Rule 803(b)(1), an applicant for SBSEF registration would be required to complete Form SBSEF and provide, upon the Commission's request, any additional necessary information and documentation in order review the application. The determination as to when an application submission is complete would be at the sole discretion of the Commission. The Commission would review Form SBSEF and, at the conclusion of its review, by order either: (i) grant registration; (ii) deny the application for registration; or (iii) grant registration subject to certain conditions. After an applicant is granted registration, any updates or amendments to the information contained in its Form SBSEF by an active SBSEF would be required to be submitted as rules or rule amendments under Rule 806 or Rule 807 or as may be required by other rules in Regulation SE.
One commenter states that the Commission should closely harmonize the rules for SBSEF registration with the CFTC's rules, with the exception of Exhibits D and H of Form SBSEF, which require: (a) a list of all affiliates and a description of any material pending legal proceedings of such affiliates, and (b) the financial statements of the affiliates. This commenter states that the information required by these exhibits is “burdensome and not fit for purpose” and should not be required unless the affiliate provides support services to the SBSEF or the legal proceedings are expected to have a material effect on the applicant or the operation of its proposed SBSEF.
The CFTC adopted rules for the registration and regulation of SEFs in 2013,
However, while the content and exhibits of Form SBSEF closely match the form and content of Form SEF, exhibits to Form SEF are provided to the CFTC as unstructured documents, whereas most exhibits to Form SBSEF will be provided to the Commission as structured, machine-readable documents. Permitting SBSEFs to provide copies of Form SEF exhibits in lieu of Form SBSEF exhibits, while likely resulting in an expedited registration process for most SBSEFs, would also potentially result in a much higher volume of unstructured data, making the Form SBSEF disclosures more difficult for market participants and the Commission to analyze in an efficient manner. Thus, notwithstanding some commenters' support for an expedited registration process, the final rules do not permit SBSEFs to provide copies of Form SEF exhibits in lieu of Form SBSEF exhibits. The Commission is therefore adopting 17 CFR 249.2001 as proposed, but is renumbering it as 17 CFR 249.1701 under new subpart R (“Forms for Registration of, and Filings by, Security-Based Swap Execution Facilities”) and is making a minor technical correction.
Unlike section 19(b) of the SEA,
An appropriate review process is necessary to assess whether changes to an SBSEF's rules and product offerings are consistent with section 3D of the SEA and the Commission's rules thereunder, and the CFTC's filing procedures are an appropriate model on which to base the Commission's own filing procedures. Furthermore, because of the likelihood that most if not all SBSEFs will be dually registered with the CFTC as SEFs, and that many rule changes for a dual registrant will affect both its SBS and swap trading businesses, close harmonization with the CFTC's filing procedures would allow a dual registrant to make a similar filing to each agency, allowing each agency to carry out its oversight functions while minimizing the burdens on dual registrants.
Parts 37 and 40 of the CFTC's rules set out processes whereby SEFs may establish or amend rules and list products. These processes allow a SEF to voluntarily submit a rule, rule amendment, or new product for CFTC review and approval, or to “self-certify” that a rule, rule amendment, or new product meets applicable standards under the CEA and the CFTC's rules thereunder without obtaining CFTC approval, although the CFTC retains the ability, in certain circumstances, to stay the self-certification for further review before it may become effective. Using its general authority to impose any requirement on SBSEFs and to prescribe rules governing the regulation of SBSEFs,
Proposed Rule 804 is modeled on 17 CFR 40.2 of the CFTC's rules and would set forth procedures by which an SBSEF may list a product via certification. Paragraph (a)(1) of Proposed Rule 804 would require an SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T.
Paragraph (a)(2) of Proposed Rule 804 would provide that the Commission must receive the submission by the open of business on the business day that is 10 business days preceding the product's listing.
Paragraph (a)(3) of Proposed Rule 804 would require a self-certification to include a copy of the submission cover sheet;
Paragraph (b) of Proposed Rule 804, modeled on § 40.2(b), would provide that, if requested by Commission staff, an SBSEF shall provide any additional evidence, information, or data that demonstrates that the SBS meets, initially or on a continuing basis, the requirements of the SEA or the Commission's rules or policies thereunder.
Paragraph (c)(1) of Proposed Rule 804 would provide that the Commission may stay the certification of a new product by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that the product presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission's rules thereunder.
Paragraph (c)(2) would require the Commission to provide a 30-day comment period during that 90-day period, and to publish a notice of the 30-day comment period on the Commission's website. Comments from the public could be submitted as specified in that notice.
Paragraph (c)(3) would provide that the product that had been stayed would become effective, pursuant to the certification, at the expiration of the 90-day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day time period that it objects to the proposed certification on the grounds that the proposed product is inconsistent with the SEA or the Commission's rules.
One commenter states that, while the proposed self-certification process does include improvements to the CFTC's self-certification process, including extending the initial review period from one business day to 10 business days and expanding the scope of reasons for staying the self-certification, it is still fundamentally flawed. This commenter states that the CFTC's self-certification process is mandated by statute and that, in the absence of any statutory mandate analogous to that applicable to the CFTC, the Commission must, at the very least, provide a coherent policy justification for its proposed self-certification process.
This commenter states that it is not clear why it is necessary or desirable for SBSEFs to be able to bring new products to the market “speedily” and that self-certification turns the regulatory process on its head, creating in effect a presumption of regulatory compliance and putting the onus on the agency, under a predetermined timeline, to fully evaluate a proposed product that may threaten significant harm to investors and market stability.
For several reasons the Commission does not agree with the objections raised by this commenter.
Two commenters state that the relatively low volume of SBS products expected to be self-certified supports a shorter review period than the proposed ten-business-day Commission review period.
While a ten-day review period differs from the CFTC's one-day review period, one business day would not provide the SEC staff sufficient time to review a new product filing for error or incompleteness, let alone review a new product for compliance with the SEA or Regulation SE. Further, if a product does warrant a stay, the Commission would also need sufficient time to go through the administrative steps of formally issuing the stay.
Further, while a shorter review period may allow SBS to trade on an SBSEF more quickly, failing to provide the Commission with a meaningful period for review of a new product would hamper the Commission's ability to protect market participants and maintain fair, orderly, and efficient SBS markets. A ten-day review period would still permit market participants to trade SBS on regulated platforms within a “reasonable period” and would provide the Commission the time it needs to review submissions. The Commission also disagrees with the comment that a shorter review period is necessary to accommodate market participants' need to hedge risk in a timely manner. During the relatively brief and time-limited period for Commission review of an SBSEF new-product filings, market participants would remain able to hedge that risk in other ways, such as in the OTC SBS market or other related securities markets, depending on the risk to be managed. Finally, while the 10-day review period might reduce the first-to-market competitive advantage of an SBSEF that first lists a given SBS,
Thus, a ten-business-day review period strikes an appropriate balance between allowing SBSEFs to list new products quickly and affording Commission staff a sufficient time period in which to assess those products prior to listing.
One commenter asks the Commission to confirm that it does not expect SBSEFs to self-certify for every security for which there may exist a related SBS.
The Commission is conscious of the large number of individual SBS that may constitute a “class” of SBS, such as single-name, total return SBS given as an example by the commenter. While an SBSEF should not necessarily be required to make an individual filing for each of the securities underlying a single such class of SBS, a filing for a simple class certification that merely described the parameters of the SBS covered by the certification would not necessarily provide sufficient information for the Commission to determine whether all the potential products covered by the class are consistent with the SEA and the rules thereunder, including Regulation SE. Therefore, while the Commission is not providing for “class certifications” of SBS, the Commission will not necessarily require separate submissions for each underlying security.
Accordingly, for the reasons discussed above, the Commission is adopting Rule 804 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications.
Proposed Rule 805 is closely modeled on § 40.3 of the CFTC's rules and would set forth procedures by which an SBSEF may voluntarily submit new SBS products for Commission review and approval.
Paragraph (a) of Proposed Rule 805 would adapt these requirements for SBSEFs.
Furthermore, paragraph (a) of Proposed Rule 805, modeled on § 40.3(a), would require the SBSEF to include, if requested by Commission staff, additional evidence, information, or data demonstrating that the SBS meets, initially or on a continuing basis, the requirements of the SEA, or other requirement for registration under the SEA, or the Commission's rules or policies thereunder. The SBSEF would be required to submit the requested information by the open of business on the date that is two business days from the date of request by Commission staff, or at the conclusion of such extended period agreed to by Commission staff after timely receipt of a written request from the SBSEF. Paragraph (a) of Proposed Rule 805, like § 40.3(a), would permit the submitting SBSEF to include a request for confidential treatment.
Paragraph (b) of Proposed Rule 805, like § 40.3(b), would provide that the Commission shall approve a new product unless the terms and conditions of the product violate the SEA or the Commission's rules thereunder.
Paragraph (c) of Proposed Rule 805, modeled on § 40.3(c), would provide that a product submitted for Commission approval under Rule 805 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of an extended period as provided under Rule 805(d), unless notified otherwise within the applicable period, if the submission complies with the requirements of Rule 805(a) and the SBSEF does not amend the terms or conditions of the product or supplement the request for approval, except as requested by the Commission or for correction of typographical errors, renumbering, or other non-substantive revisions, during that period. Paragraph (c) would also provide that any voluntary, substantive amendment by the SBSEF would be treated as a new submission under Rule 805.
Paragraph (d) of Proposed Rule 805, modeled on § 40.3(d), would provide that the Commission may extend the 45-day review period in paragraph (c) for an additional 45 days, if the product raises novel or complex issues that require additional time to analyze, in which case the Commission shall notify the SBSEF within the initial 45-day review period and briefly describe the nature of the specific issue(s) for which additional time for review is required. Paragraph (d) would also provide that the Commission may extend the 45-day review period for any length of time to which the SBSEF agrees in writing.
Paragraph (e) of Proposed Rule 805 would provide that the Commission may, at any time during its review, notify the SBSEF that it will not, or is unable to, approve the product. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or the Commission's rules thereunder, including the form or content requirements of Rule 805(a), that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission.
Paragraph (f) of Proposed Rule 805, like § 40.3(f), would provide that a notification of the Commission's determination not to approve a product does not prejudice the SBSEF from subsequently submitting a revised version of the product for Commission approval, or from submitting the product as initially proposed pursuant to a supplemented submission. Furthermore, the notification would be presumptive evidence that the entity may not truthfully certify under Rule 804 that the same, or substantially the same, product does not violate the SEA or the Commission's rules thereunder.
The Commission did not receive any comments on this proposed rule. It is reasonable and appropriate to supplement the product certification procedures in Rule 804 by also including in Regulation SE, as Rule 805, procedures for voluntary submission of new products for Commission review and approval. Providing this approval process, as the CFTC does, can be valuable to an SBSEF seeking the Commission's concurrence that a new product does not violate the SEA or the Commission's rules thereunder prior to listing it. The CFTC's procedures in this regard are well articulated and well understood by SEFs, and that closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs.
Proposed Rule 806 is closely modeled on § 40.5 of the CFTC's rules and would set forth procedures by which an SBSEF may voluntarily submit rules, rule amendments, or dormant rules for Commission review and approval.
Paragraph (a) of Proposed Rule 806 would provide that an SBSEF may request that the Commission approve a new rule, rule amendment, or dormant rule prior to implementation of the rule. First, an SBSEF must file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. The filing would be required to include a copy of the submission cover sheet and to set forth the text of the rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated). Further, the SBSEF would be required to describe the proposed effective date of the rule or rule amendment and any action taken or anticipated to be taken to adopt the proposed rule by the SBSEF or by its governing board or by any committee
Additionally, if a proposed rule affects, directly or indirectly, the application of any other rule of the SBSEF, the pertinent text of any such rule would be required to be set forth and the anticipated effect described. The SBSEF would also be required to provide a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants that were not incorporated into the rule, or a statement that no such opposing views were expressed.
The SBSEF could, as appropriate, include a request for confidential treatment as permitted under SEA Rule 24b-2. Finally, the SBSEF would be required to certify that it posted a notice of the pending rule with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website.
Paragraph (b) of Proposed Rule 806, modeled on § 40.5(b), would provide that the Commission shall approve a new rule or rule amendment unless the rule or rule amendment is inconsistent with the SEA or the Commission's rules thereunder. Paragraph (c) of Proposed Rule 806, like § 40.5(c), would provide that a rule or rule amendment submitted for Commission approval under Rule 806 shall be deemed approved by the Commission 45 days after receipt by the Commission, or at the conclusion of such extended period as provided under paragraph (d) of this section, unless the SBSEF is notified otherwise within the applicable period, if the submission complies with the requirements of Rule 806(a) and the SBSEF does not amend the proposed rule or supplement the submission, except as requested by the Commission, during the pendency of the review period, other than for correction of typographical errors, renumbering, or other non-substantive revisions. Paragraph (c) would also provide that any amendment or supplementation not requested by the Commission would be treated as the submission of a new filing under Rule 806.
Paragraph (d) of Proposed Rule 806, modeled on § 40.5(d), would provide that the Commission may further extend the review period in paragraph (c) for an additional 45 days, if the proposed rule or rule amendment raises novel or complex issues that require additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not respond completely to Commission questions in a timely manner, in which case the Commission shall notify the submitting SBSEF within the initial 45-day review period and shall briefly describe the nature of the specific issues for which additional time for review shall be required. Paragraph (d) would also allow an extension to which the SBSEF agrees in writing.
Paragraph (e) of Proposed Rule 806, like § 40.5(e), would provide that, at any time during its review, the Commission may notify the SBSEF that it will not, or is unable to, approve the new rule or rule amendment. This notification would have to briefly specify the nature of the issues raised and the specific provision of the SEA or the Commission's rules thereunder, including the form or content requirements of Proposed Rule 806, with which the new rule or rule amendment is inconsistent or appears to be inconsistent with the SEA or the Commission's rules thereunder.
Paragraph (f) of Proposed Rule 806, like § 40.5(f), would provide that such a notification to an SBSEF would not prevent the SBSEF from subsequently submitting a revised version of the proposed rule or rule amendment for Commission review and approval or from submitting the new rule or rule amendment as initially proposed in a supplemented submission. Paragraph (f) would further provide that the revised submission would be reviewed without prejudice. Finally, paragraph (f) would provide that such a notification to an SBSEF of the Commission's determination not to approve a proposed rule or rule amendment shall be presumptive evidence that the SBSEF may not truthfully certify the same, or substantially the same, proposed rule or rule amendment under Rule 807(a).
Paragraph (g) of Proposed Rule 806, like § 40.5(g), would provide that, notwithstanding Rule 806(c), changes to a proposed rule or a rule amendment, including changes to terms and conditions of a product that are consistent with the SEA and the Commission's rules thereunder, may be approved by the Commission at such time and under such conditions as the Commission shall specify in the written notification; provided, however, that the Commission may, at any time, alter or revoke the applicability of such a notice to any particular product or rule amendment.
The Commission received no comments on Proposed Rule 806 and the Commission is adopting Rule 806 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications, for the reasons stated in the Proposing Release.
Proposed Rule 807 is closely modeled on § 40.6 of the CFTC's rules and would set forth procedures by which an SBSEF may self-certify changes to its rules. Paragraph (a) of Proposed Rule 807, modeled on § 40.6(a), would set forth the conditions that an SBSEF must comply with before implementing a rule or rule amendment via self-certification. Like § 40.6(a), Proposed Rule 807(a) would permit an SBSEF to implement a rule or rule amendment without obtaining the Commission's prior approval under Rule 806, but only if it “self-certifies” the rule or rule amendment in compliance with the conditions set forth in Rule 807. Proposed Rule 807(a) would also permit an SBSEF to self-certify a rule or rule amendment that the Commission had previously approved under Rule 806, or that the SBSEF had previously self-certified under Rule 807, but that in the interim had become a dormant rule (
Paragraph (a)(1) of Proposed Rule 807 would require the SBSEF to file its submission electronically with the Commission using the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T. Paragraph (a)(2) would require the SBSEF to provide a certification that the SBSEF posted a notice of the self-certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the SBSEF's website.
Paragraph (a)(5) of Proposed Rule 807 would set out procedures for emergency rule certifications. Paragraph (a)(5)(i) would require a new rule or rule amendment that establishes standards for responding to an emergency
Paragraph (a)(6) of Proposed Rule 807, modeled on § 40.6(a)(7), would set out the required elements for a rule submission under Rule 807. These requirements would include a copy of the submission cover sheet (in the case of a rule or rule amendment that responds to an emergency, “Emergency Rule Certification” should be noted in the description section of the submission cover sheet); the text of the rule (in the case of a rule amendment, deletions and additions must be indicated); the date of intended implementation; a certification by the SBSEF that the rule complies with the SEA and the Commission's rules thereunder; a concise explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the SEA, including the Core Principles relating to SBSEFs and the Commission's rules thereunder; and a brief explanation of any substantive opposing views expressed to the SBSEF by governing board or committee members, members of the SBSEF, or market participants, that were not incorporated into the rule, or a statement that no such opposing views were expressed. Paragraph (a)(6)(vii) would also permit the SBSEF to include, as appropriate, a request for confidential treatment pursuant to the procedures provided in Rule 240.24b-2.
Paragraph (a)(7) of Proposed Rule 807, like § 40.6(a)(8), would require an SBSEF to provide, if requested by Commission staff, additional evidence, information, or data that may be beneficial to the Commission in conducting a due diligence assessment of the filing and the SBSEF's compliance with any of the requirements of the SEA or the Commission's rules or policies thereunder.
Paragraph (b) of Proposed Rule 807, modeled on § 40.6(b), would provide the Commission 10 business days to review the new rule or rule amendment before it is deemed certified and can be made effective, unless the Commission notifies the SBSEF during that ten-business-day review period that it intends to issue a stay of the certification under Rule 807(c).
Paragraph (c)(1) of Proposed Rule 807, modeled on § 40.6(c)(1), would provide that the Commission may stay the certification of a new rule or rule amendment by issuing a notification informing the SBSEF that the Commission is staying the certification on the grounds that it presents novel or complex issues that require additional time to analyze, is accompanied by an inadequate explanation, or is potentially inconsistent with the SEA or the Commission's rules thereunder. In addition, paragraph (c)(1) affords the Commission an additional 90 days from the date of the notification to conduct the review.
Paragraph (c)(2) of Proposed Rule 807, modeled on § 40.6(c)(2), would require the Commission to provide a 30-day comment period within the 90-day period in which the stay is in effect. The Commission would be required to publish a notice of the 30-day comment period on the Commission's internet website, and comments from the public could be submitted as specified in that notice.
Paragraph (c)(3) of Proposed Rule 807, modeled on § 40.6(c)(3), would provide that the new rule or rule amendment subject to the stay shall become effective, pursuant to the certification, at the expiration of the 90-day review period, unless the Commission withdraws the stay prior to that time, or the Commission notifies the SBSEF during the 90-day period that it objects to the proposed certification on the grounds that the proposed rule or rule amendment is inconsistent with the SEA or the Commission's rules thereunder.
Paragraph (d) of Proposed Rule 807, modeled on § 40.6(d), would provide that certain kinds of rules or rule amendments may be put into effect by an SBSEF without certification to the Commission if similar enumerated conditions are met. Some would be subject to a Weekly Notification of Rule Amendments, which is closely modeled on the CFTC notification; others would not be subject to any notification requirement.
Under paragraph (d)(2) of Proposed Rule 807, the following types of rules could be put into effect by an SBSEF without self-certification, so long as they are disclosed on the Weekly Notification of Rule Amendments:
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Under paragraph (d)(3)(ii) of Rule 807, the following types of rules can be put into effect by an SBSEF without self-certification and without having to be disclosed on the Weekly Notification of Rule Amendments:
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One commenter states that the CFTC's self-certification process has been relied upon by CFTC registrants for most submissions, leaving little that is reviewed or capable of challenge by market participants or the CFTC unless it is inconsistent with the statute or CFTC regulation.
Regulation SE will afford the Commission a sufficient mechanism to assess new SBSEF rules and rule amendments for consistency with section 3D of the SEA, while also permitting SBSEFs to submit new rules and rule amendments using a self-certification process closely aligned with § 40.6. The CFTC's procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. It is likely that certain rules of dually registered SEF/SBSEFs will apply to member behavior generally—and not to one product market (
The specified types of SBSEF rules or rule amendments that may be put into effect under Rule 807(d) without certification to the Commission are appropriate because they are limited to the types of rule changes described earlier in this section (
Thus, it is not necessary to require SBSEFs to make a substantially different type of filing to the SEC than to the CFTC for the same underlying rule. For the reasons discussed above, the Commission is adopting Rule 807 as proposed, with the exception of the proposed Inline XBRL and EDGAR filing requirements, and with minor technical modifications.
In proposed new § 249.2002, the Commission proposed to require that an SBSEF use a submission cover sheet in conjunction with filings submitted pursuant to Rules 804 through 807, 809, and 816. The cover sheet and the instructions therein are modeled on the cover sheet and instructions used by SEFs in conjunction with their analogous filings with the CFTC.
The same cover sheet and instructions would be used for a new rule, rule amendment, or new product filing, with the SBSEF checking the appropriate box to indicate which of these types the filing represents. The SBSEF would also be required to check boxes to indicate whether the submission was seeking approval by the Commission or whether it was being filed as a certification by the SBSEF; and to identify the specific provision in the Commission's rules pursuant to which the filing was being submitted. The submission cover sheet also includes a box that the SBSEF would check if it intends to submit a request for a joint interpretation from the Commission and the CFTC regarding whether the product is a swap, an SBS, or mixed swap pursuant to SEA Rule 3a68-2.
The cover sheet divides the rule and rule amendment filings into two categories: one for general rules of the SBSEF and the other for rules relating to the terms and conditions of a product. Additional boxes would need to be checked if a filing under the terms-and-conditions category concerned specifically a determination by the SBSEF that a particular SBS was now to be considered “made available to trade” (or “MAT”);
Paragraph (a) of the submission cover sheet instructions provides that a properly completed submission cover sheet must accompany all rule and product submissions filed electronically with the Commission by an SBSEF using the Electronic Form Filing System (EFFS).
Paragraph (b) of the submission cover sheet instructions states that a submission must comply with all applicable filing requirements for proposed rules, rule amendments, or products, and that the filing of the submission cover sheet does not obviate the SBSEF's responsibility to comply with applicable filing requirements.
Paragraph (c) of the submission cover sheet states that checking the box marked “confidential treatment requested” does not obviate the submitter's responsibility to comply with all applicable requirements for requesting confidential treatment under SEA Rule 24b-2 and does not substitute for notice or full compliance with such requirements.
One commenter states that the submission cover sheet and instructions for SBSEF filings should harmonize with those of the CFTC.
The Commission agrees that the use of a submission cover sheet that is harmonized with that required for CFTC filings by SEFs is likely to facilitate the filing process for SBSEFs that are also registered as SEFs. For this reason, the proposed submission coversheet is harmonized with the CFTC's, with differences only in the details specific to the rules and processes of the SEC. The Commission contemplates providing for electronic completion (as well as submission) of the cover sheet and attachment of the submissions required by Rules 804, 805, 806, 807, and 809, and intends to advise affected persons regarding its use by public announcement in advance of the effective date of these rules.
For the reasons discussed above, the Commission is adopting 17 CFR 249.2002 as proposed, but is renumbering it as 17 CFR 249.1702 under new subpart R (“Forms for Registration of, and Filings by, Security-Based Swap Execution Facilities”), and is also adopting the submission cover sheet and instructions as proposed with the exception of the proposed Inline
Proposed Rule 808 is closely modeled on § 40.8 of the CFTC's rules.
Paragraph (b) of Proposed Rule 808, adapted from § 40.8(c), would provide that the Commission shall make publicly available on its website, unless confidential treatment is obtained pursuant to SEA Rule 24b-2,
The Commission received one comment on Proposed Rule 808. This commenter states that the Commission should not allow requests for confidential treatment and that these requests are currently abused and result in little information being made available to the public.
Section 718 of the Dodd-Frank Act, entitled “Determining Status of Novel Derivative Products,” sets forth a mechanism for addressing a situation in which a person wishes to list or trade a novel derivative product that may have elements of both securities and contracts of sale of a commodity for future delivery (or options on such contracts or options on commodities)—
As described in the Proposing Release, Proposed Rule 809 is loosely modeled on § 40.12, but modified to focus on the products and jurisdictional issues that are more likely to be relevant to SBSEFs.
The Commission did not receive any comments on Proposed Rule 809. While section 718 of the Dodd-Frank Act addresses situations where it is unclear whether a product is a security or a future, the SEC and the CFTC have adopted separate rules—SEA Rule 3a68-2 and 17 CFR 1.8, respectively—governing requests for interpretation regarding a product that might be an SBS, a swap, or a mixed swap. It is appropriate for Regulation SE to include a mechanism for the staying or tolling of a filing by an SBSEF when it is unclear whether the product is a swap or an SBS, and it would be appropriate for Rule 809 to reflect the process set forth in SEA Rule 3a68-2. Tailoring, as proposed, the scope of Rule 809, in relation to § 40.12, appropriately addresses the jurisdictional questions that are likely to arise from a product listed by an SBSEF.
Proposed Rule 810 is closely modeled on § 37.4 of the CFTC's rules and would provide a process whereby a not-yet-registered SBSEF or a dormant SBSEF could submit product filings. Specifically, Proposed Rule 810 would provide that an applicant for registration as an SBSEF may submit an SBS's terms and conditions prior to listing the product as part of its application for registration and that any such terms and conditions or rules submitted as part of an SBSEF's application for registration shall be considered for approval by the Commission at the time the Commission issues the SBSEF's order of registration. Similarly, any SBS terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant SBSEF would be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant SBSEF.
The Commission did not receive any comments on Proposed Rule 810 and is adopting Rule 810 as proposed, for the reasons stated in the Proposing Release.
Sections 37.5 to 37.12 of the CFTC's rules impose miscellaneous requirements on SEFs, and the Commission proposed to impose similar requirements on SBSEFs in Rules 811 to 817 of Regulation SE.
Paragraphs (a) to (c) of Proposed Rule 811 are modeled on § 37.5, which is entitled “Information regarding swap execution facility compliance.” Paragraph (a) of Proposed Rule 811 is closely modeled on § 37.5(a) and would provide that, upon the Commission's request, an SBSEF shall file with the Commission information related to its business as an SBSEF in the form and manner, and within the timeframe, specified by the Commission. Paragraph (b) is closely modeled on § 37.5(b) and would provide that, upon the Commission's request, an SBSEF shall file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with one or more Core Principles or with its other obligations under the SEA or the Commission's rules thereunder, as the Commission specifies in its request. Also, under Proposed Rule 811(b), the SBSEF would be required to file such written demonstration in the form and manner, and within the timeframe, specified by the Commission.
Paragraph (c)(1) of Proposed Rule 811 is closely modeled on § 37.5(c)(1) and would provide that an SBSEF shall file with the Commission a notification of any transaction involving the direct or indirect transfer of 50% or more of the equity interest in the SBSEF. Also, under Proposed Rule 811(c)(1), the Commission could, upon receiving such a notification, request supporting documentation of the transaction. Paragraph (c)(2) is closely modeled on § 37.5(c)(2) and would provide that the equity interest transfer notice shall be filed with the Commission in a form and manner specified by the Commission at the earliest possible time, but in no event later than the open of business 10 business days following the date upon which the SBSEF enters into a firm obligation to transfer the equity Interest. Paragraph (c)(3) is closely modeled on § 37.5(c)(3) and would provide that, notwithstanding the foregoing, if any aspect of an equity interest transfer requires an SBSEF to file a rule, the SBSEF shall comply with the applicable rule filing requirements of Rule 806 or Rule 807.
Paragraph (c)(4) of Proposed Rule 811 is closely modeled on § 37.5(c)(4) and would provide that, upon a transfer of an equity interest of 50% or more in an SBSEF, the SBSEF shall file with the Commission, in a form and manner specified by the Commission, a certification that the SBSEF meets all of the requirements of section 3D of the SEA and the Commission rules thereunder, no later than two business days following the date on which the equity interest of 50% or more was acquired.
The Commission did not receive any comments on Rule 811(a) to (c). It is appropriate for Regulation SE to include provisions requiring an SBSEF to provide the Commission with the information described above. Information about an SBSEF's business as an SBSEF and transfers of 50% or more of its equity would promote understanding of its operations and ownership, which should facilitate oversight of the SBSEF. Therefore, the Commission is clarifying, as proposed, that, similar to the CFTC, it may request such information from an SBSEF. In addition, as anticipated in the Proposing Release, should questions about compliance arise, the Commission should be able to obtain from an SBSEF supporting data, information, and documents that the SBSEF is in compliance with relevant obligations under the SEA, and the rule provides for this. By modeling its proposed requirements on existing CFTC rules, the Commission seeks to obtain comparable regulatory benefits while imposing only marginal additional burdens on dually registered entities that are already subject to similar obligations.
The Commission is changing the phrase “a transfer of an equity interest of 50 percent or more in a security-based swap execution facility” in paragraph (c)(4) to “an equity transfer described in paragraph (c)(1) of this section” because the text of paragraph (c)(4) should be modified to parallel the text of paragraphs (c)(2) and (c)(3). For these reasons, the Commission is adopting Rule 811(a) to (c) as proposed, with the change described to paragraph (c)(4).
Paragraph (d) of Proposed Rule 811 is not modeled on § 37.5, but rather on § 1.60 of the CFTC's rules, which is entitled “Pending legal proceedings.” Because it is conceptually similar to § 37.5 in that it would require another type of information relevant to the regulatory oversight of a SEF, the Commission proposed to adapt this provision into Rule 811.
Paragraph (d)(1) of Proposed Rule 811 is closely modeled on § 1.60(a) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the SBSEF is a party or to which its property or assets are subject. Paragraph (d)(2) is closely modeled on § 1.60(c) and would provide that an SBSEF shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the SBSEF from conduct in such person's capacity as an official of the SBSEF and alleging violations of the SEA or any rule, regulation, or order thereunder; the
Paragraph (d)(3) of Proposed Rule 811 is loosely modeled on § 1.60(e) and would provide that documents required by Rule 811(d) to be submitted to the Commission shall be submitted electronically in a form and manner specified by the Commission within 10 days after the initiation of the legal proceedings to which they relate, after the date of issuance, or after receipt by the SBSEF of the notice of appeal, as the case may be.
Paragraph (d)(4) of Proposed Rule 811 is closely modeled on the final two sentences of § 1.60(e) and would provide that, for purposes of Rule 811(d), a “material legal proceeding” includes but is not limited to actions involving alleged violations of the SEA or the Commission rules thereunder, and that a legal proceeding is not “material” for the purposes of Rule 811 if the proceeding is not in a Federal or State court or if the Commission is a party.
The Commission did not receive any comments on Proposed Rule 811(d) and is adopting Rule 811(d) as proposed, for the reasons stated in the Proposing Release.
Proposed Rule 812 generally is modeled on § 37.6. Paragraph (a) of Rule 812, which is based on § 37.6(a)(1), and would provide that a transaction on or pursuant to the rules of an SBSEF cannot be invalidated as a result of a violation by the SBSEF of section 3D of the SEA or the Commission's rules thereunder.
Paragraph (b) of Proposed Rule 812 is modeled on the first sentence of § 37.6(b), which requires a SEF to provide each counterparty to a transaction that is entered into on or pursuant to the rules of the SEF with a written record of all of the terms of the transaction which shall legally supersede any previous agreement.
One commenter agrees that Rule 812 should be modeled on § 37.6 and states that, like § 37.6, Rule 812 should require the SBSEF to confirm “all the terms of the transaction,” rather than being limited, as proposed, to “all of the terms that were agreed to on the facility.”
Another commenter, however, states that it is not practical or cost effective for an SBSEF to collect, review, and store each free-standing agreement underlying an SBS transaction entered into between numerous counterparties.
It is appropriate to require an SBSEF to inform counterparties as soon as technologically practicable after they have effected a trade on or pursuant to the rules of the SBSEF, and to provide them with a written record of the terms to which they have agreed to on the SBSEF. With respect to uncleared SBS, it would be impractical for an SBSEF to be aware of, or responsible for, confirming terms of an SBS that were agreed to off the SBSEF's trading platform, such as terms contained in a credit support agreement between the two counterparties to an uncleared SBS. Thus, the Commission is not including in Rule 812 a requirement that the SBSEF provide a written record of any such terms.
In response to the comment that Proposed Rule 812 may cause issues with clearing because the rule requires SBSEFs to confirm only the terms of an SBS transaction “that were agreed to on the facility,” additional terms in trading relationship documents or enablements are unlikely to hinder the acceptance by a clearing agency of SBS that are intended to be cleared or might inhibit impartial access to trading of cleared SBS on an SBSEF. First, a cleared SBS would be a standardized product, the complete terms of which would be known to the SBSEF, agreed to by the counterparties trading that SBS on the SBSEF, and capable of being confirmed to the parties in writing by the SBSEF, as well as represented to the clearing agency by the SBSEF as “final and irrevocable.” Thus, all the terms of the cleared transaction are confirmed when executed on the SBSEF. And second, Proposed Rule 819(c) would require that an SBSEF provide impartial access to its market and market services,
Therefore, for the foregoing reasons, the Commission is adopting Rule 812 as proposed.
Proposed Rule 813 is modeled on § 37.7, and would provide that an SBSEF shall not use, for business or marketing purposes, any proprietary data or personal information that it collects or receives from or on behalf of any person for the purpose of fulfilling its regulatory obligations. An SBSEF would be able to use such data or information for business or marketing purposes if the person consents, but the SBSEF would not be able to condition access to the SBSEF on the person's providing such consent. Finally, Proposed Rule 813 would provide that an SBSEF, where necessary for regulatory purposes, may share such data or information with another SBSEF or a national securities exchange.
The Commission did not receive any comments on Proposed Rule 813 and is adopting Rule 813 as proposed, for the reasons stated in the Proposing Release.
Proposed Rule 814 is modeled on § 37.8. Paragraph (a) of Proposed Rule 814 would provide that an entity intending to operate both a national securities exchange and an SBSEF shall separately register the two facilities pursuant to section 6 of the SEA and Rule 803 under the SEA. Paragraph (b), although consistent with § 37.8(b), draws its specific language from section 3D(c) of the SEA,
Two commenters state that the key requirements applicable to SBSEFs should also apply to SBS exchanges to create a level regulatory environment and avoid encouraging regulatory arbitrage.
The comment suggesting that requirements for SBSEFs should be applied to SBS exchanges is outside the scope of this rulemaking, which is designed to set forth requirements for SBSEFs, not exchanges.
Additionally, more detailed rules are not necessary to separate the roles of an entity operating both an SBSEF and an SBS exchange. Each entity would be required to make rule or new product submissions to the Commission under a separate set of rules—Rules 804 to 807 for SBSEFs, and Rule 19b-4 for national securities exchanges—making it clear which rules will apply on which platform. Also, Rule 814(b)—which requires that a national securities exchange that also operates an SBSEF identify the platform on which an SBS transaction occurs—will provide further clarity to the market about the roles of an entity operating both an SBSEF and an SBS exchange. Further, the ability of an entity to operate both an SBSEF and an SBS exchange is unlikely to lead to the aggregation of power in the financial markets, because allowing for a variety of SBS trading platforms and ownership models should promote competition in the market for SBS trading.
It is appropriate for proposed Regulation SE to include a rule that clarifies the registration status of an entity that operates both an exchange and an SBSEF, and that broadly parallels § 37.8. Therefore, for the reasons discussed above, the Commission is adopting Rule 814 as proposed.
The Dodd-Frank Act provides that if the Commission makes a mandatory clearing determination regarding an SBS, such SBS becomes subject to mandatory trade execution if at least one exchange or SBSEF makes the product “available to trade.”
Proposed Rule 815(a)(2) would require that, except for block trades or the exceptions described in paragraph (d) or (e) of the rule and discussed below,
Proposed Rule 815(a)(3) would define an RFQ system as “a trading system or platform in which a market participant transmits a request for a quote to buy or sell a specific instrument to no less than three market participants in the trading system or platform, to which all such market participants may respond” and would specify other requirements for an RFQ system to be recognized as such under the rule. The three market participants to which the RFQ is addressed could not be affiliates of or controlled by the requester and cannot be affiliates of or controlled by each other. The proposed rule would also provide that an SBSEF that offers an RFQ system in connection with a Required Transaction must have the following functionalities: (i) at the same time that the requester receives the first responsive bid or offer, the SBSEF must communicate to the requester any firm bid or offer pertaining to the same SBS resting on any of the SBSEF's order books; (ii) the SBSEF must provide the requester with the ability to execute against those firm resting bids or offers along with any responsive orders; and (iii) the SBSEF must ensure that its trading protocols provide each of its members with equal priority in receiving requests for quotes and in transmitting and displaying for execution responsive orders. The requirements of Proposed Rule 815(a)(3) are referred to as the “RFQ-to-3 requirement.”
The Commission received comments on the proposed RFQ-to-3 requirement in Proposed Rule 815(a)(3).
Stating that an RFQ-to-3 requirement for Required Transactions that are SBSs means something completely different than for swaps, this commenter urges the Commission to consider a lower RFQ threshold given the nature of the SBS market. This commenter states that, in some cases, for an asset manager to seek three quotes would effectively require the asset manager to contact many of the primary price makers in the SBS market, as there simply are not the same number of liquidity providers, particularly for less liquid, more thinly traded SBSs, as the number of participants, the trading volume, and the depth of market liquidity are very different in the SBS market. The commenter suggests that requesting quotes from two participants, for example, would allow the asset manager to retain some control over the information disseminated about its interest to the market while preserving the statute's “multiple to multiple” definition requirement.
Another commenter also urges the Commission to consider an alternative approach to the proposed RFQ-to-3 requirement, and to provide a “phased-in compliance” with the required methods of execution, whereby a MAT SBS product may be executed on an SBSEF via any method of execution until such time as it is determined through notice and comment that an appropriate level of liquidity exists to enable an order book or RFQ-to-3 system.
This commenter further argues that an RFQ-to-3 requirement would be problematic for SBS equities, where the current execution processes are very different from their swaps counterpart. The commenter states that clients in SBSs typically ask their preferred dealer to execute shares in SBS at market price (or some other pricing structure), the dealer then purchases the shares directly for hedging purposes, and the dealer then executes the swap at the end of the day with the client at an average market price.
While the Commission acknowledges that there are differences between the liquidity in the SBS market and the
Further, to make an SBS “available to trade,” an SBSEF would, under Proposed Rule 816(a)(1),
Additionally, most, if not all, SBSEFs are likely to be dually registered with the CFTC as SEFs, and that most, if not all, market participants in the SBS market will be participants in the swaps market. The Commission remains concerned that different or additive requirements—particularly for the key concept of a “Required Transaction”—could introduce complexity and confusion if one set of trading protocols applied to Required Transactions for swaps but different protocols—different from ones that have been understood and utilized for many years—applied to Required Transactions for SBS transactions.
Thus, it is not appropriate to modify the requirement that a qualifying RFQ system under Proposed Rule 815(c) transmit a request for a quote to no fewer than three market participants in the trading system or platform. The question whether sufficient liquidity exists in the market for a given SBS to trade RFQ-to-3 can be addressed when the SBS is subject to the clearing mandate and when a national securities exchange or SBSEF seeks to make that SBS available to trade. Until that time, SBSs would be Permitted Transactions on SBSEFs and thus could be traded using other methods of execution, thus avoiding any potential disruptions to liquidity in the SBS markets.
The Commission also received two comment letters on the functionalities required for RFQ systems under Proposed Rule 815(a)(3).
This commenter also suggests that the proposed rule should be modified to ensure that the RFQ requester has the ability to execute against all of the prices provided in connection with an RFQ on the same screen. The commenter argues that this will prevent an SBSEF from requiring the RFQ requester to click through multiple screens in order to execute against firm prices, which, the commenter argues, serves to disadvantage those prices versus other prices provided in response to an RFQ.
The other commenter also urges the Commission to modify the requirement to ensure that the SBSEF communicates to the requester any firm prices available on the SBSEF, in addition to resting firm bids or quotes on the SBSEFs order book(s), and that they make this functionality available for Permitted Transactions as well.
As previously noted, given that most if not all SBSEFs will be dually registered as SEFs, there is a public interest in harmonizing its requirements for trading protocols with those of the CFTC.
Under both the CEA and SEA, Core Principle 2 requires a SEF/SBSEF to specify trading procedures to be used in entering and executing orders on the facility, including block trades.
Thus, the Commission's proposal to include an exception from the required methods of execution for block trades in Regulation SE is consistent with the approach taken by the CFTC. The purpose of having a block-trade exception to the required methods of execution is to balance the promotion of price competition and all-to-all trading against the potential costs to market participants who wish to trade large orders. Forcing a market participant who seeks liquidity to expose a large order to an order book or to utilize RFQ-to-3 could cause the market to move against the liquidity requester before it can obtain an execution. Under the CFTC's rules, a block trade in a product that is subject to mandatory trade execution may be traded on-SEF using flexible means of execution on the SEF's non-order-book trading system or platform, or away from a SEF's trading system or platform, provided that it is executed pursuant to the SEF's rules and procedures. As noted above, the Commission proposed a similar approach for block trades on SBSEFs, excepting block trades from the required execution methods of Proposed Rule 815(a)(2).
The Commission received a number of comments on its proposal for a block trade exception. Commenters generally support the inclusion of a block trade exception from the Required Transaction requirement in Rule 815(a)(2).
One commenter, supporting the Commission's harmonization with the CFTC's approach to block trades by providing an exception for those trades, states that a flexible block execution regime permits trading of larger-sized transactions in a manner that incentivizes dealers to provide liquidity and capital without creating market distortions.
Another commenter states that the proposed exception for block trades would provide important flexibility for market participants executing SBS transactions of a significantly large size, and that rules that facilitate swap block trades allow market participants, such as regulated funds, to engage in large transactions while mitigating the risks of information leakage and impairment of market liquidity.
The Commission agrees with these commenters that a block-trade exception is appropriate, not only to maintain harmonization with the CFTC regime for swaps but also to facilitate trading of SBS. This approach, which is consistent with the approach of the CFTC for swaps, will be especially important in the smaller, less liquid SBS markets if and when a clearing determination has been made for one or more SBS. A block-trade exception for SBSs subject to the trade-execution requirement, provided that “block trade” is appropriately defined for those SBSs, can help ensure that large trades are not significantly more difficult and costly to execute because of the risks posed by information leakage and the potential for adverse price movement, which could significantly impair liquidity in the markets for those SBSs. Therefore, the Commission is adopting Rule 815(a) as proposed, but is, as discussed immediately below, modifying the proposal with respect to the definition of “block trade” in Rule 802.
The Commission also proposed to align the regulatory text defining “block trade” in proposed Regulation SE with the CFTC's definition. The proposed definition in Rule 802 of Regulation SE was based on the four-pronged definition found in § 43.2(a), but with one modification. The third prong of the
For the third prong of the “block trade” definition, the Commission proposed that the SBS be based on a single credit instrument (or issuer of credit instruments) or a narrow-based index of credit instruments (or issuers of credit instruments) having a notional size of $5 million or greater,
A number of commenters question the basis for the proposed $5 million block threshold size and advocate a variety of different approaches to establishing the block size threshold for SBS products, as alternatives to the proposed $5 million notional size block trade threshold.
One commenter presents data that it argues supports its assertion that the block threshold for credit SBS should be recalibrated.
This commenter also asserts that the data reveal that liquidity in single-name CDS is disproportionately concentrated in the most actively traded issuers, which, the commenter contends, corroborates its assertion that block thresholds should be calibrated at a more granular level in order to reflect the different liquidity levels of credit SBS products. The commenter cautions that, absent a data-based approach to setting block thresholds for credit SBS instruments, the proposal runs the risk that $5 million may be an inappropriately high threshold for those products, which may widen bid/offer spreads, further reduce liquidity, and force large-sized transactions to be publicly reported with their full size, leaving the dealer that “wins” in the position of risking the market moving against the dealer before the dealer is able to adequately lay-off its exposure. This risk to the dealer, the commenter asserts, could increase the costs of transacting with immediacy substantially, leading to overall increased costs and time delays in executing hedges, and adding to or taking down positions, which would have a direct impact on clients and end-users, who will ultimately bear the increased costs and inefficiencies when forced to split large trades into smaller sizes for liquidity purposes. The commenter states that these clients, end-users, and liquidity providers may decide that it is more economical to exit the market entirely, given that most of them do not trade in large volumes of SBS.
The same commenter also states that, because “the appropriate block threshold depends on factors such as liquidity and risk sensitivity[,] which can change over time, . . . the rules should provide a formal adjustment mechanism that would allow market participants to petition the Commission to temporarily change block thresholds based on observed market conditions, or enable the Commission's staff to do so, subject to a public comment process.”
Several commenters argue for establishing a range of block trade threshold sizes, based on the product.
Another commenter states that the CFTC sets different minimum block sizes for different categories of swaps and argues that the Commission should similarly develop a more structured and tailored approach.
The Commission has considered the comments received and has determined, for the reasons discussed below, not to adopt a definition of “block trade.” While the Commission had proposed the single block threshold for credit SBS based on its preliminary view that the block-trade threshold applicable to an SBS trade should be consistent with any reporting cap for that SBS trade, and any reporting cap applicable to the cash markets for the securities,
Further, unless and until the Commission has made a clearing determination for a given SBS
Therefore, the Commission is not adopting the proposed definition of “block trade” under Proposed Rule 802, or any other block-trade threshold.
In response to the comment that the Commission should delay implementation of the trade execution requirement until it has considered block trades more comprehensively, unless and until the Commission has made a clearing determination for a given SBS
For the reasons discussed above, the Commission is not adopting the definition of “block trade” in Rule 802 as proposed but is instead adding a note to Rule 802 informing stakeholders the Commission has not yet adopted a definition of “block trade.”
In the Proposing Release, the Commission did not propose a definition of “block trade” applicable to equity SBS. Accordingly, no equity SBS would qualify for the exception to required means of execution for block trades in Proposed Rule 815(a)(2).
Several commenters submitted comment letters on the proposal to exclude equity swaps from the proposed block-trade exception.
This commenter further states that equity SBS are quite distinct from CFTC equity swaps in ways that make it more critical to allow block trades in equity SBS. Specifically, the commenter states that since CFTC-regulated equity swaps are based on broad-based equity indices, which reflect markets and not individual issuers, they are used to assume or hedge exposure to the relevant market or sector generally. By contrast, the commenter posits that equity SBS may reference a single name and are therefore a preferred tool for hedging exposure to specific equities, which makes them essential to capital formation. The commenter also argues that markets for SBS on individual equities will, in many cases, be less liquid than the markets for broad-based equity index swaps, further necessitating the opportunity for block trades.
Another commenter also recommends that the Commission conduct further analysis before determining block treatment for equity SBSs.
One commenter suggests that, if there is the ability to have fungible, single-name total return swaps in equity products, and they become subject to mandatory clearing in the future, that the commenter would expect there to be appropriately calibrated block size thresholds that are applied to those equity-based swaps.
While the Commission acknowledges commenters' concerns, the general concerns expressed about the need for equity blocks lack specificity or analysis regarding a particular definition of “block trade” for equity SBS—whether a specific threshold or a methodology—that the Commission could adopt. Commenters' concerns focus on the need to customize the size of equity SBS transactions, to obtain timely and efficient executions, and to avoid information leakage. And commenters state that the lack of a block-trade exception could result in significant price impact and inhibit the large, customized trades essential for risk management and hedging, which would discourage hedging, increase volatility and reduce liquidity in equity SBS markets (as well as underlying equity markets), and ultimately inhibit capital formation and participation in offerings.
With respect to the stated need for certain parties to use an equity SBS block-trade exception, a relevant consideration for the Commission in determining whether to establish a block-size threshold for equity SBSs, if and when it makes a clearing determination for those SBSs, is whether establishing that block-trade threshold would have the potential to create a situation where SBSEFs provide less transparency than exists in the underlying cash equity markets or the listed options markets. An inappropriate block-trade threshold for equity SBSs could create incentives for market participants to favor equity SBS markets over cash equities or listed options markets, either of which may be used, in many cases, to achieve economically equivalent trading objectives as strategies using equity SBS, and neither of which provides for block-trade reporting delays. If transactions were to migrate from cash equities or listed options markets to the SBS market, this could lead to decreased market transparency and could potentially undercut the goal of the Dodd-Frank Act to bring transparency to the trading of SBS.
Additionally, as a general matter, it is important to harmonize the treatment of equity SBS with the treatment of equity swaps. There is no block-trade exception for equity swaps in the CFTC's rules, and the Commission does not wish to create incentives for market participants to trade equity SBS over swaps. And while a commenter states that equity SBS are quite distinct from equity swaps, the treatment of equity SBS transactions should be broadly consistent with the treatment of transactions in the cash equities underlying them to avoid, as discussed above, creating incentives for market participants to trade equity SBS instead of the underlying cash instruments.
For these reasons and those discussed above regarding credit SBS,
Paragraph (b) of Proposed Rule 815 would require a time delay for certain orders being entered by a broker or dealer on an SBSEF's order book. This provision would only apply to situations in which the broker or dealer is seeking to trade against a customer order (a “facilitation cross”) or to cross two customer orders (a “customer cross”), following some form of pre-arrangement or pre-negotiation of such orders, and where the transaction is a Required Transaction.
The Commission received comments on the provisions regarding the prearrangement or pre-negotiation of trades in Proposed Rule 815(b).
Another commenter, arguing that the Proposing Release and the CFTC rules are silent with respect to the permissibility of pre-arrangement on RFQ systems, urges the Commission to require SBSEF rulebooks to prohibit the pre-arrangement of Required Transactions, arguing that it is important that pre-trade transparency and the RFQ-to-3 requirement not be undermined through bilateral pre-arrangement of a Required Transaction followed by a directed RFQ that merely formalizes the transaction.
The Commission agrees with the comment that it should view pre-execution communications in a way that is consistent with CFTC guidance on this matter.
Additionally, while the CFTC has acknowledged that pre-execution communications may be permitted by a SEF, it has stated that any SEF that allows pre-execution communications must adopt rules regarding such communications that have been certified to or approved by the CFTC.
With respect to the comment that the Commission should ban pre-arrangement or pre-negotiation of RFQ trades on an SBSEF, while the CFTC regulation is silent regarding the permissibility of pre-arrangement on RFQ systems, the CFTC's adopting release with respect to its SEF rules expressly contemplates the permissible pre-arrangement of trades executed via RFQ.
The Commission recognizes that, as one of the commenters also states, pre-execution communications are a standard practice for many participants in the SBS market, and that to prohibit them entirely would be a major departure from the CFTC's approach and could have significant negative ramifications on the ability of market participants to effect their SBS transactions. Accordingly, and to maintain harmonization with the CFTC's treatment of pre-arrangement and pre-negotiation of swaps transactions, the Commission is not modifying Rule 815(b) to prohibit the use of pre-arrangement or pre-negotiation with respect to SBS transactions via RFQ or to impose a time delay before any such SBS can be executed via RFQ.
One of the commenters also requests that the Commission require SBSEFs to provide periodic regulatory reporting around pre-arranged trading on their platforms, including reporting the percentage of pre-arranged orders for which other SBSEF participants step in to join the trade, and that it also require an SBSEF to demonstrate that it offers a bona fide order book in order for the SBSEF to permit the execution of pre-arranged orders (such as a minimum
The suggested reporting requirements or “bona fide order book” standard, however, would exceed what SEFs are required to do under the CFTC rules. The Commission is concerned that different or additive requirements to the key concept of an order book, such as whether that order book is “bona fide,” could introduce complexity and confusion if one set of trading protocols applied to Required Transactions for swaps but different protocols—different from ones that have been understood and utilized for many years—applied to Required Transactions for SBS transactions. Moreover, the commenter's proposed reporting requirements—such as a minimum percentage of pre-arranged orders where pricing is improved as a result of other SBSEF participants stepping in—appear to be primarily relevant to an evaluation of a particular SBSEF has met the standard for having a “bona fide” order book. Accordingly, because the added complexity and costs associated with imposing the “bona fide” order book standard have not been justified, it is not appropriate to adopt the proposed regulatory reporting requirement suggested by the commenter with respect to cross-trading.
For the reasons discussed above, the Commission is adopting Rule 815(b) as proposed, with a clarifying change to the rule text to reiterate that the requirement applies only to Required Transactions.
Proposed Rule 815(c) is modeled on § 37.9(c) of the CFTC's rules and would define a “Permitted Transaction” as a transaction not involving an SBS that is subject to the mandatory trade execution requirement. This rule provides that an SBSEF may offer any method of execution for Permitted Transactions.
The Commission did not receive any comments on the definition of Permitted Transactions
Paragraph (d) of § 37.9 provides an exception for package transactions that allows for flexible methods of execution for what would otherwise be Required Transactions. The Commission proposed to include similar exceptions in Proposed Rule 815(d). Proposed Rule 815(d)(1) would define “package transaction” as two or more component transactions executed between two or more counterparties where at least one component is a Required Transaction, execution of each component is contingent upon the execution of all other components, and the component transactions are priced or quoted together as one economic transaction with simultaneous (or near-simultaneous) execution of all components. Proposed Rule 815(d)(2) would provide that a Required Transaction that is executed as a component of a package transaction that includes a component SBS that is subject exclusively to the Commission's jurisdiction, but is not subject to mandatory clearing, may be executed on an SBSEF using any method of execution as if it were a Permitted Transaction.
Proposed Rule 815(d)(3) would provide that a Required Transaction that is executed as a component of a package transaction that includes a component that is not an SBS may be executed on an SBSEF using any method of execution as if it were a Permitted Transaction. Proposed Rule 815(d)(3) would further state that this general exception, which allows flexible means of execution for certain package transactions, shall not apply to a Required Transaction that is executed as a component of a package transaction in which all other non-SBS components are U.S. Treasury securities; a Required Transaction that is executed as a component of a package transaction in which all other non-SBS components are contracts for the purchase or sale of a commodity for future delivery; a Required Transaction that is executed as a component of a package transaction in which all other non-SBS components are agency mortgage-backed securities; or a Required Transaction that is executed as a component of a package transaction that includes a component transaction that is the issuance of a bond in a primary market.
The Commission received comments on the proposed exception for packaged transactions.
Another commenter, while agreeing that it is appropriate to treat package transactions differently from outright, single-legged transactions, suggests that the Commission take a different approach from that of the CFTC, stating that the current state of the CFTC's rules reflect the culmination of a phased implementation approach developed over time via no-action letters.
Rule 815(d) is closely modeled on § 37.9(d) and is designed to balance the goal of promoting transparency in the
The Commission agrees with a commenter's suggestions that Proposed Rule 815(d)(2) and (3) should be modified to narrow the scope of the package-transaction exception. Accordingly, the Commission is modifying these rules so that neither an SBS that is intended to be cleared (even if it is not required to be cleared) nor a swap subject to a CFTC trade execution requirement would create an exception from required methods of execution for a Required Transaction that is part of the same package. For purposes of exempting a Required Transaction in a package transaction from the required means of execution, there is no reason to distinguish mandatorily cleared SBS from voluntarily cleared SBS, or cleared swaps from cleared SBS. Therefore, the Commission is adding the words “and is not intended to be cleared” to Rule 815(d)(2) so that it covers only a Required Transaction that is executed as a component of a package transaction that includes a component security-based swap that is subject exclusively to the Commission's jurisdiction but is not subject to the clearing requirement under section 3C of the SEA
With respect to the suggestion that the Commission take a different approach from that of the CFTC and develop tailored rules for SBS, the package-transaction rule is not the appropriate place to recognize the differences between the swaps and the SBS market. Rather, the clearing determinations and MAT determinations will necessarily consider the trading characteristics of a given SBS, and both these determinations will have to be made before the package transaction exception would ever potentially be relevant to a transaction in that SBS.
For the foregoing reasons, the Commission is adopting Rule 815(d) with the modifications to paragraph (d)(2) and (d)(3), as described above.
Proposed Rule 815(e) is modeled on § 37.9(e), which requires SEFs to maintain rules and procedures for resolution of operational and clerical error trades, which could be for swaps that otherwise would be subject to required methods of execution. Proposed Rule 815(e) would also require an SBSEF to maintain rules and procedures that facilitate the resolution of error trades and sets forth certain requirements designed to promote resolution in a fair, transparent, and consistent manner. Definitions of the terms “correcting trade,” “error trade,” and “offsetting trade” would be included in Rule 802 rather than in Rule 815(e).
The Commission received one comment letter on this provision.
The CFTC's rules for addressing error trades are well articulated and well understood by the market, and they continue to serve as an appropriate model for the Commission's rules. Furthermore, because most if not all SBSEFs also will be registered with the CFTC as SEFs, close harmonization in this regard would allow dually registered entities to employ the same procedures for addressing error trades, whether they arise in the context of swap trading or SBS trading. Therefore, the rules for addressing error trades should not differ between the SBS regime and the swaps regime. While the Commission appreciates the difficulties that might arise in trying to correct an error trade that has been rejected by a clearing agency, under Proposed Rule 815(e), an SBSEF would be required to adopt rules and procedures for addressing such situations, which it could do by, among other things, declaring trades rejected by a clearing agency as void
Rule 815(f) is modeled on § 37.9(f), which addresses counterparty anonymity and is widely referred to as the prohibition on “post-trade name give-up” (“PTNGU”). Proposed Rule 815(f) would generally prohibit any person, directly or indirectly (including through a third-party service provider), from disclosing the identity of a counterparty to an SBS that is executed anonymously on an SBSEF and intended to be cleared and requires the SBSEF to establish and maintain rules to that effect. Furthermore, it provides that “executed anonymously” as used in the rule includes an SBS that is pre-arranged or pre-negotiated anonymously, including by an SBSEF participant. Finally, Rule 815(f) provides that, for a package transaction that includes a component SBS that is not intended to be cleared, disclosing the identity of a counterparty would not violate the rule.
The Commission received several comments on Proposed Rule 815(f).
Another commenter states that if the Commission prohibits PTNGU, its policy would mirror the CFTC's approach and that certain traders would be more likely to participate on venues that offer anonymous execution, including order book functionality.
One commenter also states that PTNGU was a more important feature of the market when few swaps were centrally cleared and market participants needed to know their counterparty's identity to manage the associated credit risk; however, with the prevalence of central clearing, the need for PTNGU is diminished for cleared swaps.
A few commenters, while generally supportive of the rule, suggest some modifications to it.
One commenter argues that the Commission should take an evolutionary approach to the prohibition on name give-up, which initially should apply only to Required Transactions, and not Permitted Transactions on an SBSEF where clearing may not be certain leading up to or at the time of trade execution.
One commenter suggests that the Commission augment the rule with a prohibition on trade-relationship documentation for SBS that are intended to be cleared and grant the SBSEF the ability to void
The Commission agrees with commenters that prohibiting post-trade name give-up for cleared trades is reasonably necessary to facilitate and promote trading on SBSEFs, and Proposed Rule 815(f) would accomplish these goals.
The Commission disagrees with the comment that Rule 815(f)(4) is overbroad and unnecessary. The Commission finds that Rule 815(f)(4) is necessary and important to provide clarity about the application of the PTNGU prohibition to package transactions and also to provide consistency with the CFTC's approach. Narrowing the exception in Rule 815(f)(4) as suggested by one commenter so that it would not apply if a component of a package transaction were a cleared swap would cause the Commission's approach to PTNGU to differ from that of the CFTC and create the potential for different PTNGU rules to apply to different components of the same package transaction. That is, if the Commission modified Rule 815(f)(4) as the commenter suggests, in the case of a package transaction comprising an
Further, the Commission disagrees with the comment that the prohibition on PTNGU should initially apply only to Required Transactions. The prohibition on PTNGU is designed to promote pre-trade price transparency by encouraging a greater number, and a more diverse set, of market participants to anonymously post bids and offers on regulated markets, and it does so by preventing the sharing of the names of counterparties where such sharing is unnecessary—namely, when a transaction is cleared. Whether clearing the transaction is required or voluntary is not relevant to the purposes of prohibiting PTNGU. With regards to trades rejected from clearing, the prohibition on PTNGU would apply to all trades that are
One commenter states that in order to protect counterparty anonymity in the event of an SBS that is executed anonymously and intended to be cleared, but is nonetheless rejected for clearing, the SBSEF should declare the trade void
The Commission agrees that declaring such trades void
For the foregoing reasons, the Commission adopting Rule 815(f)(1) through (4), with minor technical modifications,
Section 3C of the SEA
Proposed Rule 816 of Regulation SE establishes procedures for an SBSEF to make an SBS “available to trade” (assuming it is also subject to the clearing requirement), thereby activating the trade execution requirement with respect to that SBS. Rule 816 also includes three proposed exemptions from the trade execution requirement.
Paragraphs (a) through (d) of Rule 816 are modeled on § 37.10 of the CFTC's rules and establish a process whereby an SBS product is MAT by an SBSEF. An SBSEF may list an SBS that is subject to mandatory clearing, but listing the product does not by itself subject the product to the trade execution requirement in section 3C(h) of the SEA. Only if a product that is subject to mandatory clearing is listed
Several commenters cite efforts by the CFTC to review its MAT process as an indication that the Commission should take a different approach for making MAT determinations rather than align with the CFTC's current rule.
It is appropriate for Regulation SE to establish a MAT SBS process that aligns with the CFTC's process as closely as possible. While commenters state that the CFTC may be considering changes to its MAT process, the CFTC has not yet proposed any such changes, so it is not certain that the CFTC would adopt the recommendations of the MRAC, either in whole or in part, or with modification, or when the CFTC might act if it does make changes to its MAT process. Additionally, because no MAT determination can be made with respect to an SBS unless and until the Commission has made a mandatory clearing determination as to that SBS, the Commission would have the opportunity, if and when it makes a mandatory clearing determination with respect to an SBS, or category of SBS, to consider whether changes to the process for a MAT determination with respect to that SBS would be appropriate. Further, in the event that the CFTC does move forward with changes to its MAT process, the Commission will have the opportunity to reassess its own MAT process and to consider further harmonization with the CFTC regime, as appropriate. For the present, the CFTC's procedures are well articulated and well understood by SBS markets, so closely harmonizing with these procedures would yield comparable regulatory benefits while minimizing burdens on SBSEFs. In particular, even though the SEF and SBSEF markets differ in ways that are relevant to the
Paragraph (a)(1) of Rule 816 provides that an SBSEF that makes an SBS available to trade in accordance with paragraph (b) of the rule must submit to the Commission its determination with respect to that SBS, pursuant to the procedures under Rule 806 (voluntary submission for Commission review and approval) or Rule 807 (self-certification).
The Commission received a number of comments on Rule 816(a).
Another commenter states that it does not believe that a trading venue should be solely responsible for identifying the types of products that should be subject to a trade execution requirement.
Because no MAT determination can be made for an SBS until the Commission has made a mandatory clearing determination for that SBS, the MAT-determination process is, in that sense, inherently a Commission-led process. Moreover, because the SBSEFs will have direct experience with the trading of SBSs on SBSEFs, they will be best positioned make the initial decision as to whether it is appropriate to submit a MAT determination for an SBS. However, the Commission would still play a primary role in the MAT process, as it will have the opportunity to review all SBSEF MAT determinations, whether they are self-certified or voluntarily filed for Commission approval, to determine whether those determinations are adequately supported by evidence and consistent with the SEA and the rules thereunder, including the six factors to be considered for MAT determinations under Rule 816(b), which are discussed below. In the absence of such evidence, the Commission can decline to approve or can stay and then object to a MAT petition, which will ultimately allow the Commission to prevent an inappropriate MAT determination from taking effect.
Some commenters also recommend that the MAT process provide other market participants the ability to provide comment on any MAT proposal.
One commenter also states that the proposed approach will give SBSEFs the sole ability to dictate the scope of SBSEF trading for market participants based on the commercial interests of SBSEFs.
Another commenter states that the process for MAT determinations should include input from both market participants and the Commission.
The Commission will have sufficient opportunity to assess self-certified MAT determinations for consistency with the criteria of Rule 816(b), as well as with the SEA and the other regulations thereunder, while also permitting SBSEFs to use a self-certification process closely aligned with § 40.6. The CFTC's procedures are well articulated and well understood by SEFs, and closely harmonizing with these procedures should yield comparable regulatory benefits while minimizing burdens on SBSEFs. Certain MAT determinations of dually registered SEF/SBSEFs may apply to SBSs and swaps that are related and that related MAT determinations will thus have to be filed with both the SEC and CFTC. Adding a default comment period or otherwise altering the standard so that the Commission reviews all MAT determinations by SBSEFs, as commenters requested, would significantly alter the timing of self-certified SBSEF MAT determinations compared to their SEF equivalents. By contrast, closely harmonizing the SEC's filing procedures and standards of review with the CFTC's would allow dually registered entities to submit related MAT determinations to both agencies for review. Moreover, if the Commission exercises its authority to stay the effectiveness of a self-certified MAT determination and seek public comment—
For SBS MAT determinations submitted under the Rule 806 process that present novel or complex issues or meet other criteria under Rule 806(d), the initial 45-day review period for rule approval submissions may be extended for an additional 45 days. The Commission recognizes the importance of public input regarding any MAT determination, and not only does Rule 808(b) provide that the Commission make publicly available on its website Rule 806 filings, such as an SBSEF's MAT filing, but the Commission is also, as discussed below, delegating to its staff the authority to make filings under Rule 806 available on the Commission's website, which will expedite the process of providing interested persons with the ability to review a MAT-determination filing so that they can communicate their views to the Commission. Thus, in either process, if MAT petitions present novel or complex issues, the Commission will have sufficient time to receive and consider public comment for those submissions. Further, accepting public comment from all interested market participants in the context of a specific MAT determination would more efficiently aid the Commission's review of SBSEF MAT-determination filings than forming a formal advisory board to offer opinions on adding or removing SBS from the list of products that have been MAT.
Several commenters question the extent of the Commission's role in the MAT determination process.
For the reasons discussed above, the Commission is adopting Rule 816(a) as proposed.
Paragraph (b) of Rule 816 sets forth six factors that an SBSEF shall consider, as appropriate, when making a MAT determination for an SBS product, which are the same six factors enumerated in the CFTC rule. Those factors are: (1) whether there are ready and willing buyers and sellers; (2) the frequency or size of transactions; (3) the trading volume; (4) the number and types of market participants; (5) the bid/ask spread; and (6) the usual number of resting firm or indicative bids and offers.
The Commission received several comments on the factors for making a MAT determination described in Rule 816(b).
One commenter also expresses concern that the factors in Rule 816(b) are neither mandatory nor based on calculated thresholds, and that they would permit SBSEFs to assert that an SBS should be MAT even absent objective evidence of a sufficiently liquid trading market.
The Commission's approach of requiring the MAT factors to be considered as appropriate, rather than mandating the consideration of all the factors, is consistent with the approach the CFTC has taken. The CFTC adopted its approach to provide more flexibility so that its markets could accommodate swaps with different trading characteristics that can be supported in a centralized trading environment.
One commenter, while supporting harmonization with the CFTC's MAT standards, expresses concern with the current framework for determining whether mandatorily cleared SBS should also be mandated for SBSEF trading through the MAT process. This commenter urges that there be a substantive analysis of whether an SBS has sufficient liquidity available to market participants on the SBSEF. The commenter states that, absent a robust MAT process requiring the SBSEF to demonstrate that voluntary exchange trading has met minimum liquidity and other standards, an absence of liquidity for the newly MAT-ed product on the SBSEF could shut out asset managers from accessing liquidity for their clients once OTC trading is prohibited. To this end, the commenter recommends that the Commission specify that the MAT standards are not synonymous with the clearing requirement standards. The commenter asserts that its assessment reflects the fact that necessary market conditions that make central clearing appropriate are different from the necessary market conditions that make mandatory SBSEF execution appropriate.
Another commenter, while generally supporting the Commission's approach to MAT determinations and the six factors enumerated in the rule, urges the Commission to take a cautious approach in its assessment of whether a MAT determination is appropriate. Specifically, the commenter recommends that the Commission carefully consider each factor, individually and collectively, in assessing whether a particular SBS has sufficient liquidity to support mandatory SBSEF trading. The commenter also cautions that the Commission should avoid broad MAT categorizations for specific types of SBS when individual SBS products within each category may be more or less suitable for a MAT designation.
From the factors enumerated in Rule 816(b), it is clear that additional factors, beyond the fact that a product is subject to mandatory clearing, will need to be considered in determining whether an SBS is suitable to be MAT, and these factors are directly relevant to the liquidity of trading in a given SBS: whether there are willing buyers and sellers, the frequency and size of transactions, the trading volume, the number and types of market participants, the bid/ask spread, and the usual number of resting firm or indicative bids and offers. Adopting specific thresholds, however, would be too rigid an approach to accommodate the different kinds of SBSs that may be traded on an SBSEF, particularly at this early stage. As stated above, the Commission or its staff will review SBS products on a case-by-case basis, and for SBS products presenting novel or complex issues there will be an extended period for the Commission to review the submission and consider public comments on the appropriateness of a MAT determination on a case-by-case basis, taking into account the facts and circumstances of the SBS subject to the determination, including when a filing seeks to include a broad category of SBS within a MAT determination.
The Commission has carefully considered the concerns raised by commenters regarding the determination of when an SBS is appropriate for a MAT determination by an SBSEF, and the Commission is adopting Rule 816(b) as proposed. The Commission appreciates that a MAT determination for an SBS will be consequential for market participants, and that the enumerated factors in Rule 816(b) are important components of an analysis of whether an SBS is appropriate for a MAT determination. Rule 816(b) will require SBSEFs to consider each of the factors enumerated in Rule 816(b), as appropriate. As noted above, a flexible approach to the enumerated factors will accommodate the different kinds of SBSs that will be traded on SBSEFs. While the rule does not require that every factor be considered in every case, to the extent that a factor is relevant and an SBSEF's MAT determination submission fails to sufficiently address that factor, the Commission would be in a position to either disapprove the submission, if made under Rule 806, or stay and ultimately object to the submission, if self-certified under Rule 807.
Furthermore, the rules for filing MAT determinations require SBSEFs to provide, among other things, an explanation and analysis of the proposed MAT determination, including a discussion of its compliance with the SEA, the Core Principles for SBSEFs, and the Commission's rules thereunder. In the case of a MAT determination, the SBSEF generally should do more than simply state that it is consistent with the SEA and the Commission's rules thereunder, but should also provide supporting analysis, and supporting documentation as appropriate, for its conclusion. If an SBSEF fails to provide adequate explanation or analyses of the MAT determination, it would be difficult for the Commission to find that the determination is consistent with the SEA and the Commission's rules thereunder. Thus, MAT determination filings generally should be accompanied with adequate discussion and support for a MAT determination based on all relevant factors in Rule 816(b), including discussion supporting a conclusion that the SBS product subject to the MAT determination achieves the appropriate thresholds for that category of products. Furthermore, for MAT determinations presenting novel or complex issues, there will be an extended period for the Commission to solicit and consider public comments on, among other things, the appropriateness of the factors considered.
For the reasons discussed above, the Commission is adopting Rule 816(b) as proposed.
Paragraph (c) of Rule 816 provides that, upon a determination that an SBS has been MAT on an SBSEF or SBS exchange,
The Commission received no comments on Rule 816(c) and the Commission is adopting Rule 816(c) as proposed for the reasons stated in the Proposing Release.
Paragraph (d) of Rule 816 provides that the Commission may issue a
The Commission received one comment on Rule 816(d).
The commenter's concern that an SBS may be required to be traded on an SBSEF merely because a single SBSEF has listed that SBS, even if there is no liquidity to sustain trading in that SBS, is addressed by the requirements in Rule 816(b) that must be met by an SBSEF before it submits a MAT determination under Rule 806 or Rule 807, as well as by the Commission's ability to disapprove, or stay and then object to, any MAT determination by an SBSEF. In considering an SBSEF's MAT submission, the Commission will generally consider how many SBSEFs list and trade a given SBS, as well as the liquidity and trading characteristics of that SBS. Further, to the extent market circumstances change to make a previous MAT determination unsuitable for then-prevailing market conditions, and if the SBSEF that has made a MAT determination is unwilling to withdraw that determination, the Commission would be able to grant exemptive relief (including on an emergency basis) pursuant to its authority in section 36 of the SEA in order to address that situation.
Therefore, the Commission is adopting Rule 816(d) as proposed.
Paragraph (e) of Proposed Rule 816 has no analog in § 37.10, but instead is adapted from 17 CFR 36.1 of the CFTC's rules, which sets out certain exemptions from the trade execution requirement. The exemptions incorporated into § 36.1 result from the CFTC's many years of experience in administering the CEA's trade execution requirement.
Paragraph (e)(1) of Rule 816 provides that an SBS transaction that is executed as a component of a package transaction and that also includes a component transaction that is the issuance of a bond in a primary market is exempt from the trade execution requirement in section 3C(h) of the SEA. In addition, paragraph (e)(1) provides that, for purposes of paragraph (e), a package transaction consists of two or more component transactions executed between two or more counterparties where: at least one component transaction is subject to the trade execution requirement in section 3C(h) of the SEA; execution of each component transaction is contingent upon the execution of all other component transactions; and the component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components.
Paragraph (e)(2) of Rule 816, which is adapted from § 36.1(b), provides that section 3C(h) of the SEA does not apply to an SBS transaction that qualifies for an exception
Paragraph (e)(3) of Rule 816, which is adapted from § 36.1(c), provides that section 3C(h) of the SEA does not apply to an SBS transaction that is executed between counterparties that qualify as “eligible affiliate counterparties.”
The Commission received comments on Rule 816(e).
The Commission does not agree that it is necessary to tailor the Commission's rules for package transactions to address the particular market dynamics relevant to the SBS market, because no MAT determinations for SBS have been made, and no MAT determinations can yet be made because no SBS are required to be cleared. Moreover, the Commission does not yet have a sufficient basis on which to tailor the rules for package transactions to address SBS market dynamics, because the market dynamics relevant to trading of SBS on SBSEFs have yet to develop. It would be preferable to address those dynamics with respect to package transactions if and when it becomes necessary or appropriate to do so, because, at that point, the Commission and commenters would be better informed about the nature of trading various SBS on SBSEFs. In the meantime, it is desirable for Rule 816(e) to be harmonized with § 36.1 of the CFTC's rules to promote similar treatment of package trades, whether they involve SBS or swaps, as this will facilitate the participation of current SEF participants on SBSEFs. If, after SBSEFs have become operational and MAT determinations have been made, the Commission observes that the rules for package transactions are no longer suitable for the SBS market, the Commission could consider amending Rule 816(e) at that time.
For the reasons discussed above, the Commission is adopting Rule 816(e) as proposed.
Proposed Rule 817 is modeled on § 37.12 of the CFTC's rules, which is designed to inform market participants of the precise date on which the trade execution requirement for a particular product commences.
The Commission received several comment letters about the sufficiency of the time period allotted for compliance with a MAT determination.
Some commenters recommend that a MAT determination not be effective for at least 90 days.
Another commenter also cites the CFTC MRAC's report in recommending that the Commission provide 90 days after a MAT determination is final before it becomes effective. This commenter emphasizes that market participants will need an adequate compliance period after a mandatory clearing determination is made
The Commission has considered commenters' requests for an extended compliance period for the mandatory trading requirement once a MAT determination has been made with respect to an SBS. The presence of ready and willing buyers and sellers and the number and types of market participants, among other things, are relevant factors in a MAT determination under Rule 816(b).
It is not necessary to revise the 30-day period for compliance with a MAT determination, because the readiness of the market to comply with a MAT determination for a particular SBS would be relevant to the MAT determination itself, including the analysis of the six factors enumerated in Rule 816(b), and because an analysis of that readiness would best be undertaken based on the facts and circumstances attending a specific MAT determination.
For the reasons discussed above, the Commission is adopting Rule 817 as proposed.
Section 3D(d) of the SEA
It continues to be appropriate to closely harmonize with the CFTC rules that implement the SEF Core Principles, although there are some instances where close harmonization is not practicable. Where there are substantive differences between an existing CFTC rule and the SEC rule being adopted, the discussion below addresses those differences. The discussion below will also address where there is not, or at least there is not intended to be, a difference between the SEC rule and the analogous existing CFTC rule.
Part 37 of the CFTC's rules includes an appendix B, setting forth “Guidance on, and Acceptable Practices in, Compliance with Core Principles.” The introduction to appendix B provides that the guidance for the Core Principle is illustrative only and “is not intended to be used as a mandatory checklist.”
Core Principle 1
The Commission received no comments on Proposed Rule 818 and is adopting Rule 818 as proposed for the reasons stated in the Proposing Release.
Core Principle 2 requires an SBSEF to establish and enforce compliance with any rule that is established by the SBSEF, including the terms and conditions of the SBS that it trades or processes, and any limitation on access to the SBSEF.
As described in the Proposing Release, the Commission modeled Rules 819 (a) through (g) on subpart C of part 37 of the CFTC's rules,
Paragraph (a) of Proposed Rule 819, like § 37.200 of the CFTC's rules,
Paragraph (b) of Proposed Rule 819 is closely modeled on § 37.201 of the CFTC's rules,
Paragraph (c) of Proposed Rule 819 is closely modeled on § 37.202 of the CFTC's rules,
Several commenters express general support for the adoption of impartial access standards for SBSEFs.
One commenter expresses support for Proposed Rule 819(c), but states that the Commission's proposal does not provide market participants with sufficient clarity regarding how Proposed Rule 819(c) will be interpreted and applied in practice, and the commenter encourages the Commission to provide in the final rule that access to SBSEFs should be based on “objective, pre-established” criteria, and that any ECP should be able to demonstrate financial soundness by showing that it is a clearing member or that it has clearing arrangements in place with a clearing member.
This commenter states that the CFTC has provided market participants with extensive guidance regarding impartial access and encourages the Commission to provide similar clarity when finalizing the SBSEF rules, including guidance with respect to membership criteria, trading protocols and functionality, and fee arrangements. Specifically, this commenter urges the Commission to provide in the final rule that an SBSEF may not limit membership to (i) self-clearing members; (ii) registered security-based swap dealers; (iii) banks or liquidity providers with a minimum amount of Tier 1 capital; (iv) liquidity providers that have been “enabled” by, or have bilateral documentation with, a minimum number of other liquidity providers; or (v) liquidity providers with a minimum amount of transaction volume.
This commenter also states that SBSEFs should not be permitted to apply trading protocols in a manner that results in impermissible discrimination among market participants. Specifically, the commenter states that SBSEFs should not allow participants to selectively restrict their trading with other SBSEF participants through “enablement mechanisms”; that market participants should be permitted to act as both liquidity providers and liquidity takers on an SBSEF; that all SBSEF participants should be permitted to both send and receive RFQs (instead of only designated liquidity providers being eligible to receive RFQs); and that SBSEFs should not be permitted to require participants to have bilateral documentation in place to trade cleared security-based swaps, as this could provide a pretext for some participants to restrict trading with other participants. This commenter further states that SBSEFs should not be permitted to use fee arrangements to effect otherwise impermissible discrimination with respect to access.
Another commenter also urges the Commission to incorporate the CFTC's impartial access requirement guidance with respect to SBSEFs, which would assist market participants in interpreting how the impartial access rules should work. Coordination of impartial access “not only affects an entity operating both an SEF and SBSEF but also their clients, many of whom use the same individual traders to trade both instrument types.
One commenter states that the trading documentation requirement of Rule 15Fi-5 may at times conflict with the impartial access requirement of Proposed Rule 819(c) because it is unlikely that all SBSEF members trading cleared swaps will have trading relationship documentation with all other members trading cleared SBS.
The Commission agrees with commenters that impartial access to an SBSEF encompasses both impartial access to membership in an SBSEF and the ability to fully interact on the SBSEF's order book or RFQ system, and that an SBSEF's rules must incorporate impartial criteria for this access. The Commission expects that most, if not all, entities that will seek SBSEF registration with the SEC are or will also be registered as SEFs with the CFTC and that ensuring consistency of access to SBSEFs and SEFs will provide market participants with greater certainty about permissible practices regarding access to these platforms.
The Commission is aware of the CFTC staff guidance on impartial access related to § 37.202 of the CFTC's regulations.
Further, providing impartial access as required by Proposed Rule 819(c) means providing all of an SBSEF's market participants—dealers and non-dealers alike—with the ability to fully interact on the order book or RFQ system as liquidity providers, liquidity takers, or both, including viewing, placing, or responding to all indicative or firm bids and offers and to place, receive, and respond to RFQs. Therefore, it would be incompatible with impartial access for an SBSEF's rules to permit mechanisms, schemes, functionalities, counterparty filters, or other arrangements that prevent an SBSEF participant from interacting or trading with, or viewing the bids and offers (firm or indicative) displayed by, any other market participant on that SBSEF, whether by means of any condition or restriction on its ability or authority to display a quote to any other market participant or to respond to any quote issued by any other market participant on that SBSEF with respect to security-based swap transactions that are intended to be cleared.
It is also inconsistent with impartial access for an SBSEF's rules to require bilateral documentation or to permit bilateral enablements in order to trade security-based swaps that are intended to be cleared, because providing for such documentation or enablements solely to address occasional trade rejections by a clearing agency would undercut the ability of all ECPs to post or interact with interest on security-based swaps that are intended to be cleared, and because such documentation or enablements are unnecessary in light of the provisions of Rule 815(g), which, as discussed
With respect to the comment that the documentation requirements of Rule 15Fi-5 may, at times, conflict with the impartial access requirement of Proposed Rule 819(c), no such conflict exists, because Rule 15Fi-5(a)(1)(ii) provides that the rule does not apply to cleared swaps, and Rule 15Fi(a)(1)(iii) further provides that the rule does not apply to security-based swap transactions executed anonymously on an SBSEF or a national securities
Paragraph (d) of Proposed Rule 819 is closely modeled on § 37.203. Paragraph (d)(1) of Proposed Rule 819 would require an SBSEF to prohibit abusive trading practices generally, enumerating certain practices in particular.
The Commission did not receive any comments on Rule 819(d) and is adopting Rule 819(d) as proposed, except that, in light of its decision not to adopt a definition of “block trade,”
Paragraph (e) of Proposed Rule 819 is modeled on § 37.204 and would allow an SBSEF to contract with a regulatory services provider. If it does so, the SBSEF would have to ensure that such provider has the capacity and resources necessary to provide timely and effective regulatory services, retain sufficient compliance staff to supervise the quality and effectiveness of the regulatory services provided on its behalf, hold regular meetings with the regulatory service provider, and conduct periodic reviews of the adequacy and effectiveness of services provided on its behalf. The SBSEF would at all times remain responsible for the performance of any regulatory services received and retain exclusive authority in all substantive decisions made by its regulatory service provider.
One commenter states that SBSEFs should be able to use regulatory service providers and that the types of regulatory service providers permitted under Proposed Rule 819(e)(1) are appropriate.
The Commission agrees that SBSEFs should be able to contract with DCMS for the provision of regulatory services. As the commenter states, DCMs have well-established regulatory protocols and are subject to CFTC oversight, and they are permitted to act as regulatory service providers for SEFs. Additionally, permitting an SBSEF to use the same regulatory service provider as an affiliated SEF may create efficiencies for both the SBSEF and SEF, while maintaining regulatory oversight of the entity that is providing the regulatory services. While the CFTC's regulation for SEFs does not contain a reciprocal provision permitting national securities exchanges to perform regulatory services for SEFs, harmonization in practical terms with this aspect of the CFTC regime—
Paragraph (f) of Proposed Rule 819 is modeled on § 37.205, using the same paragraph structure and rule text. Paragraph (f) would require an SBSEF to
The Commission did not receive any comments on Proposed Rule 819(f). An audit trail is a crucial component of a trading venue's ability to ensure compliance with its rules. These requirements should be modeled on the parallel CFTC regulations regarding SEFs, as most, if not all, entities that will register as SBSEFs will be SEFs registered with the CFTC, and that consistent requirements will promote a consistent approach to compliance. Accordingly, the Commission is adopting Rule 819(f) as proposed, with minor technical modifications.
Paragraph (g) of Proposed Rule 819 is based on § 37.206 of the CFTC's rules and generally tracks all of its rule text but would include additional language derived from guidance in appendix B of part 37 of the CFTC's rules. Converting the guidance to rule text, and thus grouping conceptually related items together, yields the most coherent and readable ruleset, instead of incorporating the guidance into a stand-alone section of the rules. Accordingly, paragraph (g)(1)(i) of Proposed Rule 819 is taken from § 37.206(a) and would require an SBSEF to establish and maintain sufficient enforcement staff and resources to effectively and promptly prosecute possible rule violations within the disciplinary jurisdiction of the SBSEF. Paragraphs (g)(1)(ii) through (iv) are taken from the appendix B guidance and would provide, respectively, that:
• The enforcement staff of an SBSEF shall
• A member of the enforcement staff shall not operate under the direction or control of any person or persons with trading privileges at the SBSEF.
• The enforcement staff of an SBSEF may operate as part of the SBSEF's compliance department.
Paragraph (g)(2) of Rule 819 is modeled on § 37.206(b) and would require an SBSEF to establish one or more disciplinary panels that are authorized to fulfill their obligations under Proposed Rule 819. Section 37.206(b) provides that disciplinary panels must meet the composition requirements of part 40. To help ensure fairness and prevent special treatment or preference of any person or member and to provide for consistency in the makeup of members of SBSEF major disciplinary committees and hearing panels, the Commission proposed instead to require the disciplinary panels established under Proposed Rule 819(g)(2) to meet the composition requirements of Rule 834(d), which apply to each major disciplinary committee and hearing panel of an SBSEF.
Paragraphs (g)(3) through (8) of Proposed Rule 819 have no parallel in § 37.206 itself but derive from the guidance in appendix B pertaining to § 37.206, following the paragraph structure and wording of the guidance closely. Paragraph (g)(3) would impose procedural requirements relating to the notice of charges made to a respondent. Paragraph (g)(4) would provide that a respondent has a right to representation. Paragraph (g)(5) would provide that a respondent must be given adequate time to respond to any charges. Paragraph (g)(6) would state that the rules of an SBSEF may provide that, if a respondent admits or fails to deny any of the charges, a disciplinary panel may find that the violations alleged in the notice of charges have been committed. Paragraph (g)(6) would further state that, if the SBSEF's rules so provide, then: (i) The disciplinary panel may impose a sanction for each violation found to have been committed; (ii) The disciplinary panel shall promptly notify the respondent in writing of any sanction to be imposed and shall advise the respondent that the respondent may request a hearing on such sanction within the period of time, which shall be stated in the notice; and (iii) The rules of the SBSEF may provide that, if a respondent fails to request a hearing within the period of time stated in the notice, the respondent will be deemed to have accepted the sanction.
Paragraph (g)(7) of Proposed Rule 819 would provide that, where a respondent has requested a hearing on a charge that is denied, or on a sanction set by the disciplinary panel, the respondent shall be given an opportunity for a hearing in accordance with the rules of the SBSEF. Paragraph (g)(8) would address settlement offers.
Paragraph (g)(9) of Proposed Rule 819 returns to the text of § 37.206(c) for provisions regarding hearings. Paragraph (g)(9)(i) is modeled on § 37.206(c)(1) and would require an SBSEF to have rules requiring a hearing to be fair, conducted before members of the disciplinary panel, and promptly convened after reasonable notice to the respondent. The Commission proposed an additional provision, which derives from the guidance, that an SBSEF need not apply the formal rules of evidence for a hearing; nevertheless, the procedures for the hearing may not be so informal as to deny a fair hearing.
Paragraphs (g)(9)(ii) through (vi) of Proposed Rule 819 are also adapted from the guidance in appendix B of part 37. Paragraph (g)(9)(ii) would bar a member of the disciplinary panel for the hearing from having a financial, personal, or other direct interest in the matter under consideration. Paragraph (g)(9)(iii) would address the respondent's access to evidence in the SBSEF's possession. Paragraph (g)(9)(iv) would provide that the SBSEF's enforcement and compliance staffs shall
Paragraph (g)(9)(vii) of Proposed Rule 819 is modeled on the text of § 37.206(c)(2) and would require that, if the respondent has requested a hearing, a copy of the hearing shall be made and shall become a part of the record of the proceeding. Paragraph (g)(9)(vii) would not require the record to be transcribed
Paragraph (g)(10) of Proposed Rule 819 is modeled on § 37.206(d) and would provide that, promptly following a hearing conducted in accordance with the rules of the SBSEF, the disciplinary panel shall render a written decision based upon the weight of the evidence contained in the record of the proceeding and shall provide a copy to the respondent. The written decision must include six enumerated elements, all of which are closely modeled on those in § 37.206(d).
Paragraph (g)(11) of Proposed Rule 819 would address emergency disciplinary actions and is drawn from the guidance in appendix B of part 37. It would provide that an SBSEF may impose a sanction, including suspension, or take other summary action against a person or entity subject to its jurisdiction upon a reasonable belief that such immediate action is necessary to protect the best interest of the market place. Furthermore, any emergency disciplinary action would have to be taken in accordance with an SBSEF's procedures that provide for notice (if practicable), rights for representation in all proceedings, an opportunity for a hearing as soon as reasonably practicable, and the rendering of a written decision promptly following the hearing based upon the weight of the evidence contained in the record. Proposed Rule 819(g)(11) would seek to balance the need to allow an SBSEF to take summary action against the need to afford due process to respondents.
Paragraph (g)(12) of Proposed Rule 819 also is drawn from the appendix B guidance and would provide that, if the rules of the SBSEF permit appeals,
Paragraph (g)(13) of Proposed Rule 819 is adapted partly from § 37.206(e) and partly from the appendix B guidance. Paragraph (g)(13)(i) is drawn from § 37.206(e) and would provide that all disciplinary sanctions imposed by an SBSEF or its disciplinary panels shall be commensurate with the violations committed and shall be clearly sufficient to deter recidivism or similar violations by other members. All disciplinary sanctions, including sanctions imposed pursuant to an accepted settlement offer, would have to take into account the respondent's disciplinary history. In the event of demonstrated customer harm, any disciplinary sanction would have to include full customer restitution, except where the amount of restitution or to whom it should be provided cannot be reasonably determined. Paragraph (g)(13)(i) is adapted from the appendix B guidance and would allow an SBSEF to adopt a summary fine schedule for violations of rules relating to the failure to timely submit accurate records required for clearing or verifying each day's transactions.
The Commission received no comments on Proposed Rule 819(g) and, apart from the addition of paragraph (g)(14) regarding Commission review,
Paragraph (h) of Proposed Rule 819 would generally prohibit persons who are employees of an SBSEF, or who otherwise might have access to confidential information because of their role with the SBSEF, from improperly utilizing that information. Proposed Rule 819(h) is modeled on § 1.59 of the CFTC's rules, which requires a SEF (among other CFTC-regulated entities) to place restrictions on trading by its governing board members, committee members, consultants, and employees and to prohibit any such person from disclosing any material, non-public information obtained as a result of their official duties with the SRO.
Paragraph (h)(2)(i) of Proposed Rule 819 would require an SBSEF to maintain in effect rules that, at a minimum, prohibit an employee of the SBSEF from trading, directly or indirectly, any “covered interest.” Proposed Rule 819(h)(1)(i) would define “covered interest” to mean, with respect to an SBSEF: an SBS that trades on the SBSEF; a security of an issuer that has issued a security that underlies an SBS that is listed on the SBSEF; or a derivative based on a security that falls within the immediately preceding prong. The opportunity to observe order submission and trading in an SBS on an SBSEF could yield material non-public information about the future performance not just of that SBS, but of all securities issued by that entity.
Paragraph (h)(2)(ii), modeled on § 1.59(b)(1)(ii), would prohibit an SBSEF employee from disclosing to any other person any material non-public information that the employee obtains as a result of their employment at the SBSEF, and where the employee has or should have a reasonable expectation that the information disclosed may assist another person in trading any covered interest. In addition, paragraph (h)(2)(ii), like § 1.59(b)(1)(ii), would provide an exception for disclosures made in the course of an employee's duties, or disclosures made to another SBSEF, court of competent jurisdiction, or representative of any agency or department of the Federal or State
Paragraph (h)(3) of Proposed Rule 819, modeled on § 1.59(b)(2), would allow an SBSEF to adopt rules setting forth circumstances under which exemptions from the employee trading prohibition may be granted. In particular, paragraph (h)(3) would include the following possible carve-outs from the employee trading prohibition: (1) participation by an employee in a “pooled investment vehicle” where the employee has no direct or indirect control with respect to transactions executed for or on behalf of such vehicle; (2) trading by an employee in a derivative based on such a pooled investment vehicle; (3) trading by an employee in a derivative based on an index in which no covered interest constitutes more than 10% of the index; and (4) trading by an employee under circumstances enumerated in rules which the SBSEF determines are not contrary to applicable law, the public interest, or just and equitable principles of trade.
The first and the fourth carve-outs listed above are comparable to those listed in § 1.59(b)(2). The Commission proposed to include the second and third carve-outs to permit an SBSEF employee to trade derivatives that provide indirect exposure to a covered interest where the exposure to the covered interest is sufficiently diluted.
Finally, under Proposed Rule 819(h)(3)—as with § 1.59(b)(2)—the exemptions from the trading restrictions would not be automatically available to SBSEF employees. Proposed Rule 819(h)(3) would still require the SBSEF to adopt rules that set forth circumstances under which exemptions from the trading prohibition may be granted. Furthermore, Proposed Rule 819(h)(3), which is modeled on § 1.59(b)(2), would state that any exemption must be administered by the SBSEF “on a case-by-case basis.”
Paragraph (h)(4) of Proposed Rule 819, like § 1.59(d), would address prohibited conduct not just by employees of an SBSEF, but also of governing board members, committee members, and consultants of the SBSEF. Paragraph (h)(4)(i)(A) is modeled on § 1.59(d)(1)(i) and would prohibit any employee, governing board member, committee member, or consultant of the SBSEF from trading for their own account, or for or on behalf of any other account, in any covered interest on the basis of any material, non-public information obtained through special access related to the performance of their official duties as an employee, governing board member, committee member, or consultant. Paragraph (h)(4)(i)(B), modeled on § 1.59(d)(1)(ii), would prohibit any employee, governing board member, committee member, or consultant of the SBSEF from disclosing for any purpose inconsistent with the performance of their official duties as an employee, governing board member, committee member, or consultant any material, non-public information obtained through special access related to the performance of those duties. Paragraph (h)(4)(ii), modeled on § 1.59(d)(2), would provide that no person shall trade for their own account, or for or on behalf of any other account, in any covered interest on the basis of any material, non-public information that the person knows was obtained in violation of paragraph (h)(4) of this section from an employee, governing board member, committee member, or consultant.
The Commission received no comments on Proposed Rule 819(h) and is adopting Rule 819(h) as proposed, with minor technical modifications,
Paragraph (i) of Proposed Rule 819 would bar persons with specified disciplinary histories from serving on the governing board or committees of an SBSEF and would impose certain other duties on the SBSEF associated with that fundamental requirement. Rule 819(i) is modeled on § 1.63 of the CFTC's rules, which imposes similar requirements in connection with SEFs and certain other entities.
Paragraph (i) of Proposed Rule 819 is closely modeled on § 1.63. Paragraph (i)(1), like § 1.63(b), would require an SBSEF to maintain rules
Paragraph (i)(6) of Proposed Rule 819 would define the terms “arbitration panel,” “disciplinary offense,” and “final decision” that are used in Rule 819(i).
The Commission received no comments on Proposed Rule 819(i) and is adopting Rule 819(i) as proposed, with minor technical modifications,
Paragraph (j) of Proposed Rule 819 is a modified version of § 1.67 of the CFTC's rules. Paragraph (j)(1) of Proposed Rule 819 would be designed to replicate for SBSEFs the fundamental duty of § 1.67 and provides that, upon any final disciplinary action in which an SBSEF finds that a member has committed a rule violation that involved a transaction for a customer, whether executed or not, and that resulted in financial harm to the customer, the SBSEF must promptly provide written notice of the disciplinary action to the member. In addition, the SBSEF would be required to have established a rule pursuant to Rule 806 or Rule 807 that requires a member that receives such a notice to promptly provide that notice to the customer, as disclosed on the member's books and records.
Paragraph (j)(3) of Proposed Rule 819 would provide definitions for two terms used in Rule 819(j). The definition of “final disciplinary action” is closely modeled on the CFTC's definition in § 1.67(a).
The Commission received no comments on Proposed Rule 819(j) and is adopting Rule 819(j) as proposed, with minor technical modifications,
Paragraph (k) of Proposed Rule 819 would require non-U.S. persons who trade on an SBSEF to have an agent for service of process, which could be an agent of its own choosing or, by default, the SBSEF. Proposed Rule 819(k) is modeled on § 15.05(i) of the CFTC's rules, which concerns the designation of agents for foreign persons participating
Paragraph (k)(1) of Proposed Rule 819 is modeled on § 15.05(i) and would provide that an SBSEF that admits a non-U.S. person as a member shall be deemed to be the agent of the “non-U.S. member”
Paragraph (k)(3) of Proposed Rule 819 is modeled on § 15.05(i)(2) and would permit a non-U.S. member of an SBSEF to utilize an agent for service of process other than the SBSEF. The non-U.S. member would have to provide a copy of its agreement with the alternate agent to the SBSEF, and the SBSEF would then have to file the agreement with the Commission, before executing any transaction on the SBSEF. Paragraph (k)(4) of Proposed Rule 819, modeled on § 15.05(i)(3), would require the non-U.S. member to notify the Commission if the agency agreement is no longer in effect.
For an SBSEF to have an effective regulatory program and thereby comply with Core Principle 2 (Compliance with Rules), the SBSEF must have jurisdiction over all of its members, including members who are not U.S. persons. Proposed Rule 819(k) would further an SBSEF's ability to ensure compliance by its non-U.S. members with its rules by requiring each non-U.S. member of the SBSEF to have an agent for service of process, whether an agent of its own choosing that has been disclosed to the SBSEF and the Commission or, as a default, the SBSEF itself. This would eliminate any question of how to provide valid notice to a non-U.S. member of any proceedings involving potential rule violations.
The Commission received no comments on Proposed Rule 819(k) and is adopting Rule 819(k) as proposed for the reasons stated in the Proposing Release.
Core Principle 3
The Commission received no comments on Proposed Rule 820, and is adopting Rule 820 as proposed for the reasons stated in the Proposing Release.
Core Principle 4
Proposed Rule 821 would implement Core Principle 4 and is closely modeled on the rules in subpart E of part 37 and the CFTC's guidance and acceptable practices in appendix B to part 37. As explained in the Proposing Release, paragraph (a) of Proposed Rule 821, like § 37.400 of the CFTC's rules, incorporates the requirements of Core Principle 4 described above, and the remaining paragraphs of Proposed Rule 821 are modeled on §§ 37.401 to 37.408 of the CFTC's rules and also incorporate guidance and acceptable practices from appendix B to part 37.
Paragraph (b) of Proposed Rule 821 would specify an SBSEF's market-oversight obligations. Paragraph (c) of Proposed Rule 821 would specify requirements for an SBSEF's monitoring of physical-delivery SBS. Paragraph (d) of Proposed Rule 821 would specify additional requirements for cash-settled SBS. Paragraph (e) of Proposed Rule 821 would specify requirements for an SBSEF's ability to obtain information. Paragraph (f) of Proposed Rule 821 would require an SBSEF to establish and maintain risk control mechanisms to prevent and reduce the potential risk of market disruptions. Paragraph (g) of Proposed Rule 821 would require an SBSEF to have the ability to comprehensively and accurately reconstruct all trading on its facility and requires an SBSEF to make all audit-trail data and reconstructions available to the Commission. And paragraph (h) of Proposed Rule 821 would provide that an SBSEF shall comply with the rules in this section through a dedicated regulatory department or by contracting with a regulatory service provider pursuant to Rule 819(e).
The Commission received no comments on Proposed Rule 821 and is adopting Rule 821 as proposed for the reasons stated in the Proposing Release.
Core Principle 5
Proposed Rule 822 implements Core Principle 5 and is substantively identical to subpart F of part 37. Paragraph (a) of Proposed Rule 822
The Commission received no comments on Proposed Rule 822 and is adopting Rule 822 as proposed for the reasons stated in the Proposing Release.
Core Principle 6 sets forth requirements related to the financial integrity of transactions that are entered on or through the facilities of an SBSEF.
Paragraph (a) of Proposed Rule 823 would repeat the statutory text of SEA Core Principle 6 in the same manner that § 37.700 of the CFTC's rules
Paragraph (b) of Proposed Rule 823 is closely modeled on § 37.701 of the CFTC's rules,
Paragraph (c) of Proposed Rule 823 is closely modeled on § 37.702 of the CFTC's rules,
One commenter characterizes the CFTC regime as providing detailed straight-through-processing (“STP”) standards for swaps executed on SEFs that are intended to be cleared but believes that the Commission's proposal lacks such standards.
Another commenter agrees that applying the CFTC's approach to STP would further harmonize SBSEFs with SEFs and would provide greater certainty of execution and clearing, encourage more clearing, facilitate
As previously stated, harmonization with the CFTC regime for SEFs is an important consideration for the Commission, given that it expects most registered SBSEFs to also be registered SEFs. Consistent with this view, Proposed Rule 823 is largely based on subpart H of part 37, and the key language of Rule 823(c)(2) relevant to STP is substantively identical to § 37.702(b). Both provisions require an SBSEF or SEF to (i) ensure that it has the capacity to route transactions to the relevant clearing agency in a manner acceptable to the clearing agency for purposes of clearing; and (ii) coordinate with each relevant clearing agency to which it submits transactions for clearing, in the development of rules and procedures to facilitate prompt and efficient transaction processing. Rule 249.1701, Exhibit T further requires SBSEFs to provide “the name(s) of the clearing agency(ies) that will clear the Applicant's trades, and a representation that clearing members of that organization will be guaranteeing such trades.”
The Commission generally expects an SBSEF's rules and procedures to demonstrate compliance with these requirements with respect to SBS that are intended to be cleared or that would become subject to a mandatory clearing requirement in the future. Since SBSEFs are required to establish rules and procedures for clearing in coordination with each relevant clearing agency to which it submits trades, SBSEFs should be able to route executed trades to relevant clearing agencies promptly, particularly if fully automated systems are used. Furthermore, if an SBSEF were to act to purposefully delay clearing submission in order to favor certain market participants over others, that type of action could be addressed under the impartial access requirements of Rule 819(c).
For the reasons stated above, the Commission is adopting Rule 823(c) as proposed.
Paragraph (d) of Proposed Rule 823 is closely modeled on § 37.703 of the CFTC's rules,
SEA Core Principle 7
Proposed Rule 824 would implement SEA Core Principle 7 and is closely modeled on subpart I of part 37 and the guidance for CEA Core Principle 8 in appendix B to part 37. Paragraph (a) of Proposed Rule 824 would repeat the statutory text of the Core Principle. Paragraph (b) of Proposed Rule 824 would incorporate much of the language in paragraph (a)(1) of the CFTC's guidance on CEA Core Principle 8. Under paragraph (b), an SBSEF would be required to adopt rules that are reasonably designed to:
(1) Allow the SBSEF to intervene as necessary to maintain markets with fair and orderly trading and to prevent or address manipulation or disruptive trading practices, whether the need for intervention arises exclusively from the SBSEF's market or as part of a coordinated, cross-market intervention;
(2) Have the flexibility and independence to address market emergencies in an effective and timely manner consistent with the nature of the emergency, as long as all such actions taken by the SBSEF are made in good faith to protect the integrity of the markets;
(3) Take market actions as may be directed by the Commission, including, in situations where an SBS is traded on more than one platform, emergency action to liquidate or transfer open interest as directed, or agreed to, by the Commission or the Commission's staff;
(4) Include procedures and guidelines for decision-making and implementation of emergency intervention that avoid conflicts of interest;
(5) Include alternate lines of communication and approval procedures to address emergencies associated with real-time events;
(6) Allow the SBSEF, to address perceived market threats, to impose or modify position limits, impose or modify price limits, impose or modify intraday market restrictions, impose special margin requirements, order the liquidation or transfer of open positions in any contract, order the fixing of a settlement price, extend or shorten the expiration date or the trading hours, suspend or curtail trading in any contract, transfer customer contracts and the margin, or alter any contract's settlement terms or conditions, or, if applicable, provide for the carrying out of such actions through its agreements
Paragraph (c) of Proposed Rule 824 is based on paragraph (a)(2) of the CFTC's guidance on CEA Core Principle 8 and would require an SBSEF to promptly notify the Commission of its exercise of emergency action, explaining its decision-making process, the reasons for using its emergency authority, and how conflicts of interest were minimized, including the extent to which the SBSEF considered the effect of its emergency action on the underlying markets and on markets that are linked or referenced to the contracts traded on its facility, including similar markets on other trading venues. In addition, Proposed Rule 824(c) would require information on all regulatory actions carried out pursuant to an SBSEF's emergency authority to be included in a timely submission of a certified rule pursuant to Rule 807.
The Commission received no comments on Proposed Rule 824 and is adopting Rule 824 as proposed, with minor technical modifications,
SEA Core Principle 8
Proposed Rule 825 would implement SEA Core Principle 8 and is closely modeled on subpart J of part 37. Paragraph (a) of Proposed Rule 825, like § 37.900, would repeat the statutory language of the Core Principle. While § 37.901 provides that a SEF shall report swap transaction data pursuant to parts 43 and 45 of the CFTC's rules, paragraph (b) of Proposed Rule 825 would direct SBSEFs to report SBS transaction data in a manner specified in the SEC's Regulation SBSR.
Paragraph (c) of Proposed Rule 825 would require the publication, on an SBSEF's website, of a “Daily Market Data Report.” The data fields that the Commission proposed to require for the Daily Market Data Report approximated, although they were not the same as, those required by part 16. Under Proposed Rule 825(c)(1), the Daily Market Data Report for a business day would be required to contain the following information for each tenor of each SBS traded on that SBSEF during that business day:
(i) The trade count (including block trades but excluding error trades, correcting trades, and offsetting trades);
(ii) The total notional amount traded (including block trades but excluding error trades, correcting trades, and offsetting trades
(iii) The number of block trades;
(iv) The total notional amount of block trades;
(v) The opening and closing price;
(vi) The price that is used for settlement purposes, if different from the closing price; and
(vii) The lowest price of a sale or offer, whichever is lower, and the highest price of a sale or bid, whichever is higher, that the SBSEF reasonably determines accurately reflects market conditions. Bids and offers vacated or withdrawn shall not be used in making this determination. A bid is vacated if followed by a higher bid or price and an offer is vacated if followed by a lower offer or price.
Paragraph (c)(2) of Proposed Rule 825 would require an SBSEF to provide certain explanatory information regarding data presented on the Daily Market Data Report:
(i) The method used by the SBSEF in determining nominal prices and settlement prices; and
(ii) If discretion is used by the SBSEF in determining the opening and/or closing ranges or the settlement prices, an explanation that certain discretion may be employed by the SBSEF and a description of the manner in which that discretion may be employed. Discretionary authority would have to be noted explicitly in each case in which it is applied (for example, by use of an asterisk or footnote).
Paragraph (c)(3) of Proposed Rule 825 would set out various requirements regarding the form and manner by which an SBSEF makes available its Daily Market Data Report. Paragraph (c)(3)(i) would require the SBSEF to post on its website its Daily Market Data Report in a downloadable and machine-readable format using the most recent versions of the associated XML schema and PDF renderer as published on the Commission's website. Paragraph (c)(3)(ii) would require the SBSEF to make available its Daily Market Data Report without fees or other charges. Paragraph (c)(3)(iii) would prohibit the SBSEF from imposing any encumbrances on access or usage restrictions with respect to the Daily Market Data Report. Paragraph (c)(3)(iv) would prohibit the SBSEF from requiring a user to agree to any terms before being allowed to view or download the Daily Market Data Report, such as by waiving any requirements of Rule 825(c)(3). Paragraph (c)(3)(iv) would further provide that any such waiver agreed to by a user would be null and void.
Paragraph (c)(4) of Proposed Rule 825 would require the SBSEF to publish the Daily Market Data Report on its website no later than the SBSEF's commencement of trading on the next business day after the day to which the information pertains. Finally, paragraph (c)(5) would require the SBSEF to keep each Daily Market Data Report available on its website in the same location as all other Daily Market Data Reports for no less than one year after the date of first publication.
Several commenters criticized the Daily Market Data Report required by Proposed Rule 825.
This commenter further states that the Commission's proposal does not address why the CFTC's approach would not be acceptable in the context of SBSEFs and does not justify the increased operational costs to SBSEFs (which will ultimately be passed on to members). The commenter also states that the Commission has not considered the costs and potential for duplicative requirements in the context of Regulation SBSR reporting requirements. The commenter concludes that, in sum, the Daily Market Data Report is overly granular and duplicative, is unnecessary for transparency purposes, and could negatively impact the market and market participants. The commenter states that the Commission should therefore remove the Daily Market Data Report in favor of harmonizing with the analogous CFTC rules and that, if the Commission does not eliminate the Daily Market Data Report requirement altogether, it should adopt additional masking protections for trades, specifically with respect to block trades. Failure to do so, the commenter states, would cause inappropriate and detrimental disclosures and would “negate the benefits that the rule purports to achieve by exempting block trades from clearing [sic] requirements.”
Another commenter states that the requirement for a Daily Market Data Report is a departure from the otherwise generally harmonized rule proposal and risks overly complicating the SBSEF regime for limited benefit, particularly with SBS reporting and dissemination in place through Regulation SBSR.
One commenter states that the Daily Market Report is not necessary because the CFTC SEF regulatory framework, which does not impose such a requirement, provides sufficient price transparency.
This commenter further states that the issues it has identified are amplified even further if the Daily Market Report does not follow the cap requirements that apply in the public price dissemination of data under the Commission's trade reporting rule and related Commission no-action relief. The commenter states that publication of uncapped trade sizes could, in certain cases, reveal the exact notional amount of a trade to the public, which is not permitted under the Commission's SBS trade reporting rules. The commenter states that this is especially concerning given that the proposed Daily Market Report provides detailed information by SBS product and tenor. The commenter states that the Commission should abandon its proposed Daily Market Report or, if it does not, require publication of the proposed report on a monthly or quarterly basis and make it subject to the cap size requirements imposed on SBSDRs. This, the commenter states, would ensure that the report does not conflict with the protections afforded to market participants per the cap size requirements and under the Commission's SBS trade reporting rules and related relief for SBS.
Another commenter states that, in its experience with the reports required under CFTC part 16, which requires the compilation of similar information as the proposed Daily Market Data Report, the timeline for publication proposed under Rule 825(c)(4) would be impractical, if not technologically impossible.
Many of the reporting requirements of the Daily Market Data Report under Proposed Rule 825 are closely aligned with the data required to be disclosed on a daily basis by SEFs under § 16.01 of the CFTC's rules. Both rules require the daily disclosure of: (1) a measure of trading volume in terms of trades or contracts;
Further, the Commission is modifying Proposed Rule 825 to resolve the two differences between the proposed Daily Market Data Report and the existing CFTC reporting scheme under § 16.01: (1) that the Daily Market Data Report would include the number of block trades executed;
A number of commenters raised specific concerns that the disclosures in the Daily Market Data Report would hamper the efficient trading of block trades.
The Commission is also modifying Proposed Rule 825 to address the comment that an SBSEF that operates nearly 24 hours a day might not be able to comply with the requirement to publish the Daily Market Data Report before the beginning of trading on the next business day. Accordingly, the Commission is modifying Proposed Rule 825(c)(4) to require the publication of the Daily Market Data Report “as soon as reasonably practicable on the next business day after the day to which the information pertains, but in no event later than 7 a.m. on the next business day.” This modified requirement, while less stringent than the requirement as proposed, would differ slightly from the CFTC's requirement that such information must be made public “no later than the next business day.”
With these modifications, the proposed Daily Market Data Report for SBSEFs is consistent with the required daily disclosures for SEFs. While one commenter states that Proposed Rule 825(c)(1) increases the burden on SBSEFs compared to SEFs, including by calling for qualitative descriptions of certain data, the data called for by Rule 825(c)(1), as modified, does not differ materially from that required to be published daily under § 16.01. Thus, the Commission does not agree with the commenter that the data required under the Commission approach differs materially from that required under the CFTC approach or that the Daily Market Data Report will result in an unjustified increase in operational costs.
Further, the Commission does not agree with commenters that the Daily Market Data Report would serve as a duplicative source of information to reporting under Regulation SBSR and therefore risks overly complicating the SBSEF regime for limited benefit, without benefit to price improvement or liquidity formation. Regulation SBSR requires the reporting and public dissemination of SBS transactions,
With respect to the means of publication of the information, while the means of publishing the Daily Market Data Report varies from that specified under the CFTC regime, the difference is not material. The Commission proposed that this information be posted on an SBSEF's website in the most recent XML schema and PDF renderer, without fees or charges, without any encumbrances on access or usage, and without requiring
Proposed Rule 825(c)(3) is designed to promote wide use of the SBS trading information contained in the Daily Market Data Report by prohibiting an SBSEF from imposing any financial, legal, or operational burdens on that use, and, as the Commission stated in the Proposing Release, the prohibition against an SBSEF imposing any usage restrictions on its Daily Market Data Report would necessarily encompass a prohibition on bulk redistribution of the Daily Market Data Report or any information contained therein.
For the reasons discussed above, the Commission is adopting Rule 825 as modified.
SEA Core Principle 9
To implement SEA Core Principle 9, the Commission proposed Rule 826, which roughly approximates §§ 1.31 and 45.2 of the CFTC's rules,
Paragraph (a) of Proposed Rule 826 would repeat the statutory text of the Core Principle. Paragraph (b) would require an SBSEF to keep full, complete, and systematic records,
Paragraph (c) of Proposed Rule 826 would require an SBSEF to keep records of any SBS from the date of execution until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction, and for a period of not less than five years, the first two years in an easily accessible place, after such date. Paragraph (c) also would require an SBSEF to keep each record (other than a record of an SBS noted in the previous sentence) for a period of not less than five years, the first two years in an easily accessible place, from the date on which the record was created. The five-year retention requirements would be consistent with section 3D(d) of the SEA
Paragraph (d)(1) of Proposed Rule 826 would require an SBSEF to retain all records in a form and manner that ensures the authenticity and reliability of such records in accordance with the SEA and the Commission's rules thereunder. Paragraph (d)(2) would require an SBSEF, upon request of any representative of the Commission, to promptly
Paragraph (e) of Proposed Rule 826 would provide that all records required to be kept by an SBSEF pursuant to Rule 826 would be subject to examination by any representative of the Commission pursuant to section 17(b) of the SEA, which is the source of the Commission's examination authority for registered brokers (among other types of registered entities). Proposed Rule 826(e) is designed only to remind SBSEFs of this statutory authority and would not seek to limit or expand that authority using the Commission's powers over SBSEFs in section 3D of the SEA.
Proposed Rule 826 would include a paragraph (f) that is not modeled on any provision of § 1.31 or § 45.2, but rather on § 1.37(c) of the CFTC's rules, which would provide: “Each designated contract market and swap execution facility shall keep a record in permanent form, which shall show the true name, address, and principal occupation or business of any foreign trader executing transactions on the facility or exchange. In addition, upon request, a designated contract market or swap execution facility shall provide to the Commission information regarding the name of any person guaranteeing such transactions or exercising any control over the trading of such foreign trader.” Proposed Rule 826(f) is modeled closely on § 1.37(c), except that it would use the term “non-U.S. member” rather than “foreign trader.”
The Commission received no comments on Proposed Rule 826 and is adopting Rule 826 as proposed, with minor technical modifications,
SEA Core Principle 10
The Commission did not receive any comments on Proposed Rule 827 and is adopting Rule 827 as proposed, for the reasons stated in the Proposing Release.
SEA Core Principle 11
Proposed Rule 828 would implement SEA Core Principle 11. Paragraph (a) of Rule 828, like § 37.1200, would repeat the statutory text of the Core Principle. Paragraph (b) would direct an SBSEF to comply with the requirements of Rule 834, which, as discussed below, would implement section 765 of the Dodd-Frank Act for both SBSEFs and SBS exchanges.
The Commission received no comments on Proposed Rule 828 and is adopting Rule 828 as proposed for the reasons stated in the Proposing Release.
Core Principle 12
CEA Core Principle 13 for SEFs
Paragraph (a) of Proposed Rule 829 would repeat the statutory text of SEA Core Principle 12.
One commenter states that the language in paragraph (a)(2)(i) of Proposed Rule 829 that requires an SBSEF to have sufficient financial resources “to meet its financial obligations to its members notwithstanding a default by a member creating the largest financial exposure for that organization in extreme but plausible market conditions” is not adequate.
Another commenter states that the same provision, paragraph (a)(2)(i) of Proposed Rule 829, is overly burdensome and unnecessary.
The requirements of Proposed Rule 829(a)(2)(i), which repeats the statutory text of SEA Core Principle 12, do not need to be more stringent, as suggested by the first commenter. The provision requires an SBSEF to have adequate resources to “meet its financial obligations to its members” even in case of a default by a member creating the largest financial exposure. By the plain meaning of its terms, the provision requires that an SBSEF meet its financial obligations. The Commission does not see a benefit to requiring an SBSEF to have the financial resources that exceed its obligations. As long as an SBSEF's obligations are met, its members can be made whole with respect to any obligations of the SBSEF and the SBSEF can continue to operate. Therefore, ensuring that an SBSEF can meet its financial obligations is sufficient. Furthermore, the provision itself already envisions “extreme but plausible market conditions,” analogous to the “conditions of financial uncertainty and stress” that the commenter discusses.
At the same time, Proposed Rule 829(a)(2)(i) should not be eliminated, and the rules should not be interpreted in a manner that allows the requirements of Proposed Rule 829(a)(2)(i) to be satisfied by complying with Proposed Rule 829(b). First, the requirement that an SBSEF be able to cover its financial obligations even when its largest member defaults is in the statutory language of the SEA, and the Commission is not adopting a rule inconsistent with this requirement. The statutory language is an appropriate requirement to impose on SBSEFs because it seeks to address a plausible risk caused by the default of a member, a financial risk that, if an SBSEF has not accounted for it, could endanger the SBSEF's ability to continue to operate. While, the commenter is correct that the CFTC's rules do not have a similar provision, it is also the case that the CEA does not have a similar provision. Therefore, while the Commission is, as explained above, generally striving for harmonization with the CFTC, the Commission is not modifying Proposed Rule 829(a) to remove the requirement that an SBSEF have adequate resources to meet its financial obligations to its members even in case of a default by a member creating the largest financial exposure. Second, the Commission will not affirm that it will, as requested by a commenter, interpret the rules in a manner that allows the requirement of Rule 829(a) to be satisfied by satisfying the requirements of Rule 829(b). The scope of Proposed Rule 829(a) and Proposed Rule 829(b) are different. Proposed Rule 829(a) would in general address having adequate financial (and operational and managerial) resources to discharge each responsibility of an SBSEF. Proposed Rule 829(b) would specifically address the financial (not operational or managerial) resources that are necessary to comply with one type (not each type) of responsibility of the SBSEF,
For the reasons discussed above, the Commission is adopting Rule 829(a) as proposed, with a minor technical modification.
Paragraph (b) of Proposed Rule 829 is closely modeled on § 37.1301 of the CFTC's rules,
The Commission did not receive any comments and is adopting Rule 829(b) as proposed for the reasons stated in the Proposing Release.
Paragraph (c) of Proposed Rule 829 is closely modeled on § 37.1302 of the CFTC's rules,
The Commission did not receive any comments on Proposed Rule 829(c) and is adopting Rule 829(c) as proposed for the reasons stated in the Proposing Release.
Paragraph (d) of Proposed Rule 829 is closely modeled on § 37.1303 of the CFTC's rules,
The Commission did not receive any comments on Proposed Rule 829(d) and is adopting Rule 829(d) as proposed for the reasons stated in the Proposing Release.
Paragraph (e) of Proposed Rule 829 is closely modeled on § 37.1304 of the CFTC's rules,
The Commission did not receive any comments on Proposed Rule 829(e) and is adopting Rule 829(e) as proposed, with a minor technical modification for the reasons stated in the Proposing Release.
Paragraph (f) of Proposed Rule 829 is closely modeled on § 37.1305 of the CFTC's rules,
The Commission did not receive any comments on Proposed Rule 829(f) and is adopting Rule 829(f) as proposed for the reasons stated in the Proposing Release.
Paragraph (g) of Proposed Rule 829 is closely modeled on § 37.1306 of the CFTC's rules,
The Commission did not receive any comments on Proposed Rule 829(g) and is adopting Rule 829(g) as proposed, with minor technical modifications, for the reasons stated in the Proposing Release.
Paragraph (A) of SEA Core Principle 13
Proposed Rule 830 is closely modeled on subpart O of part 37 of the CFTC's rules, except in one aspect. Subpart O includes language relating to “critical financial markets,”
One commenter states that it has seen no changes in the SBS market that should cause the Commission to revisit its decision not to apply Regulation SCI to SBSEFs. The commenter states that, as the Commission has noted, the greatest operations risk to a dually registered entity is likely to arise from the swap business rather than the SBS business. From this standpoint, according to the commenter, it is appropriate for the Commission to align with the CFTC approach to ensure that SEFs and SBSEFs alike have adequate system safeguards and business continuity protocols that are aligned with this risk.
Subpart O is reasonably designed to promote SEF operational capability, and that the most appropriate way to implement SEA Core Principle 13 is to closely harmonize with the CFTC's rules that implement the corresponding Core Principle. As with SEA Core Principle 12 (Financial resources),
Therefore, the Commission is adopting Rule 830 as proposed, with minor technical modifications.
SEA Core Principle 14
Proposed Rule 831 would implement SEA Core Principle 14 and is closely modeled on subpart P of part 37, with two minor substantive exceptions.
The Commission received one comment on Proposed Rule 831. The commenter states that he fully supports the intent of the proposed regulations and believes that the CCO role is the single most important compliance role in an SBSEF and that it is critical that its job description, and the entity's rules, structures, and procedures, act to secure and maintain the CCO's independence. For example, the commenter states, the CCO should have a single compliance role and no other competing role or responsibility that could create conflicts of interest or threaten its independence. Therefore, the commenter suggests that the rules restrict the CCO position from being held by an attorney who represents the SBSEF or its board of directors, such as an in-house or general counsel. The commenter also states that the remuneration of the CCO must be specifically designed in such a way that avoids potential conflicts of interest with its compliance role.
The commenter further states that although the CCO would normally report to an executive officer, the CCO must also have a direct reporting line to the independent directors, and the CCO should report to the audit committee at least yearly. The commenter strongly recommends amending § 242.831 such that the authority and sole responsibility to designate or remove the CCO, or to materially change its duties and responsibilities, vests only with the independent directors and not with the full board. This would help, the commenter states, to ensure the independence of the CCO within the entity and would possibly mitigate the need to promulgate rules requiring the SBSEF to insulate the CCO from undue pressure and coercion or to address the potential conflict between and among compliance interests, commercial interests and ownership interests of an SBSEF.
The CFTC has implemented CEA Core Principle 14 for SEFs in an appropriate way, and that closely harmonizing with subpart P of part 37 would yield comparable regulatory benefits while imposing only marginal additional costs. While the commenter's suggestions would support the independence of the CCO, key provisions of paragraph (b) of Proposed Rule 831 would sufficiently protect the independence and authority of an SBSEF's CCO in performing the required functions. Significantly, paragraph (b)(1) would require that the position of CCO carry with it sufficient authority and resources to fulfill the position's duties, and paragraph (b)(2) would provide that the CCO shall have supervisory authority over all staff acting at the CCO's direction. The SBSEF remains responsible for establishing and administering required policies and procedures.
The Commission also recognizes that most SBSEFs are likely to be dually registered SEF/SBSEFs and that the swaps business of a dually registered SEF/SBSEF is likely to be much larger than its SBS business. Therefore, the greatest compliance risks to a dually registered entity are likely to arise from the swap business rather than the SBS business, and it is thus logical for the SEC to harmonize with the CFTC's rules regarding the CCO. There are strong economic incentives for a dually registered entity to appoint the same individual to serve as the CCO for both the swap and SBS businesses, and for the CCO to carry out their functions under a similar set of rules. Different or additive requirements imposed by the SEC could increase costs for SEF/SBSEFs while generating benefits that are marginal at best. The Commission does not observe any differences in the SBS market relative to the swaps market that warrant imposing different or additive CCO requirements on SBSEFs relating to the CCO.
For the reasons discussed above, the Commission is adopting Rule 831 as
Given the global nature of the SBS market, where there is frequent interaction among counterparties domiciled in different jurisdictions, the Commission proposed Rule 832 to address when the trade execution requirement would apply to a cross-border SBS transaction.
Paragraph (a) of Rule 832 would provide that the trade execution requirement set forth in section 3C(h) of the SEA shall not apply to an SBS unless at least one counterparty to the SBS is a “covered person” as defined in paragraph (b). Paragraph (b) of Rule 832 would define the term “covered person” with respect to a particular security-based swap, as any person that is: (1) a U.S. person;
Two commenters express support for Rule 832 or its subparts. Specifically, one commenter states that inclusion of paragraphs (b)(2) and (b)(3) in the proposed rule—where one counterparty of an SBS transaction is a non-U.S. person whose performance under an SBS is guaranteed by a U.S. person (“guaranteed person transactions”), and where one counterparty of an SBS transaction is a non-U.S. person who, in connection with its SBS dealing activity, uses U.S. personnel located in a U.S. branch or office, or personnel of an agent of such non-U.S. person located in a U.S. branch or office, to arrange, negotiate, or execute a transaction (“ANE transactions”), respectively—are “appropriately broad [and] will help prevent attempted evasion of the trade execution requirement by ensuring that it will apply where there is a significant connection to the U.S., even when neither counterparty is a U.S. person.”
While generally supportive of Rule 832, this commenter believes that, in addition to guaranteed person transactions, the rule should also cover transactions that include a “de facto guarantee” by a U.S. person, which this commenter states represents “an unspoken but nevertheless powerful arrangement whereby a parent or other U.S. person has a virtually irresistible incentive to cover the losses incurred by another affiliated entity” given the reputational impact a failure of even a non-guaranteed affiliate could have.
Another commenter expresses support for paragraph (b)(3) of Rule 832 relating to ANE transactions.
Several commenters oppose certain aspects of Rule 832. One commenter disagrees with the Commission's application of the trade execution requirement to transactions involving foreign branches of U.S. persons, as well as to guaranteed person transactions.
Several commenters also oppose subjecting ANE transactions to the trade execution requirement in Rule 832(b)(3). One commenter believes that ANE transactions fall outside the jurisdictional reach of Title VII, and that
Several commenters warn of negative implications for the SBS market from applying the trade execution requirements to ANE transactions.
These commenters also state that foreign jurisdictions have adopted robust regulatory regimes that already subject non-U.S. persons and foreign trading venues to comparable and comprehensive regulations in their respective jurisdictions.
Finally, one commenter requests that the Commission make more explicit that the “covered person” definition in Rule 832 is a transaction-based test,
The Commission has considered the comments received for Rule 832 and is adopting the rule as proposed, with minor technical modifications.
Rule 832 fits comfortably within the bounds of that statutory authority. A U.S. person undertaking SBS transactions within the United States is, as no commenter disputes, engaging in an SBS in the United States (irrespective of whether the counterparty is overseas). And this is true even if the U.S. person is undertaking the SBS transaction from a foreign office. As the Commission has explained, “a foreign office has no separate existence from the U.S. person itself.”
For similar reasons, a non-U.S. person who enters an SBS with another non-U.S. person has nonetheless engaged in an SBS in the United States (at least in part) if that SBS arrangement is guaranteed by a U.S. person. When a non-U.S. person operates with a guarantee from a U.S. person for the non-U.S. person's performance under an SBS, the SBS arrangement is economically equivalent and substantially identical with a transaction entered into directly with the U.S. guarantor. With such an arrangement, an essential element of the transaction from the viewpoint of the
Further, the statutory language is, in the Commission's view, reasonably understood to encompass a non-U.S. person who, in connection with its SBS dealing activity, uses U.S. personnel located in a U.S. branch or office, or personnel of an agent of such non-U.S. person located in a U.S. branch or office, to arrange, negotiate, or execute an SBS transaction. These activities rise to the level of engaging in an SBS in the United States. Undertaking critical steps in an SBS transaction qualifies as engaging in an SBS in the United States, no less than placing ultimate legal or financial responsibility for an SBS with a person in the United States (as occurs in the cases discussed above of an SBS transaction involving either a foreign office of a U.S. person or a U.S. guarantor).
The Commission's assessment of the relevant domestic activities that constitute engaging in an SBS is consistent not only with the statutory text, but also the statutory objectives underlying the execution requirement. These objectives include, among other things, helping to ensure the financial stability of U.S. persons engaged in SBS transactions, the promotion of transparency in price formation for SBS transactions that have a nexus to the U.S. securities markets, and the prevention of manipulation, price distortion and disruptions of the delivery or cash settlement process within the U.S. market system. Each of the components of Rule 832 helps to advance one or more of these statutory goals and, thus, further supports the Commission's reasonable understanding of what constitutes engaging in an SBS in the United States.
With that general explanation of how Rule 832 fits comfortably within our statutory authority, the Commission will address the specific comments that were received on the rule. For the reasons discussed above, the Commission disagrees with the comment that Rule 832 should not extend the trade execution requirement to transactions involving foreign branches of U.S. persons or guaranteed person transactions.
For the reasons discussed above, as well as the reasons discussed immediately below, the Commission also disagrees with the argument that the Commission should not extend SBSEF rules, which include mandatory trade execution, to transactions with non-U.S. counterparties (even if they involve guaranteed persons) where the lack of such rules would have no ability of posing risk to the U.S. financial system.
With respect to commenters' views opposing the inclusion of ANE transactions in Rule 832,
In adopting Rule 832, the Commission has been mindful of its impact on CFTC-registered SEFs and, as a commenter suggests,
The Commission also disagrees with the characterization of Rule 832 with respect to ANE transactions as bringing “a random selection of additional transactions into scope” and the belief that the location of personnel in the United States should not form the basis for applying the Commission's trade execution requirement.
Specifically, the Commission has clarified that Title VII requirements using an “arranged, negotiated, or executed” test are not triggered in certain circumstances where the market-facing activity of U.S. personnel is “so limited that it would not implicate the regulatory interests underlying the relevant Title VII requirements.”
With this existing guidance that applies to cross-border ANE transactions subject to Rule 832,
Finally, with respect to the request by one commenter that the Commission revise the “covered person” definition in Rule 832 to make more explicit that it is a transaction-based test,
Accordingly, for the reasons discussed above, the Commission is adopting Rule 832 as proposed, with minor technical modifications.
As discussed above, Rule 832 specifies when the trade execution requirement applies to an individual cross-border SBS transaction. When covered persons (as defined in Rule 832) are members of a foreign trading venue for SBS (a “foreign SBS trading venue”) with respect to SBS transacted on that venue, whether or not such SBS are subject to the trade execution requirement, the foreign SBS trading venue could be required to register with the Commission as a national securities exchange or SBSEF
To address the situation of a foreign SBS trading venue that wishes to avoid registering with the Commission in one or more of these capacities, the Commission proposed Rule 833(a). Rule 833(a), which would specify that a foreign SBS trading venue can request that the Commission grant it an exemption under section 36(a)(1) of the SEA
As with other exemptions issued pursuant to section 36, to issue a Rule 833(a) exemption, the Commission would be required to find that the exemption is necessary or appropriate in the public interest, and consistent with the protection of investors.
The Commission also proposed Rule 833(b), which would address requests for exemptive relief relating to the application of the trade execution requirement to transactions executed on a foreign SBS trading venue. Rule 833(b)(2) would provide that, in considering whether to issue a Rule 833(b) exemption, the Commission may consider: (i) the extent to which the SBS traded in the foreign jurisdiction covered by the request are subject to a trade execution requirement comparable to that in section 3C(h) of the SEA and the Commission's rules thereunder; (ii) the extent to which trading venues in the foreign jurisdiction covered by the request are subject to regulation and supervision comparable to that under the SEA, including section 3D of the SEA, and the Commission's rules thereunder; (iii) whether the foreign trading venue or venues where covered
As with other exemptions issued pursuant to section 36, to issue a Rule 833(b) exemption, the Commission would be required to find that the exemption is necessary or appropriate in the public interest, and consistent with the protection of investors. As contemplated by section 36(a)(1), the Commission may issue a Rule 833(b) exemption with conditions.
One commenter expresses general support for the establishment of a rule granting exemptions for foreign trading venues and for cross-border trade execution exemptions, noting that “difficulties that can arise when the trade execution requirement applies in two separate jurisdictions” and that “it is important for market participants and trading venues to have regulatory certainty while maintaining flexibility in where transactions may be consummated.”
Another commenter believes the Commission's proposed exemption rule should be made more robust to prevent evasion of the SBSEF registration and trade execution requirements. This commenter believes that Rule 833 does not provide meaningful standards for how the Commission will assess requests for such exemptions, which this commenter believes is insufficient, and provides the Commission with “unreasonably broad, nearly unlimited, discretion, in how it assess foreign swaps regulatory frameworks,” which this commenter believes may result in the Commission “facilitating evasion of Title VII.”
One commenter argues that Rule 833(b)'s requirements are unnecessary if a foreign trading venue has received an exemption under Rule 833(a), given that the Commission would be required to find that the Rule 833(a) exemption is “necessary or appropriate in the public interest and consistent with the protection of investors,” which this commenter believes “should be sufficient for the purposes of trading SBS on foreign trading venues, even when the trade execution requirement applies.”
Another commenter does not believe the exemptions in Rule 833 are sufficiently clear, and requests that the Commission consider setting forth charts or examples to better facilitate compliance.
With respect to Rule 833(b) specifically, several comments appear to anticipate that, in order for a transaction on a foreign SBS trading venue to qualify for the trade execution exemption under Rule 833(b), the relevant foreign jurisdiction would have to require RFQ-to-3 or an order book for Required Transactions.
Two commenters oppose requiring an exemption under Rule 833 to depend upon a “rule-by-rule” comparison or analysis. One commenter states that this would be “unduly burdensome and at odds with the overall goal of achieving comparable outcomes.”
Several commenters believe that Rule 833, as they understand it, would result in various negative consequences. One commenter states that covered persons would not be able to fulfill the trade execution requirement and that, as a result, market participants would then be forced to trade on a limited subset of venues, disrupting liquidity and requiring them to expend time and resources in onboarding to a compliant trading venue.
These commenters argue that the Commission should instead align with the CFTC's approach to exemptions, which does not require exempt foreign SEFs to have order books or to satisfy the RFQ-to-3 requirement, stating that the CFTC's “flexible, outcomes-based approach serves market participants well.”
These commenters argue that the Commission should “ensure that its proposed approach to granting exemption will produce outcomes similar to those of the CFTC” so as to “further harmonize with the CFTC's SEF framework, and promote consistency and simplicity. . . .”
The Commission has considered the comments received for Rule 833 and is adopting the rule as proposed. As the Commission stated in the Proposing Release,
The bulk of the comments received opposing Rule 833 appear to emanate from commenters' interpretation—and misunderstanding—of what would be required in order to receive a Rule 833(b) exemption. The Commission proposed Rule 833(b) to address requests for exemptive relief relating to the application of the trade execution requirement under section 3C(h) of the SEA to transactions executed on a foreign SBS trading venue. Pursuant to section 3C(h) of the SEA, an SBS that is subject to the trade execution requirement must be executed on an exchange, on an SBSEF registered under section 3D of the SEA, or on an SBSEF that is exempt from registration under section 3D(e) of the SEA.
Several commenters interpret the rule and the Commission's discussion of the rule in the Proposing Release to mean that a foreign SBS trading venue must have RFQ-to-3 and an order book for Required Transactions in order for transactions on that venue to qualify for a Rule 833(b) exemption.
First, Rule 833(b)(2) does not contain a list of items that “are required,” but rather lists items that the Commission “may consider” when it receives a
While, as commenters correctly state, for Required Transactions, Rule 815 requires SBS transactions to be executed through a limit order book or an RFQ-to-3 system,
Certain commenters also object that, in their understanding, a Rule 833(b) exemption request would require a “rule-by-rule” comparison or analysis,
An 833(b) exemptive request generally should include an analysis that could assist the Commission's determination as to whether the regulation and supervision of a foreign SBS trading venue in an applicable foreign jurisdiction is subject to regulation and supervision comparable to that under the SEA. Given the central roles the jurisdiction's applicable laws, rules and regulations, as well as a foreign SBS trading venue's own rules, play in such a determination, an exemptive request generally should include an analysis of these requirements. A precise form of any such analysis—whether it is done as a “rule-by-rule” comparison or through some other methodology (
With respect to the comments that the Commission should automatically provide exemptions for foreign trading venues that have received a parallel exemption from the CFTC for their SEF trading,
With respect to the comment that the provisions of Rule 833 are not robust enough,
Finally, the Commission disagrees with the commenter that suggested that Rule 833(b)'s requirements are unnecessary if a foreign trading venue has received an exemption under Rule 833(a).
Accordingly, for the reasons discussed above, the Commission is adopting Rule 833 as proposed.
Section 765(a) of the Dodd-Frank Act
In 2010, the Commission proposed Regulation MC to implement section 765.
Paragraph (a) of Proposed Rule 834 would define terms used in Rule 834. The Commission received no comments on of Proposed Rule 834(a) and is adopting Rule 834(a) as proposed for the reasons stated in the Proposing Release.
Paragraph (b) of Proposed Rule 834 would impose a cap on the size of the voting rights that an individual member of an SBSEF or SBS exchange may own or direct, barring an SBSEF or SBS exchange from permitting any of its members, either alone or together with any officer, principal, or employee of the member, to:
(1) Own, directly or indirectly, 20% or more of any class of voting securities or of other voting interest in the SBSEF or SBS exchange; or
(2) Directly or indirectly vote, cause the voting of, or give any consent or proxy with respect to the voting of, any interest that exceeds 20% of the voting power of any class of securities or of other ownership interest in the SBSEF or SBS exchange.
One commenter supports the Commission's goal to adopt rules that aim to achieve better governance and mitigation of conflicts of interest that arise out of the operation of SBSEFs, but the commenter opposes Rule 834 because it believes that the rule would disrupt the closely harmonized rules with the CFTC, as the CFTC has not adopted corresponding provisions for its SEF registrants. This commenter recommends that the Commission, like the CFTC, should focus on board governance, conflicts of interest, and antitrust considerations rather than proscriptive, bright line rules. The commenter states that the Commission's concerns regarding conflicts of interest “can best be addressed by ensuring compliance with the SBSEF Core Principles rather than an additional regulation,”
Another commenter states that that the proposed 20% voting cap requirement could potentially thwart the Commission's objective to ensure that only incremental changes would be
One commenter states that it strongly opposes Rule 834 and that, as written, Rule 834 would have the effect of prohibiting certain SBSEF participants from having common ownership and control as the SBSEF. An SBSEF, the commenter states, would likely not be able to onboard an affiliated introducing broker, even if the introducing broker would be subject to the same rules and practices as an unaffiliated participant. The commenter states that some CFTC-registered SEFs, including the commenter's member firms, have affiliated introducing-broker participants that execute their respective swaps business on their affiliated SEFs, and the affiliated transactions make up a majority of the SEF's business. The commenter states that these firms may choose not to register as an SBSEF and take on the costs and burdens of being an SBSEF if they cannot accommodate their affiliate's trade execution needs, which would thwart the goal of developing a competitive landscape of regulated SBS market places.
This commenter further states that it and many others previously opposed these hard caps when they were proposed in 2010, and that—with a decade of experience operating SEFs and venues for other financial products, including Commission regulated alternative trading systems—the commenter still believes the rule's approach is “too heavy-handed” a way to solve a problem that has been more than adequately addressed through less burdensome measures.
The Commission has considered the comments and, as discussed below, is modifying Proposed Rule 834 to provide an exemption from the ownership and voting caps for an SBSEF that has mitigated the potential conflict of interest with respect to compliance with the rules of the SBSEF by entering into an agreement with a registered futures association or a national securities association for the provision of regulatory services that encompass, at a minimum, real-time market monitoring, investigations, and investigation reports.
The 20% cap in Proposed Rule 834(b) is designed to balance competing policy interests. On one hand, execution venues need capital, expertise, and liquidity to establish and grow. Historically, market participants who become members of an execution venue are a source of all three components, and any person contributing capital to a new venture might reasonably expect to have a voting interest commensurate with the amount of capital contributed. Too low a cap, even if imposed in the name of eliminating conflicts of interest, could have the unintended effect of impeding the development of execution venues for SBS altogether, if market participants who become members have no (or substantially limited) ability to vote their equity interest.
On the other hand, allowing a member of an SBSEF or SBS exchange too large a voting interest could undermine the public policy benefits of having transparent, fair, and regulated markets for the trading of SBS. A member of an SBSEF or SBS exchange with a sufficiently large voting interest could exercise undue influence over the rules and policies applicable to members, the venue's access criteria, decisions regarding access, and disciplinary matters, among other things. In particular, members who are SBS dealers and conduct a significant amount of business in the bilateral OTC market have incentives to restrict the scope of SBS that an SBSEF or SBS exchange makes eligible for trading. Trading in a market with robust order competition and pre-trade transparency reduces search costs for end users and liquidity seekers and reduces the information and bargaining asymmetry of end users and liquidity seekers relative to SBS dealers. An SBS dealer with a large voting interest in an SBSEF or SBS exchange, if it perceived that trading on the regulated venue was diminishing the rents obtained from its bilateral OTC business, might seek to utilize its voting influence in a number of ways to degrade the capability of the regulated venue, thus making the OTC market by comparison a more attractive option.
Capping a member's voting interest at 20% strikes a reasonable balance between these competing interests, absent additional measures to ensure that a member or members with large voting power could tilt the playing field in their favor. And the Commission does not agree with the comment that a more general focus on board governance, conflicts of interest, and antitrust considerations, or on simply ensuring compliance with the SBSEF Core Principles,
The Commission, however, appreciates the concerns expressed by commenters that a cap of 20% on voting interest in all cases could prevent would-be SBSEFs from onboarding their affiliated introducing brokers, and that the burdens imposed in setting up an SBSEF that is legally remote from affiliated introducing brokers may dissuade current SEFs from registering as SBSEFs, which would lead to their ceasing to offer SBS trading on their
This exemption, which is conditioned upon an SBSEF conducting its market monitoring and investigative activities through a self-regulatory body that has broader membership than an individual SBSEF and that does not operate its own SBSEF, would mitigate concerns that members with large ownership shares might be given preferential treatment with respect to their compliance with the SBSEF's rules. And the exemption should also, by permitting SBSEFs to exceed the 20% ownership and voting cap, serve to facilitate the formation and registration of SBSEFs, thereby also facilitating the movement of SBS trading to venues that are more transparent and that have affirmative regulatory obligations.
The Commission acknowledges that this exemption, because it focuses on surveillance and compliance functions, does not directly address concerns about an SBSEF adopting rules that hamper impartial access to an SBSEF, restrict the scope of SBS that might trade on a given SBSEF, or degrade the capability of a given SBSEF in ways that would favor a member's OTC SBS business. These concerns, however, can be addressed in other ways. With respect to impartial access, the requirements of Proposed Rule 819(c), together with the guidance the Commission has provided regarding the application of that rule,
Because the Commission has modified Proposed Rule 834 to provide for an exemption from the 20% ownership and voting cap, it is not the case that, as one commenter states, existing SEFs would necessarily be required to set up a new legal entity to operate an SBSEF, making it more challenging to obtain dual registration and potentially thwarting the Commission's objective to ensure that only incremental changes would be necessary to adopt the SBSEF framework. And although the Commission's proposed ownership rule departs from the CFTC's rules for SEFs, which do not include caps on ownership or voting, the Commission is also mindful of the trading relationship between SBS and their underlying securities—which trade on exchanges that have a similar 20% ownership and voting cap as a result of their Commission-approved rules—and the Commission wishes to avoid creating a regulatory incentive for activity to migrate from trading securities on national securities exchanges to trading SBS on SBSEF. For similar reasons, it would not be appropriate to extend the exemption in new paragraph (b)(3) of Proposed Rule 834 to SBS exchanges. Providing an exemption from the 20% ownership and voting cap requirements for SBS exchanges in Proposed Rule 834(b)(1) would result in different treatment from other national securities exchanges simply because one set of exchanges trades SBS, and this is not a sufficient reason to permit different ownership structures only for those exchanges, as this could lead to regulatory arbitrage by creating incentives for new exchanges to register first as SBS exchanges, without the ownership and voting caps, and then seek to amend their rulebooks to commence trading in cash equities. As it stated in the Proposing Release, the Commission proposed to apply the 20% ownership and voting on SBS exchanges based on its “long experience with handling questions of member influence over national securities exchanges raised in applications to register with the Commission on Form 1 and in governance rule filings made on SEA Form 19b-4,”
Finally, the Commission reiterates that Proposed Rule 834(b) would cover both direct and indirect voting interests. The purpose of including indirect voting interest is to prevent potential circumvention of the 20% cap if, for example, a member placed its voting interest in an SBSEF or SBS exchange of 20% or more in a shell company or other affiliate and directed how the shell company or affiliate casts those votes. Accordingly, Proposed Rule 834(b) would look through the non-member entities holding interests in SBSEFs and SBS exchanges to consider whether any member could indirectly control 20% or more of the voting interest through the non-member entity having the direct interest. Furthermore, Proposed Rule 834(b) would look through the corporate structure of the SBSEF or SBS exchange to consider whether any member could indirectly have 20% or more of the voting interest in the underlying trading venue. For example, an SBSEF or SBS exchange could be wholly owned by a holding company. In such a case, the voting restriction in Proposed Rule 834(b) would apply to the voting interest in the parent holding company held by a member of the child SBSEF or SBS exchange, since a direct voting interest of 20% or more in the parent would equate to an indirect voting interest of 20% or more in the child trading venue.
And, similar to its approach to indirect voting interest, Proposed Rule 834(b) would aggregate the voting interest of the member itself with the voting interest held by any officer, principal, or employee of the member for purposes of determining compliance with the 20% cap. Without this provision, the member—or an officer, principal, or employee of the member—could split the voting interest held in the SBSEF or SBS exchange across multiple persons who would likely be voting that interest in concert, thereby potentially acting as a conflict of interest. The Commission did not receive comments on the aggregation-of-interest aspect of Proposed Rule 834(b).
For these reasons, the Commission is adopting Rule 834(b) with the modifications discussed above.
Paragraph (c) of Proposed Rule 834 would include requirements designed to reinforce the 20% cap in paragraph (b). Paragraph (c) would require the rules of each SBSEF and SBS exchange to be reasonably designed, and have an effective mechanism, to:
(1) Deny effect to the portion of any voting interest held by a member in excess of the 20% limitation;
(2) Compel a member who possesses a voting interest in excess of the 20% limitation to divest enough of that voting interest to come within that limit; and
(3) Obtain information relating to its ownership and voting interests owned
The Commission received no comments on Proposed Rule 834(c) and is adopting Rule 834(c) as proposed, with minor technical modifications,
Paragraph (d) of Proposed Rule 834 is designed to mitigate conflicts of interest in the disciplinary process of an SBSEF or SBS exchange and would provide as follows: “Each security-based swap execution facility and SBS exchange shall ensure that its disciplinary processes preclude any member, or group or class of its members, from dominating or exercising disproportionate influence on the disciplinary process. Each major disciplinary committee or hearing panel thereof shall include sufficient different groups or classes of its members so as to ensure fairness and to prevent special treatment or preference for any person or member in the conduct of the responsibilities of the committee or panel.” Paragraph (d) of Proposed Rule 834 would recognize that one way that a conflict of interest could manifest itself is in the disciplinary process. Therefore, the Commission proposed, as the first sentence of Proposed Rule 834(d), that each SBSEF and SBS exchange should “preclude any member, or group or class of its members, from dominating or exercising disproportionate influence on the disciplinary process.”
The second sentence of Proposed Rule 834(d) is adapted from § 1.64 of the CFTC's rules, which addresses the composition of various SRO governing boards and major disciplinary committees.
The Commission received no comments on Proposed Rule 834(d) and is adopting Rule 834(d) as proposed for the reasons stated in the Proposing Release.
Paragraph (e) of Proposed Rule 834 is closely modeled on § 1.64(b). Paragraph (e)(1)(i) would require each SBSEF and SBS exchange to ensure that 20% or more of the persons who are eligible to vote routinely on matters being considered by the governing board (excluding those members who are eligible to vote only in the case of a tie vote by the governing board) are persons who are knowledgeable of SBS trading or financial regulation, or otherwise capable of contributing to governing board deliberations. Paragraphs (e)(1)(ii) through (v) of Proposed Rule 834 are based on four of the prongs in § 1.64(b)(1)(ii) and would provide that 20% or more of the persons who are eligible to vote routinely on matters being considered by the governing board (excluding those members who are eligible to vote only in the case of a tie vote by the governing board) must not be: members of the SBSEF or SBS exchange;
Paragraph (e)(2) of Proposed Rule 834, modeled on § 1.64(b)(3), would require each SBSEF and SBS exchange to ensure that membership of its governing board includes a diversity of groups or classes of its members.
The Commission did not receive comments on Proposed Rule 834(e) and is adopting Rule 834(e) as proposed, for the reasons stated in the Proposing Release.
Paragraph (f) of Proposed Rule 834 is based closely on § 1.64(d) and would require each SBSEF and SBS exchange to submit to the Commission, within 30 days after each governing board election, a list of the governing board's members, the groups or classes of members that they represent, and how the composition of the governing board otherwise meets the requirements of Rule 834.
The Commission received no comments on Proposed Rule 834(f) and is adopting Rule 834(f) as proposed for the reasons stated in the Proposing Release.
Paragraph (g) of Proposed Rule 834 is modeled on § 1.69, which requires an SRO to further address the avoidance of conflicts of interest in the execution of its self-regulatory functions. Proposed Rule 834(g) closely follows the paragraph structure and language of § 1.69, with a few minor exceptions (beyond modifying the rule's application to SBSEFs and SBS exchanges, rather than, in the CFTC original, all SROs). First, paragraph (g)(1)(i)(A) of Proposed Rule 834 is based closely on § 1.69(b)(1)(i) and would set out the types of relationships with the named party of interest that would create a conflict of interest for a member of the governing board, disciplinary committee, or oversight panel.
The Commission did not receive comments on paragraph (g) of Proposed Rule 834 and is adopting Rule 834(g) as proposed, for the reasons stated in the Proposing Release.
Proposed Rule 834(h) would require each SBSEF and SBS exchange to maintain in effect various rules that would be required under Rule 834. An SBSEF would be required to file these rules under Rule 806 or Rule 807 of Regulation SE; an SBS exchange would be required to file such rules under existing SEA Rule 19b-4.
The Commission received no comments on Proposed Rule 834(h) and is adopting Rule 834(h) as proposed for the reasons stated in the Proposing Release.
The Commission proposed Rule 835 to require an SBSEF to provide the Commission notice of a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access. Such notice is designed to ensure that the Commission is kept aware of significant disciplinary actions, denials or conditionings of membership, or denials or limitations on access by SBSEFs that could be the subject of an aggrieved person's request for review by the Commission. The requirement to provide notice to the Commission would also obligate an SBSEF to be cognizant of, and make records for, each such instance, and such records would become a necessary part of the record should the aggrieved person seek Commission review of the SBSEF's action.
Specifically, paragraph (a) of Proposed Rule 835 would provide that, if an SBSEF issues a final disciplinary action against a member, or takes a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access of a person to any services offered by the SBSEF, the SBSEF shall file a notice of such action with the Commission within 30 days and serve a copy on the affected person. Proposed Rule 835(a) would use the phrase “final disciplinary action against a
Paragraph (b)(1) of Proposed Rule 835 would provide that, for purposes of paragraph (a), a disciplinary action would not be considered final unless: (1) the affected person has sought an adjudication or hearing with respect to the matter, or otherwise exhausted their administrative remedies at the SBSEF; and (2) the disciplinary action is not a summary action permitted under Rule 819(g)(13)(ii).
Paragraph (c) of Proposed Rule 835 would provide that the notice required under Rule 835(a) must include the name of the member or the associated person and last known address, as reflected in the SBSEF's records, of the member or associated person, as well as the name of the person, committee, or other organizational unit of the SBSEF that initiated the disciplinary action or access restriction. In the case of a final disciplinary action, the notice would be required to include a description of the acts or practices, or omissions to act, upon which the sanction is based, including, as appropriate, the specific rules that the SBSEF has found to have been violated; a statement describing the respondent's answer to the charges; and a statement of the sanction imposed and the reasons for such sanction. In the case of a denial or conditioning of membership or a denial or limitation of access, the notice would be required to include: the financial or operating difficulty of the prospective member or member (as the case may be) upon which the SBSEF determined that the prospective member or member could not be permitted to do, or continue to do, business with safety to investors, creditors, other members, or the SBSEF; the pertinent failure to meet qualification requirements or other prerequisites for membership or access and the basis upon which the SBSEF determined that the person concerned could not be permitted to have membership or access with safety to investors, creditors, other members, or the SBSEF; or the default of any delivery of funds or securities to a clearing agency by the member. Finally, the notice would be required to include the effective date of such final disciplinary action, denials or conditioning of membership, or denial or limitation of access, as well as any other information that the SBSEF may deem relevant.
The Commission received no comments on Proposed Rule 835. Because the language of paragraphs (b)(1)(i) and (b)(2) should more clearly state that certain actions by an SBSEF shall not be “final” unless the affected person has exhausted their administrative remedies at the SBSEF, the Commission is modifying the phrase “person has sought an adjudication or hearing, or otherwise exhausted their administrative remedies” in both paragraphs (b)(1)(i) and (b)(2) so that it now reads simply, “person has exhausted their administrative remedies,” and is adopting Rule 835 as modified.
An entity that meets the definition of “security-based swap execution facility” would also likely meet the definition of “exchange” set forth in section 3(a)(1) of
Therefore, the Commission proposed to exercise its authority under section 36(a)(1) of the SEA
The proposed amendment would add new paragraph (a)(4) to existing Rule 3a1-1 to provide that an organization, association, or group of persons that has registered with the Commission as an SBSEF pursuant to Rule 803 and provides a market place for no securities other than SBS is exempt from the definition of “exchange” under section 3(a)(1) of the SEA, and thus would not be subject to the requirement in section 5 of the SEA to register as a national securities exchange or obtain a low-volume exemption.
In addition, the Commission proposed new paragraph (a)(5) to existing Rule 3a1-1 under the SEA, which would provide that an organization, association, or group of persons shall be exempt from the definition of the term “exchange” if that organization, association, or group of persons has registered with the Commission as a clearing agency pursuant to section 17A of the SEA and limits its exchange functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations.
Finally, the Commission proposed to amend the introductory language of paragraph (b) of Rule 3a1-1 to cover only paragraphs (a)(1) through (a)(3), not paragraph (a) as a whole.
The Commission received two comment letters regarding the proposed amendments to Rule 3a1-1.
Another commenter supports the proposed amendments and also addresses another Commission rulemaking related to the definition of “exchange.”
The Commission does not agree with the commenter's request to extend the Rule 3a1-1 exemption from the “exchange” definition to any entity that provides a market place for no securities other than SBS, regardless of whether they are registered as an SBSEF.
The purpose of the exemption under Rule 3a1-1(a)(4) is not to universally exempt from the definition of “exchange” all entities that provide a market place for no securities other than SBS. Rather, given that Congress has provided a regulatory framework for SBSEFs through the Dodd Frank Act, the exemption is narrowly designed to avoid burdening registered SBSEFs with a second regulatory framework—namely, registration as national securities exchanges. Further, creating that commenter's suggested exemption in Rule 3a1-1(a) would create a regulatory gap in which some entities that meet the definition of exchange are registered neither as national securities exchanges nor as SBSEFs. The language of new paragraph (a)(4) of Rule 3a1-1, however, should more closely track the language and scope of section 3(a)(1) of the SEA, which uses the term “market place or facilities,” rather than the term “market place,”
Accordingly, for the reasons discussed above, the Commission is adopting the amendments to Rule 3a1-1 with the modifications to paragraphs (a)(4) and (a)(5) discussed above and with minor technical modifications.
An SBSEF, by facilitating the execution of SBS between persons, also is engaged in the business of effecting transactions in securities for the account of others and therefore meets the SEA definition of “broker.”
The Commission proposed new Rule 15a-12 under the SEA, which would deem registration with the Commission as an SBSEF to also constitute registration as a broker, and which would exempt a registered SBSEF from many broker requirements in light of the SBSEF regulatory regime to which it would also be subject. The accommodation provided in Rule 15a-12, however, would not be available to an SBSEF that engages in other types of brokerage activity.
Paragraph (a) of Proposed Rule 15a-12 would define the term “SBSEF-B” to mean an SBSEF that does not engage in any securities activity other than facilitating the trading of SBS on or through the SBSEF. Thus, an SBSEF that acts as agent to SBS counterparties or that acts in a discretionary manner with respect to the execution of SBS transactions, could not avail itself of Rule 15a-12. Also, if an inter-dealer broker elects not to separate its inter-dealer broker functions from its SBSEF (by, for example, housing them in separate legal entities), and instead chooses to operate the SBSEF in the same legal entity as the inter-dealer broker, the entity could avail itself of Rule 15a-12 because it would not be an SBSEF-B under the rule.
Paragraph (b) of Proposed Rule 15a-12 would provide that an SBSEF-B, if it registered as an SBSEF pursuant to Rule 803, would be deemed also to have registered with the Commission pursuant to sections 15(a) and (b) of the SEA.
Paragraphs (c) and (d) of Proposed Rule 15a-12 would set out the scope of broker requirements from which an SBSEF-B is exempt and which broker requirements would continue to apply. Paragraph (c) would provide that an SBSEF-B would be exempt from any provision of the SEA or the Commission's rules thereunder applicable to brokers that by its terms requires, prohibits, restricts, limits, conditions, or affects the activities of a broker, unless such provision specifies
Finally, paragraph (e) of Proposed Rule 15a-12 would exempt an SBSEF-B from the Securities Investor Protection Act (“SIPA”).
Section 2 of SIPA
The Commission received no comments on Proposed Rule 15a-12 and is adopting Rule 15a-12 as proposed, with minor technical modifications,
As discussed above and in the Proposing Release, after issuing the 2011 SBSEF Proposal,
(1) Allowed an entity that trades SBS and is not currently registered as a national securities exchange, or that cannot yet register as an SBSEF because final rules for such registration have not yet been adopted, to continue trading SBS during this temporary period without registering as a national securities exchange or SBSEF;
(2) Exempted national securities exchanges (to the extent that they also operate an SBSEF and use the same electronic trade execution system for listing and executing trades of SBS on or through the exchange and the facility) from the requirement to identify whether electronic trading of those SBS is taking place on or through the national securities exchange or the SBSEF;
(3) Exempted any person, other than a clearing agency acting as a central counterparty in security-based swaps, that, solely due to its activities relating to security-based swaps, would fall within the definition of exchange and thus be required to register as an exchange from the requirement to register as a national securities exchange in sections 5 and 6 of the Exchange Act;
(4) Permitted brokers and dealers to effect transactions in SBS on an exchange that is operating without registering as a national securities exchange in reliance on the exemption described above;
(5) Exempted SBSEFs from the broker registration requirements of section 15(a)(1) of the SEA;
(6) Exempted any SBS contract entered into on or after July 16, 2011, from being void or considered voidable by reason of section 29 of the SEA
In the Temporary SBSEF Exemptions, the Commission specified that the exemptive relief would expire “on the earliest compliance date set forth in any of the final rules regarding registration of SBSEFs,”
Additionally, in 2020, the Commission adopted Rule 17Ad-24 under the SEA
The Commission received no comment regarding the sunsetting of past exemptive relief for entities operating as SBSEFs. Upon the effectiveness of Regulation SE, the exemptive relief described above would no longer be necessary, because SBSEFs will be able to register with the Commission and will be subject to regulatory obligations under Regulation SE. Therefore, the Commission is sunsetting the exemptive relief consistent with the compliance schedule for Regulation SE.
For any entity currently relying on the 2011 Clearing Agency Exemption that becomes required to register as a clearing agency, the exemptive relief will terminate 180 days after the Effective Date of Regulation SE, which will be 60 days after the date of publication in the
Various provisions of proposed Regulation SE would have required registered SBSEFs (or SBSEF applicants) to file specified information electronically with the Commission using the EDGAR system in Inline XBRL, a structured, machine-readable data language.
• Rule 803(b)(1)(i) and (b)(3), regarding filings of, and amendments to, a Form SBSEF application.
• Rules 803(e) and 803(f), regarding requests to withdraw or vacate an application for registration.
• Rule 804(a)(1), regarding filings for listing products for trading by certification.
• Rule 805(a)(1), regarding filings for voluntary submission of new products for Commission review and approval.
• Rule 806(a)(1), regarding filings for voluntary submission of rules for Commission review and approval.
• Rule 807(a)(1), regarding filings for self-certification of rules.
• Rule 807(d), regarding filings of weekly notifications to the Commission of rules and rule amendments that were not required to be certified.
• Rule 829(g)(6), regarding submission to the Commission of reports related to financial resources and related documentation.
• Rule 831(j)(2), regarding submission to the Commission of the annual compliance report of SBSEF's CCO.
In addition to including these requirements in each of the rules listed above, the Commission proposed to amend Rule 405 of Regulation S-T to reflect these requirements.
The Commission has considered the comments received on the provisions regarding electronic filing in Regulation SE discussed above and is adopting Inline XBRL and EDGAR requirements for some, but not all, of the disclosures that Regulation SE will require. Specifically, Regulation SE will require SBSEFs to file the information under the following rules electronically via EDGAR using Inline XBRL:
• Rule 829, regarding submission to the Commission of reports related to financial resources and related documentation.
• Rule 831, regarding submission to the Commission of the annual compliance report of the SBSEF's CCO.
• Exhibits C through F to Form SBSEF, regarding governing board fitness standards and composition; organizational structure; personnel qualifications; and staffing requirements, respectively.
• Exhibits H through L to Form SBSEF, regarding material pending legal proceedings; financial information (except for any copies of agreements filed with the exhibit); affiliate financial information; dues, fees, and other charges for services; and compliance with Core Principles, respectively.
• Exhibit P through S to Form SBSEF, regarding disciplinary and enforcement protocols; operation of trading systems or platforms; rules prohibiting specific trade practices; and the maintenance of trading data, respectively.
For these specific disclosures, the Commission is adopting as proposed the requirement that they be made through EDGAR using Inline XBRL and is adopting the amendments to Rule 405 as proposed, with minor technical modifications.
For certain other disclosures required under Regulation SE, in a change from the proposal, the Commission is requiring the use of a custom XML data language rather than Inline XBRL. Specifically, Regulation SE will require SBSEFs to file the following information electronically via EDGAR using custom XML:
• Rules 803(e) and 803(f), regarding requests for withdrawal or vacation applications.
• The Form SBSEF Cover Sheet.
• Exhibit A to Form SBSEF, regarding the SBSEF's ownership information (except for any copies of agreements filed along with the Exhibit).
• Exhibit B to Form SBSEF, regarding the officers, directors, and other control persons of the SBSEF.
• Exhibit G to Form SBSEF, regarding organizational documents (except for copies of organizational documents filed with the Exhibit).
• Exhibit M to Form SBSEF, regarding rules and technical manuals (except for copies of rules and technical manuals filed with the Exhibit).
• Exhibit N to Form SBSEF, regarding agreements and contracts (except for copies of agreements and contracts).
• Exhibit T to Form SBSEF, regarding clearing agencies.
The Commission is requiring some disclosures to be structured in Inline XBRL, and other disclosures to be structured in custom XML, because Inline XBRL is well-suited for certain types of content—such as financial statements and extended narrative discussions—whereas other types of content can be readily captured using custom XML data languages that yield smaller file sizes than Inline XBRL and thus facilitate more streamlined data processing. Such custom XML languages also enable EDGAR to generate fillable web forms that will permit SBSEFs to input disclosures into form fields rather than encode their disclosures in custom XML themselves, thus likely easing compliance burdens on SBSEFs.
Certain Form SBSEF exhibits also include requirements to attach copies of existing documents, such as copies of by-laws, written agreements, and compliance manuals. The Commission is requiring SBSEFs to file these copies of documents as unstructured PDF attachments to the otherwise structured Form SBSEF filing.
• Exhibit A to Form SBSEF (specifically, copies of agreements through which persons may control or direct the management or policies of the SBSEF).
• Exhibit G to Form SBSEF (specifically, copies of the SBSEF's organizational documents).
• Exhibit I to Form SBSEF (specifically, copies of agreements supporting the SBSEF's conclusions regarding the liquidity of its financial assets).
• Exhibit M to Form SBSEF (specifically, copies of the SBSEF's rules, technical manuals, guides, or other instructions).
• Exhibit N to Form SBSEF (specifically, copies of agreements or contracts that enable the SBSEF's compliance with Core Principles).
• Exhibit O to Form SBSEF (specifically, copies of the SBSEF's compliance manual).
To implement the reduced scope of Inline XBRL requirements for Form SBSEF compared to the proposed rules, the Commission is making changes to the rule text for Form SBSEF, Rule 803 of Regulation SE, and Rule 405 of Regulation S-T. In the Registration Instructions to Form SBSEF, rather than requiring the disclosures on Form SBSEF to be provided as an Interactive Data File in accordance with Rule 405 of Regulation S-T as proposed, the final rule text lists a subset of Form SBSEF Exhibits that are to be provided as an Interactive Data File in accordance with Rule 405 of Regulation S-T, and clarifies that the Interactive Data File requirement does not extend to copies of existing documents.
Requiring use of EDGAR and structured data languages for certain disclosures under Regulation SE has benefits. Requiring SBSEFs to make required certain filings via EDGAR will provide the Commission and the public with a centralized, publicly accessible electronic database for SBSEF-provided data in the form that is most accessible and useful to regulators, market participants, and the public alike. The use of EDGAR also enables technical validation of the disclosures, thus potentially reducing the incidence of non-discretionary errors (
As discussed above, in a change from the proposal, the Commission is requiring SBSEFs to provide the rule and product filings required under Rules 804 through 807and 816 of Regulation SE through EFFS in an unstructured format, rather than providing them through EDGAR in Inline XBRL. While the information in SBSEF rule and product filings will not be machine-readable, the absence of structuring requirements for rule and product filings under Regulation SE (which aligns with the current rule and product filing process for SROs)
To implement the change from the proposed Inline XBRL and EDGAR filing requirement to the final unstructured format and EFFS requirement for rule and product filings, the Commission is modifying the rule text for Rules 804 through 807 of Regulation SE, the Security-Based Swap Execution Facility Cover Sheet that the Commission is adopting as § 249.1702, and Rule 405 of Regulation S-T. For Rules 804 through 807, the final rule text specifies that SBSEFs must file the rule and product filings through the EFFS system, rather than through the EDGAR system as an Interactive Data File in accordance with Rule 405 of Regulation S-T as proposed.
As discussed above, the Commission is adopting, as § 249.1702, a submission cover sheet and instructions that an SBSEF must use for filings submitted pursuant to Rules 804 through 807 and 816.
Paragraph (a) of the submission cover sheet instructions provides that a properly completed submission cover sheet must accompany all rule and product submissions submitted electronically to the Commission by an SBSEF.
The Commission received comments on the use of LEIs, as well as the potential use of other identifiers in filings to the Commission under Regulation SE.
Another commenter agrees that standard identifiers such as LEI, FIGI, and UPI should be included in an SBSEF's other reporting obligations under Regulation SE. In particular, this commenter highlights a number of the potential benefits of FIGI, a unique, publicly available identifier that covers financial instruments across asset classes that arise, expire, and change on a daily basis. The commenter states that it developed FIGI to help solve licensing challenges and shortcomings in data organizations and governance that persist in the current regionally based security identifier numbering approaches. The commenter states that one of the benefits of FIGI is that it enables interoperability between other identification systems and does not force the use of a single identification system, which could lower costs when interacting between legacy systems, which may depend upon a single identifier, and newer systems, which typically have a more modern architecture. As a general matter, the commenter believes that firms should be permitted to choose among identifiers and have the flexibility to adopt, integrate, or switch to other identifiers as appropriate. According to the commenter, this would allow firms to orient decisions around reducing costs of integration or realizing added benefits that offset any such integration cost concerns.
The Commission has considered the comments received on the provisions regarding LEIs and other identifiers. The Commission is adopting the submission cover sheet and instructions as proposed because LEIs issued through the GLEIS are currently the only allowable platform IDs that may be used by registered SBSEFs, and as such it is appropriate and acceptable for them to be used on the submission cover sheet. With respect to other identifiers discussed by the commenters (
As noted above,
The Commission did not receive any comments on these proposed amendments to its Rules of Practice. General principles of due process necessitate an appeals procedure for SBSEF members aggrieved by disciplinary action taken by an SBSEF. Therefore, the Commission is adopting the amendments to its Rules of Practice as proposed, as detailed below, with a minor modification to Rule 442.
Existing Rule 101 of the Commission's Rules of Practice
The Commission received no comment on the proposed amendment to Rule 101 and is adopting this amendment to Rule 101 as proposed.
Existing Rule 202 of the Commission's Rules of Practice
The Commission received no comment on the proposed amendment to Rule 202 and is adopting this amendment to Rule 202 as proposed.
Existing Rule 210 of the Commission's Rules of Practice
The Commission received no comment on the proposed amendment to Rule 210 and is adopting this amendment to Rule 210 as proposed.
The Commission proposed to amend existing Rule 401 of its Rules of Practice by adding a new paragraph (f). Paragraph (f)(1) would permit any person aggrieved by a stay of action by an SBSEF entered in accordance with Rule 442(c) to make a motion to lift the stay. The Commission could also, at any time, on its own motion determine whether to lift the automatic stay. Paragraph (f)(2) would provide that the Commission may lift a stay summarily, without notice and opportunity for hearing. Finally, paragraph (f)(3) would provide that the Commission may expedite consideration of a motion to lift a stay of action by an SBSEF, consistent with the Commission's other responsibilities. Where consideration is expedited, persons opposing the lifting of the stay could file a statement in opposition within two days of service of the motion requesting lifting of the stay unless the Commission, by written order, specifies a different period.
It is appropriate to allow persons affected by certain stays of action by an SBSEF the opportunity to make a motion to request the lifting of the stay. As discussed below, pursuant to Rule 442, an aggrieved person can file an application for review with the Commission with respect to a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access. The filing of such an application would operate as a stay of the SBSEF's determination, and because of this automatic stay procedure, an aggrieved person or the SBSEF itself should be afforded a mechanism by which it could request the Commission to lift the stay, in addition to the Commission's ability under Rule 401(f)(2) to lift a stay summarily, without notice and opportunity of hearing.
The Commission received no comment on Proposed Rule 401(f) and is adopting Rule 401(f) as proposed.
Proposed Rule 442 would establish the right to an appeal to the Commission of certain final actions taken by an SBSEF and would set out certain procedural matters relating to any such appeal. Paragraph (a) of Rule 442 provides that an application for review by the Commission may be filed by any person who is aggrieved by a determination of an SBSEF with respect to any: (1) final disciplinary action, as defined in Rule 835(b)(1); (2) final action with respect to a denial or conditioning of membership, as defined in Rule 835(b)(2); or (3) final action with respect to a denial or limitation of access to any service offered by the SBSEF, as defined in Rule 835(b)(2).
Paragraph (b) of Rule 442 sets forth the procedure in such cases. Specifically, an aggrieved person can file an application for review with the Commission (pursuant to existing Rule 151) within 30 days after the notice filed by the SBSEF with the Commission pursuant to Rule 835 is received by the aggrieved person, and must serve the application on the SBSEF at the same time.
Paragraph (c) of Rule 442 provides that filing an application for review with the Commission pursuant to Rule 835(b) would operate as a stay of the SBSEF's determination, unless the Commission otherwise orders either pursuant to a motion filed in accordance with Rule 401(f) or upon its own motion.
It is appropriate for the filing of an application for review to operate as an automatic stay of the SBSEF's determination, because that determination could have the effect of significantly or even permanently damaging an aggrieved person's business while the Commission was conducting a review, which could take substantial time.
The Commission received no comment on Proposed Rule 442 and is adopting Rule 442 as proposed, with the modification to Rule 442(b) described above.
New Rule 443
Rule 443 further provides that the Commission can, at any time before issuing its decision, raise or consider any matter that it deems material, whether or not raised by the parties. If it does so, the Commission must, under Rule 443, give notice to the parties and an opportunity for supplemental briefing with respect to issues not briefed by the parties, where the Commission believes that such briefing could significantly aid the decisional process. It is appropriate that the Commission have the ability to review any determination filed by an SBSEF that could be subject to an application for review under Rule 442(a), even without an appeal of that determination by an aggrieved party, should the Commission believe that further consideration is warranted. Therefore, the rule provides the Commission authority to obtain additional information through supplemental briefings, as needed.
The Commission received no comment on Proposed Rule 443 and is adopting Rule 443 as proposed.
Existing Rule 450 of the Commission's Rules of Practice
The Commission received no comment on the proposed amendment to Rule 450 and is adopting this amendment to Rule 450 as proposed.
Existing Rule 460 of the Commission's Rules of Practice
The Commission received no comment on the proposed amendment to Rule 460 and is adopting this amendment to Rule 460 as proposed.
In connection with the adoption of Regulation SE, the Commission is revising its rules delegating authority to the Director of the Division of Trading and Markets (“TM Division Director”) and to the General Counsel in order to delegate authority to take actions necessary to carry out the rules under Regulation SE and to facilitate the operation of the regulatory structure created in Regulation SE.
The Commission finds, in accordance with the Administrative Procedure Act (“APA”), that these amendments to the delegations of authority relate solely to agency organization, procedure, or practice.
Accordingly, the Commission is amending its rules, by adding new paragraphs (95)-(102) to Rule 30-3, to delegate authority to the Division Director to perform certain actions necessitated by Regulation SE. The Commission is also amending paragraphs (4), (5), (7), and (8) of Rule 30-14 (17 CFR 200.30-14) to delegate authority to the General Counsel to perform certain actions in connection with Commission review proceedings of SBSEF actions. Under these delegations, the Division Director or the General Counsel, as applicable, (or, under his or her direction, such person or persons as might be designated from time to time by the Chairman of the Commission
With respect to certain Commission actions related to the registration process for SBSEFs and the review of Form SBSEF under Rule 803 and Rule 808, the Division Director has delegated authority: to publish notice on the Commission's website of a completed Form SBSEF and make available on the Commission's website certain specified parts of a Form SBSEF; to notify the applicant that its application is incomplete; to request from the applicant additional information and documentation necessary; to notify the applicant that its application is materially incomplete and to specify the deficiencies in the application, for purposes of staying the 180-day period for Commission review of the Form SBSEF; and to issue an order vacating the SBSEF's registration and to send a copy of the related request and order of vacation to all other SBSEFs, SBS exchanges, and registered clearing agencies that clear security-based swaps.
With respect to certain Commission actions related to self-certification of new products by an SBSEF under Rule 804, the Division Director has delegated authority: to stay for a period of up to 90 days the effectiveness of a security-based swap execution facility's self-certification of a new product; to publish notice on the Commission's website of a 30-day period for public comment; and to withdraw the stay or notify the security-based swap execution facility that the Commission objects to the proposed certification.
With respect to certain Commission actions related to voluntary submission of new products by an SBSEF under Rule 805, the Division Director has delegated authority: to notify the submitting SBSEF that a submission for a new product does not comply with paragraph (a) of Rule 805; to make the SBSEF's submission publicly available on the Commission's website; to extend by an additional 45 days the period for consideration of a new product voluntarily submitted by an SBSEF if the product raises novel or complex issues that require additional time to analyze, and to notify the SBSEF of the same; to issue an extension of such longer period as to which the SBSEF agrees in writing; to approve a proposed new product and provide notice of the approval to the SBSEF; to notify the SBSEF that the Commission will not, or is unable to, approve the product, and to specify the nature of the issues raised and the specific provision of the SEA or the Commission's rules thereunder, that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission.
With respect to certain Commission actions related to proposed rules or rule amendments proposed by an SBSEF under Rule 806, the Division Director will have delegated authority: to notify the submitting SBSEF that a submission for a new rule or rule amendment does not comply with paragraph (a) of Rule 806; to make the SBSEF's submission publicly available on the Commission's website; to extend by an additional 45 days the period for consideration of a proposed rule or rule amendment voluntarily submitted by an SBSEF if the proposed rule or rule amendment raises novel or complex issues that require additional time to review or is of major economic significance, the submission is incomplete, or the requester does not respond completely to the Commission questions in a timely manner, and to notify the SBSEF of the same; to issue an extension of such longer period as to which the SBSEF agrees in writing; to approve a proposed rule or rule amendment and provide notice of the approval to the SBSEF; to notify the SBSEF that the Commission will not, or is unable to, approve the new rule or rule amendment, and to specify the nature of the issues raised and the specific provisions of the SEA or the Commission's rules thereunder, including the form or content requirements of Rule 806, with which the new rule or rule amendment is inconsistent or appears to be inconsistent; and to approve a proposed rule or a rule amendment, including changes to terms and conditions of a product, on an expedited basis under such conditions as shall be specified in the written notification.
In addition, the Division Director has delegated authority to undertake certain Commission actions related to proposed rules or rule amendments self-certified by an SBSEF under Rule 807. Specifically, the Division Director has delegated authority: to make publicly available on the Commission's website a security-based swap execution facility's filing of new rules and rule amendments pursuant to the self-certification procedures of Rule 807; to stay for a period of up to 90 days the effectiveness of an SBSEF's self-certification of a new rule or rule amendment; to publish notice on the Commission's website of a 30-day period for public comment; and to withdraw the stay or notify the security-based swap execution facility that the Commission objects to the proposed certification.
With respect to a request by an SBSEF, the Commission, or the CFTC, for a joint interpretation of whether a proposed product is a swap, security-based swap, or mixed swap under existing SEA Rule 3a68-2, as contemplated by Rule 809, the Division Director has delegated authority to provide written notice to an SBSEF of a stay or tolling pending issuance of a joint interpretation.
With respect to information relating to SBSEF compliance under Rule 811, the Division Director has delegated authority: to request pursuant to Rule 811(a) that an SBSEF file with the Commission information related to its business as a security-based swap execution facility, and to specify the form, manner, and timeframe for the filing; to request pursuant to Rule 811(b) that an SBSEF file with the Commission a written demonstration that it is in compliance with one or more Core Principles or with its other obligations under the SEA or the Commission's rules thereunder and to specify the form, manner, and timeframe for such a filing; to specify, pursuant to Rule 811(c)(2), the form and manner of the notification required pursuant to Rule 811(c)(1) by an SBSEF of any
With respect to certain Commission actions related to information sharing under Rule 822, the Division Director has delegated authority to require that an SBSEF provide information in its possession to the Commission and to specify the form and manner of that provision, and to require an SBSEF share information with other regulatory organizations, data repositories, and third-party data reporting services as necessary and appropriate to fulfill the SBSEF's regulatory and reporting responsibilities.
With respect to Commission review proceedings for final disciplinary actions taken by an SBSEF, for denials or conditionings of membership, and for limitations or denials of access, the General Counsel has delegated authority: to determine that an application for review has been abandoned and then to issue an order dismissing the application; to determine applications to stay Commission orders pending appeal of those orders to the federal courts and to determine application to vacate such stays; to grant or deny requests for oral argument before the Commission; and to determine whether to lift the automatic stay of a disciplinary sanction imposed by an SBSEF.
In the Proposing Release, the Commission stated that it intended to include a compliance schedule along with any final rules, and it sought public comment to assist it in developing an appropriate compliance schedule.
One commenter agrees that SEF operators can leverage their experience with SEF registration and operation in order to comply with any final SBSEF rules, but states that creating and maintaining a new platform, regardless of any similarities to existing systems, will inevitably require substantial time and resources to ensure operational, technical, and regulatory compliance. This commenter suggests that the Commission provide a compliance timeline of at least 12 months following the effective date of any final rules.
Another commenter states that, while substantial harmonization should lower compliance and operations costs by allowing SBSEFs and market participants to use their existing procedures and systems, it is still important to allow sufficient lead time for potential SBSEFs and market participants to come into compliance with the new regulatory framework. The commenter states that existing SEFs will need to make certain technological changes to their platform to conform to the new rules and that additional time will be required for testing, finalizing a new rulebook, and putting in place the requisite agreements with SBSEF clients. This commenter states that the Commission should set a compliance date that is at least 18 months from the date of effectiveness of any final rule.
One commenter states that, absent a phased-in implementation approach, the SBS market could suffer from significant disruptions. Therefore, this commenter states, the Commission should provide “phased-in compliance” with the required methods of execution, whereby a MAT SBS product may be executed on an SBSEF via any method of execution until such time as it is determined through notice and comment that an appropriate level of liquidity exists to enable an order book or RFQ-to-3 system. This commenter states that, when considering the lack of liquidity in SBS products, pre-trade price transparency via the proposed RFQ-to-3 requirement could negatively affect liquidity provision for end-users because, if clients are required to show their hand to three liquidity providers, it may lead to information leakage and an inability to hedge their risks through SBS markets. This is particularly so, the commenter says, because there are only a relatively small number of active dealers for many SBS products.
This commenter further states that an RFQ-to-3 requirement would also be problematic for SBS equities, where current execution processes are very different from their swaps counterpart, and where common trading practices and counterparty exchanges would not be possible on an RFQ-to-3 or order book system. The commenter states that it has compared the credit swaps activity that occurred on-venue in 2012 (before the CFTC trade execution requirement became effective) with the credit SBS activity that occurs on venue today. The commenter reports that the result is that 48.2% of AMRS CDX trading client volume was on-venue in 2012, while only 4.9% of AMRS SNCDS trading client volume occurred on-venue in 2022 (up to the date of the commenter's letter). The commenter states that this shows that the swaps market was much more ready for the implementation of the trade execution requirement than the credit SBS market is today.
The Commission agrees that some period of time will be required for would-be SBSEFs not only to register with the Commission, but also to create a new platform; put in place policies, procedures, and arrangements to ensure operational, technical and regulatory compliance; establish its own rules; and put in place the requisite agreements with SBSEF clients. The Commission does not agree, however, with the comment that a separate, “phased-in” compliance schedule should be put in place for the required methods of execution and that the Commission should engage in future notice and comment before applying the required methods of execution to SBS that have been made available to trade. First, no SBS are currently subject to a clearing determination, so it would not be possible for any SBSEF to make an SBS available to trade and subject it to the required methods of execution. Second, as discussed above, before an SBS becomes subject to the trade execution requirement, the Commission would have had multiple opportunities to consider the trading characteristics of the SBS.
Further, with respect to commenters who proposed specific timeframes for implementation (
Therefore, the Commission is adopting the following compliance schedule for Regulation SE. The SBSEF rules shall become effective 60 days after the date of publication in the
To increase the transparency and oversight of the OTC derivatives market,
In addition, the Commission is amending existing Rule 3a1-1 under the SEA to exempt, from the SEA definition of “exchange,” registered SBSEFs that provide a market place for no securities other than SBS, and certain registered clearing agencies. The Commission is also adopting new Rule 15a-12 under the SEA that, while affirming that an SBSEF also would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements. The Commission is also adopting certain new rules and amendments to its Rules of Practice to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the Commission.
Currently, SBS trade in the OTC market, rather than on regulated trading venues. The existing market for SBS is opaque, with little, if any, pre-trade transparency. With limited transparency, the information asymmetry between liquidity providers (
While the SBS market is decentralized, it also is interconnected and global in scope.
The adopted rules and amendments will affect SBSEFs, SBS exchanges, foreign SBS trading venues, and ECPs (
The Commission is mindful of the economic effects, including the costs and benefits, of the adopted rules and amendments. Section 3(f) of the SEA, 15 U.S.C. 78c(f), directs the Commission, when engaging in rulemaking where it is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. In addition, section 23(a)(2) of the SEA, 15 U.S.C. 78w(a)(2), requires the Commission, when making rules under the SEA, to consider the impact that the rules would have on competition, and prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the SEA.
The analysis below addresses the likely economic effects of the adopted rules and amendments, including their anticipated and estimated benefits and costs and their likely effects on efficiency, competition, and capital formation. The Commission also discusses the potential economic effects of certain alternatives to the approaches taken in this release. The Commission received a number of comments related to various aspects of the economic analysis in the Proposing Release. The Commission has considered and responds to these comments in the sections that follow.
The economic analysis appropriately considers existing regulatory requirements, including recently adopted rules, as part of its economic baseline against which the costs and benefits of the adopted rules and amendments are measured.
Final SBS Entity registration rules have been adopted and compliance was required as of November 1, 2021.
Market participants such as SBS dealers and major SBS participants were required to report security-based swap transactions to registered security-based swap data repositories (“SBSDRs”) pursuant to Regulation SBSR beginning on November 8, 2021.
The Commission uses information reported pursuant to Regulation SBSR to two registered SBSDRs—Depository Trust & Clearing Corporation Data Repository (“DDR”) and ICE Trade Vault (“ITV”)—to describe the baseline.
Table 1 also shows that U.S. SBS market participants trade a variety of security-based swaps in each of the three asset classes. Based on information reported to DDR, as of November 25, 2022, for active credit security-based swaps, single-name corporate CDS constitute the largest product type, with approximately 364,000 active CDS and $1.6 trillion gross notional amount outstanding. The second largest active credit security-based swaps product type consists of single-name sovereign CDS, with approximately 94,000 active CDS and $0.9 trillion gross notional amount outstanding.
For active equity security-based swaps, equity portfolio swaps constitute the largest product type, with approximately 2.3 million active equity portfolio swaps and $1.7 trillion gross notional amount outstanding. The second largest active equity security-based swaps product type consists of equity swaps, with approximately 492,000 active equity swaps and $1.2 trillion gross notional amount outstanding.
In the interest rate asset class, exotics constitute the largest product type, with approximately $0.1 trillion gross notional amount and 4,400 active exotic swaps outstanding.
Based on information reported to ITV, as of November 25, 2022, active credit security-based swaps fall into two product types. Single-name corporate CDS constitute the largest product type, with approximately 135,000 active CDS and $1.3 trillion gross notional amount outstanding. The second largest active credit security-based swaps product type consists of single-name sovereign CDS, with approximately 20,000 active CDS and $0.5 trillion gross notional amount outstanding.
Table 2 shows that both SBS Entities and non-SBS Entities participate in all three asset classes in the U.S. security-based swap market. Based on information reported to DDR, as of November 25, 2022, SBS Entities and non-SBS Entities had, respectively, entered into approximately 813,000 and 234,000 active credit security-based swaps.
In the equity asset class, SBS Entities and non-SBS Entities had, respectively, entered into approximately 4.0 million and 2.9 million active equity security-based swaps. The gross notional amounts outstanding of the active equity security-based swaps held by SBS Entities and non-SBS Entities were, respectively, approximately $4.5 and $2.7 trillion.
In the interest rate asset class, SBS Entities and non-SBS Entities had, respectively, entered into approximately 6,200 and 5,200 active interest rate security-based swaps. The gross notional amounts outstanding of the active interest rate security-based swaps held by SBS Entities and non-SBS Entities were, respectively, approximately $0.2 and $0.1 trillion.
Based on information reported to ITV, as of November 25, 2022, SBS Entities and non-SBS Entities had, respectively, entered into approximately 123,000 and 33,000 active credit security-based swaps. The gross notional amounts outstanding of the active credit security-based swaps held by SBS Entities and non-SBS Entities were, respectively, approximately $1.6 and $0.3 trillion.
In addition to information reported to registered SBSDRs, the Commission also uses nonpublic data from the DTCC Derivatives Repository Limited Trade Information Warehouse (“DTCC-TIW”) to describe the baseline, specifically the single-name CDS market. DTCC-TIW provided data regarding the activity of market participants in the single-name CDS market during the period from November 2006 to September 2022.
Firms that act as SBS dealers
These SBS dealers transact with hundreds or thousands of counterparties. One SBS dealer (when accounts are sorted by number of counterparties) transacted with over a thousand counterparty accounts, consisting of both other SBS dealers and non-SBS dealers. The next 13% of SBS dealers each transacted with 500 to 1,000 counterparty accounts; the following 21% of SBS dealers each transacted with 100 to 500 counterparty accounts; and 64% of SBS dealers each transacted security-based swaps with fewer than 100 counterparty accounts in the 12-month period from October 2021 to September 2022. The median number of counterparty accounts across SBS dealers is 18 (the mean is approximately 172). Non-SBS dealer counterparties transacted almost exclusively with these SBS dealers. The median non-SBS dealer counterparty transacted with one SBS dealer account (with an average of approximately 1.8 SBS dealer accounts) in the 12-month period from October 2021 to September 2022.
Non-SBS dealer single-name CDS market participants include, but are not limited to, investment companies, pension funds, private funds, sovereign entities, and industrial companies. The Commission observes that most users of CDS that are not SBS dealers do not engage in trading directly, but trade through banks, investment advisers, or other types of firms, which are collectively referred to as transacting agents, consistent with DTCC-TIW terminology.
As shown in Table 3 below, approximately 79% of these transacting agents were identified as investment advisers, of which approximately 40% (about 32% of all transacting agents) were registered as investment advisers under the Investment Advisers Act.
Principal holders of CDS risk exposure are represented by “accounts” in DTCC-TIW.
As depicted in Figure 1 below, domiciles of new accounts participating in the single-name CDS market have shifted over time. It is unclear whether these shifts represent changes in the types of participants active in this market, changes in reporting, or changes in transaction volumes in CDS referencing particular underliers. For example, the percentage of new entrants that are foreign accounts increased from 24.4% in the first quarter of 2008 to approximately 53% in the third quarter of 2022, which might reflect an increase in participation by foreign account holders in the single-name CDS market, though the total number of new entrants that are foreign accounts decreased from
Figure 2 below describes the percentage of global, notional transaction volume in North American corporate single-name CDS reported to DTCC-TIW between January 2011 and September 2022, separated by whether transactions are between two ISDA-recognized SBS dealers (“interdealer transactions”) or whether a transaction has at least one non-SBS dealer counterparty. Figure 2 also shows that the portion of the notional volume of North American corporate single-name CDS represented by interdealer transactions has remained fairly constant through 2015, before falling from approximately 68% in 2015 to under 40% in 2022. This change corresponds to the availability of clearing to non-SBS dealers. Interdealer transactions continue to represent a significant fraction of trading activity, even as notional volume has declined over the past 12 years,
The high level of interdealer trading activity reflects the central position of a small number of SBS dealers, each of which intermediates trades with many hundreds of counterparties. While the Commission is unable to quantify the current level of trading costs for single-name CDS, these SBS dealers appear to enjoy market power as a result of their small number and the large proportion of order flow that they intermediate.
As shown in Figure 3 below, half of the trading activity in North American corporate single-name CDS was between counterparties domiciled in the United States and counterparties domiciled abroad. Using the self-reported registered office location of the DTCC-TIW accounts as a proxy for domicile, the Commission estimates that only 13% of the global transaction volume by notional volume between January 2008 and September 2022 was between two U.S.-domiciled counterparties, compared to 50% entered into between one U.S.-domiciled counterparty and a foreign-domiciled counterparty, and 37% entered into between two foreign-domiciled counterparties.
If the Commission instead considers the number of cross-border transactions from the perspective of the domicile of the corporate group (
Financial groups based in the United States are also involved in a majority of interdealer transactions in North American corporate single-name CDS. Of the transactions on North American corporate single-name CDS between two ISDA-recognized SBS dealers and their branches or affiliates over the 12-month period from October 2021 to September 2022, 80.7% of transaction notional volume involved at least one account of an entity with a U.S. parent.
The numerous financial markets are integrated, often attracting the same market participants that trade across corporate bond, swap, and SBS markets, among others.
These hedging opportunities mean that participants that are active in one market are likely to be active in the other. Commission staff analysis of approximately 3,829 DTCC-TIW accounts that participated in the market for single-name CDS in the 12-month period from October 2021 to September 2022 revealed that approximately 2,836 of those accounts, or 74%, also participated in the market for index CDS. Of the accounts that participated in both markets, data regarding transactions in these 12 months suggest that, conditional on an account transacting in notional volume of index CDS in the top third of accounts, the probability of the same account landing in the top third of accounts in terms of single-name CDS notional volume is approximately 53%; by contrast, the probability of the same account landing in the bottom third of accounts in terms of single-name CDS notional volume is only 12%. As a result of cross-market participation, informational efficiency, pricing, and liquidity may spill over across markets.
Of the 51 registered SBS dealers, 44 are dually registered with the CFTC as swap dealers and are therefore subject to CFTC requirements for entities registered with the CFTC as swap dealers. Further, of the 51 registered SBS dealers, 30 have a prudential regulator.
Entities that will seek to register with the Commission as SBSEFs are likely to be SEFs that are active in the index CDS market. Three commenters are generally supportive of this belief, stating that the entities most likely to register as SBSEFs are those that are already registered with the CFTC as SEFs.
By analyzing SBS transactions reported to registered SBSDRs,
The Commission identified 18 platforms on which new SBS transactions were executed between November 8, 2021, and December 2, 2022. Of these 18 platforms, 14 are foreign SBS trading venues and four are U.S. SBS trading venues. Of the four U.S. SBS trading venues, two are CFTC-registered SEFs and two are affiliated with CFTC-registered SEFs. Of the new transactions in credit SBS executed between November 8, 2021, and December 2, 2022, 710 were executed on non-U.S. platforms and involved at least one counterparty that is a U.S. person or a non-U.S. person whose performance under the SBS is guaranteed by a U.S. person (0.1% of all new transactions in credit SBS). During the same period, 241 new transactions in equity SBS were executed on a non-U.S. platform and involved at least one counterparty that is a U.S. person or a non-U.S. person whose performance under the SBS is guaranteed by a U.S. person (less than 0.01% of all new transactions in equity SBS transactions).
One commenter states that only a minority of SEFs currently offer trading in SBS and SEFs that do offer trading in SBS estimate that they have approximately 50 or fewer trades per day in SBS.
In 2009, the G20 leaders—whose membership includes the United States, 18 other countries, and the European Union—addressed global improvements in the OTC derivatives market. They expressed their view on a variety of issues relating to OTC derivatives contracts.
Foreign legislative and regulatory efforts have generally focused on five areas: (1) moving standardized OTC derivatives onto organized trading platforms; (2) requiring central clearing of OTC derivatives; (3) requiring post-trade reporting of transaction data to trade repositories; (4) establishing or enhancing capital requirements for non-centrally cleared OTC derivatives transactions; and (5) establishing or enhancing margin and other risk mitigation requirements for non-centrally cleared OTC derivatives transactions. The rules being adopted in this release concern the registration and regulation of SBSEFs, a type of organized trading platform.
As of the end of 2022, platform trading requirements were in force in 12 foreign jurisdictions while seven jurisdictions were in the process of proposing legislation or rules to implement platform trading requirements.
Unlike the markets for cash equity securities and listed options, the market for SBS currently is characterized by bilateral negotiation in the OTC swap market; is largely decentralized; has many non-standardized instruments; and has many SBS that are not centrally cleared. The lack of uniform rules concerning the trading of SBS and the one-to-one nature of trade negotiation in SBS has resulted in different models for the trading of these securities, ranging from bilateral negotiations carried out over the telephone, to RFQ systems (
The Commission uses the term “bilateral negotiation” to refer to the model whereby one party uses the telephone, email, or other communications to contact directly a potential counterparty to negotiate an SBS transaction. Once the terms are agreed, the SBS transaction is executed and the terms are memorialized.
One commenter elaborates on this model of trading, focusing specifically on dealer-to-client trading in the SBS market.
Another model for the trading of SBS is the RFQ system. An RFQ system typically allows market participants to obtain quotes for a particular SBS by simultaneously sending messages to one or more potential respondents (SBS
RFQ systems provide a certain degree of pre-trade transparency in that the initiating participant can observe the quotes it receives (if any) in response to its RFQ. The number of quotes received depends, in part, on the number of respondents that are invited to participate in the RFQ. As the Commission discussed elsewhere, several factors may influence the number of respondents that are invited to participate in an RFQ.
Two commenters describe the “request-for-stream” trading protocol, which allows liquidity providers to stream firm prices on trading platforms such as those run by SEFs.
A fourth model for the trading of SBS is a limit order book system or similar system, which the Commission understands is not yet in operation for the trading of SBS in the United States.
The models described above represent broadly the types of trading of SBS in the OTC market today. These examples may not represent every method in existence today, but the discussion above is intended to give an overview of the models without providing the nuances of each particular type.
The Commission's consideration of the benefits and costs of the adopted rules and amendments takes into account the connection between the trade execution requirement and the mandatory clearing requirement mandated by Congress. Specifically, the Dodd-Frank Act amended the SEA to require, among other things, the following with respect to SBS transactions: (1) transactions in SBS must be cleared through a clearing agency if they are required to be cleared;
The general approach to finalizing requirements relating to SBS execution could mitigate costs associated with the adopted rules and amendments. As discussed in section I, the Commission's approach is to harmonize as closely as practicable with analogous CFTC rules for SEFs, unless a reason exists to do otherwise in a particular area. Based on the Commission's belief that SBSEF registrants likely would be registered SEFs that have established systems and policies and procedures to comply with CFTC rules, the Commission's general approach potentially will result in compliance costs for registered SBSEFs that are lower than compliance costs that would have resulted had the Commission chosen not to harmonize its approach as closely as practicable
In assessing the economic impact of the adopted rules and amendments, the Commission considers the broader costs and benefits associated with the application of the adopted rules and amendments, including the costs and benefits of applying the substantive Title VII requirements to the trading of SBS.
Many of the benefits and costs discussed below are difficult to quantify. These benefits and costs would depend on how potential SBSEFs and their prospective members respond to the adopted rules and amendments. If potential SBSEFs perceive the costs associated with operating registered SBSEFs to be high, such that few or no entities come forward to register as SBSEFs, there could be no triggering of the trade execution requirement, which depends on MAT determinations made by registered SBSEFs (or exchanges). Under this scenario, the future state of the SBS market likely will not differ from the current baseline and the potential costs and benefits discussed below will not materialize. An alternative scenario is that prospective SBSEFs perceive the costs associated with operating registered SBSEFs to be high but nevertheless register as SBSEFs because they expect to be able to pass on such costs to their members to help maintain the commercial viability of operating a registered SBSEF. MAT determinations by registered SBSEFs will move trading of the products covered by the determinations onto SBSEFs, which can generate benefits and costs associated with increased pre-trade transparency, in addition to benefits and costs associated with the operation of regulated markets. A third possibility is that entities come forward to register as SBSEFs because they perceive the associated costs of operating SBSEFs to be low in light of the close harmonization of Regulation SE with analogous CFTC SEF rules. If these registered SBSEFs do not make MAT determinations and thus do not trigger the trade execution requirement, the benefits and costs associated with increased pre-trade transparency likely will not arise. If SBSEF trading is limited because of an absence of MAT determinations, the benefits and costs associated with the operation of regulated markets potentially will be limited as well. A fourth possibility is that entities do come forward to register as SBSEFs because they perceive the associated costs of operating SBSEFs to be low and these registered SBSEFs make MAT determinations and trigger the trade execution requirement. Under this scenario, the benefits and costs associated with increased pre-trade transparency and regulated markets likely will arise. The Commission does not have the data to determine which of the above possibilities will prevail following the adoption of the rules and amendments considered herein.
The Commission has attempted to quantify economic effects where possible, but much of the discussion of economic effects is necessarily qualitative.
Broadly, the Commission anticipates that the new rules and amendments may bring several overarching benefits to the SBS market.
In addition, the requirements relating to pre-trade transparency would increase pre-trade transparency in the market for SBS.
Evidence from the swap market suggests that an increase in pre-trade transparency is associated with improved liquidity and reduced transaction costs.
Two commenters agree that the proposal would increase transparency in the SBS market.
One commenter believes that proposed Rule 819(c) would help ensure that investment advisers to regulated funds will be able to participate on SBSEFs, accessing the pricing and other market information that may be available on SBSEF, which would increase transparency in the derivatives market.
This framework could enhance investor protection and increase confidence in a well-regulated market among SBS market participants, which could in turn make them more willing to increase their participation or entice new participants. An increase in participation in the SBS market would, all else being equal, benefit the SBS market as a whole. Further, to the extent that market participants utilize SBS to better manage their risk with respect to a position in underlying securities or assets, their participation in the SBS market could impact their willingness to participate in the underlying asset markets. Thus, Regulation SE could benefit the securities markets overall by encouraging a more efficient, and potentially higher, level of capital investment.
Rule 819(c), among other things, requires an SBSEF to provide any ECP with impartial access to its market(s) and market services. Rule 819(c)(4), Rule 819(g)(14), along with the new rules and amendments to the Commission's Rules of Practice allow persons who are aggrieved by a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access by an SBSEF to file an application for review by the Commission in a timely manner.
Taken together, these rules and amendments should foster greater access to SBSEFs by SBS market participants, which in turn could promote greater participation by liquidity providers on SBSEFs. Increased participation on SBSEFs could increase competition in liquidity provision and lower trading costs, which may lead to increased participation in the SBS market. One commenter agrees that Rule 819(c), in particular, would increase competition in the SBS market. The commenter further states that the rule would increase liquidity, efficiency, and fairness in the SBS market.
Two commenters believe that Proposed Rule 815(f), which is designed to prohibit post-trade name give up for an SBS that is executed anonymously on an SBSEF and intended to be cleared, would increase participation on SBSEFs and in turn increase competition, liquidity, and efficiency.
Rules 815(f) and 815(g) could generate such beneficial effects. The practice of post-trade name give-up increases the risk of information leakage and can
Rule 815(g) specifies that SBSEFs shall establish and enforce rules that provide that a security-based swap that is intended to be cleared at the time of the transaction, but is not accepted for clearing at a registered clearing agency, shall be void
Increased participation by liquidity seekers on SBSEFs could in turn increase participation by liquidity providers and promote competition in liquidity provision. Greater participation in anonymous order books also could promote competition in liquidity provision if erstwhile liquidity seekers choose to provide liquidity in competition with SBS dealers in these order books. To the extent that increased competition in liquidity provision lowers bid-offer spreads and transaction costs, liquidity and efficiency in the SBS market would increase.
By helping to protect the anonymity of those that transact in anonymous order books, the rule would deprive SBS dealers of a means of deterring access to and participation in such order books by buy-side market participants.
Regulation SE would promote competition among entities that act as third-party service providers to SBSEFs. Rule 819(c) would, among other things, require an SBSEF to provide any independent software vendor with impartial access to its market(s) and market services. The rule would provide a level playing field to software vendors with respect to access to SBSEFs and promote competition among these vendors as they vie for an SBSEF's business. Rule 819(e) would permit an SBSEF to contract with a registered futures association, a DCM, a national securities exchange, a national securities association, or another SBSEF for the provision of services to assist in complying with the SEA and Commission rules thereunder, as approved by the Commission. By permitting an SBSEF to choose from a range of regulatory services providers, Rule 819(e) could promote competition among regulatory services providers. To the extent that increased competition among independent software vendors and regulatory services providers incentivizes them to offer cheaper, higher quality services to SBSEFs thereby lowering their costs, market participants that are SBSEF members could benefit to the extent the SBSEFs pass on the cost savings in the form of lower fees to their members. Lower fees for SBSEF members would help reduce the overall costs of trading on SBSEFs and increase the efficiency of SBS trading.
Additionally, Rule 826(b) requires every SBSEF to keep full, complete, and systematic records of all activities relating to its business with respect to SBS. In addition, Rule 819(f) requires an SBSEF to capture and retain a full audit trail of activity on its facility. The records required to be kept by an SBSEF would help the Commission to determine whether an SBSEF is operating in compliance with the SEA and the Commission's rules thereunder. The audit trail data required to be captured and retained would facilitate the ability of the SBSEF and the Commission to carry out their respective obligations under the SEA, by facilitating the detection of abusive or manipulative trading activity, allowing reconstructions of activity on the SBSEF, and generally understanding the causes of both specific trading events and general market activity.
Furthermore, Rule 835 requires an SBSEF to provide the Commission notice of a final disciplinary action, a final action with respect to a denial or conditioning of membership, or a final action with respect to a denial or limitation of access, which facilitates the Commission's review of the SBSEF's disciplinary process and exercise of its regulatory powers, providing the Commission an additional tool to carry out its oversight responsibilities. Rule 813 provides for Commission oversight of SBSEFs in their use of information collected for regulatory purposes and is designed to deter the misappropriation or misuse of such information. Rule 824(c) requires an SBSEF to, among other things, promptly notify the Commission of its exercise of emergency authority and provide information related to the use of that authority. The registration requirements and related Form SBSEF, and the CCO's annual compliance report, which are further discussed below, would also help the Commission with its oversight responsibilities.
In addition to the broad benefits that the Commission anticipates as a result of the rules and amendments adopted in
Currently, all trading venues that trade SBS—whether domestic or foreign—are exempt from having to register as a national securities exchange or SBSEF on account of the SBS trading business. This exemption expires when the Commission's rules for registering and regulating SBSEFs come into force.
Paragraph (a)(4) of Rule 3a1-1 provides that an entity that has registered with the Commission as an SBSEF and provides a market place for no securities other than SBS will not fall within the definition of “exchange” and thus will not be subject to the requirement in section 5 of the SEA to register as a national securities exchange (or obtain a low-volume exemption). The benefit of the amendment is to clarify to prospective SBSEF applicants that, if they register with the Commission as SBSEFs, they will not face duplicative registration and regulatory requirements as exchanges. In addition, paragraph (a)(5) of Rule 3a1-1 codifies a series of exemptions that the Commission has granted over several years to SBS clearing agencies that operate “forced trading” sessions to support end-of-day valuations of SBS. Because the amendment is intended to codify existing exemptions, any associated economic effects would be minimal.
New Rule 15a-12 is designed to minimize overlapping compliance burdens for SBSEFs, which are also brokers under the SEA, that restrict their activity to engaging in the business of operating an SBSEF (and no other broker activities). Absent the rule, such SBSEFs (defined as “SBSEF-Bs” for purposes of Rule 15a-12) will need to register as SBSEFs and be subject to the SBSEF regulatory regime, in addition to registering as brokers and being subject to the broker regulatory regime. Rule 15a-12 allows an SBSEF-B to satisfy the requirement to register as a broker by registering as an SBSEF under Rule 803 and exempts an SBSEF-B from SIPA and other broker requirements, except for sections 15(b)(4), 15(b)(6), and 17(b) of the SEA. As a result of the rule, SBSEF-Bs could avoid incurring duplicative and unnecessary compliance burdens. Each SBSEF-B could save an estimated $345,826 in initial broker registration costs
In addition, Rule 806(a)(5), which requires an SBSEF to explain the anticipated benefits and potential anticompetitive effects on market participants of a proposed new rule or rule amendment, potentially could help foster a competitive SBS market because it could prompt SBSEFs to consider the positive as well as negative aspects of their proposed rules or rule amendments with respect to competition. Rule 808 is designed to facilitate the public's ability to obtain information from SBSEF applications as well as rule and product filings. Rule 808(a) specifies the parts of an SBSEF application that the Commission shall make publicly available unless confidential treatment is obtained pursuant to SEA Rule 24b-2. Rule 808(b) provides that the Commission shall make an SBSEF's rule and product filings publicly available unless confidential treatment is obtained pursuant to SEA Rule 24b-2. Rule 808(c) provides that the terms and conditions of a product submitted to the Commission pursuant to any of Rules 804 through 807 shall be made publicly available at the time of submission unless confidential treatment is obtained pursuant to SEA Rule 24b-2.
Rule 809 provides a mechanism for the staying of a product certification or the tolling of a review period for a filing by an SBSEF relating to a product while the appropriate jurisdictional classification of that product is determined. The rule is designed to provide regulatory certainty for SBSEFs and market participants who may be interested in trading products whose classification as an SBS subject to SEC jurisdiction or a swap subject to CFTC jurisdiction is unclear. In particular, Rule 809 would help ensure that determinations regarding whether the SEC or CFTC appropriately has jurisdiction over a product are made before the product is traded.
The Commission's election to model Rules 804 through 810 closely on analogous rules in part 40 of the CFTC's rules that apply to SEFs (and other registered entities) is designed to promote efficiency. Utilizing the same processes for rule and product filings, with which dually registered SEF/SBSEFs are familiar, would impose only minimal burdens on such entities while obtaining the similar regulatory benefits as the CFTC rules. In some cases, where a new rule or rule amendment affects both the swap and SBS business of a dually registered entity, the same or a very similar filing could be made to each of the CFTC and SEC, in lieu of having to make different filings to support the same rule change.
The rules would mitigate conflicts of interest between an SBSEF or SBS exchange and its members as discussed in section VIII. Relative to the bilateral OTC SBS market, SBSEFs and SBS exchanges promote competition between liquidity providers, potentially forcing them to lower their prices for supplying liquidity (
One commenter stated that using custom XML rather than Inline XBRL “would essentially require re-creating what XBRL already offers” and that the use of custom XML “would result in added costs for all stakeholders, reduced efficiencies in adapting to changes, and the inability to commingle datasets.”
Regulation SE requires SBSEFs to file disclosures required under various provisions in the EDGAR system using structured (machine-readable) data languages.
The structured data requirements under Regulation SE will facilitate access to the structured information in the filings, enabling Commission staff to perform more efficient retrieval, aggregation, and comparison across different SBSEFs and time periods, as compared to an unstructured PDF, HTML, or ASCII format requirement. The functionality enabled by a machine-readable data requirement will allow staff to better utilize the structured information in Regulation SE filings to ensure compliance with the SEA and rules and regulations thereunder applicable to SBSEFs (
In a change from the proposal, Regulation SE will require some of the structured disclosures to be filed in custom XML rather than Inline XBRL.
One commenter noted that an Inline XBRL requirement for the proposed disclosures would allow financial identification and textual data in both a human- and machine-readable format consistently in a fashion that would allow Form SBSEF data to be commingled with other SEC-reported datasets.
In another change from the proposal, where Regulation SE requires copies of existing documents (
Although Regulation SE would benefit the SBS market, the Commission recognizes that Regulation SE also would entail certain costs.
In addition, SBS traded on SBSEFs may be perceived to be subject to increased costs, monetary and otherwise. For example, the requirements related to pre-trade transparency could cause market participants to reveal valuable economic information regarding their trading interest more broadly than they may believe would be economically prudent and could discourage participation in the SBS market. An additional impact of pre-trade transparency is perceived costs associated with front-running, if customers or SBS dealers are required to show their trading interest before a trade is executed. These potential costs of pre-trade transparency may change market participants' trading strategies, which could result in them working more orders or finding ways to attempt to hide their interest.
On the other hand, if the requirements with respect to pre-trade transparency bring about only a marginal increase in pre-trade transparency, the result could be that there would be no substantive change from the
There would be transaction costs, such as fees and connectivity costs, that trading counterparties would incur in executing or trading SBS subject to the trade execution requirement on SBSEFs. Likewise, although unregulated trading venues exist in today's OTC derivatives market, the Commission does not have information regarding what, if any, fees and connectivity costs are associated with transacting on these unregulated trading venues. In the Proposing Release, the Commission invited comment on the likely fees and costs associated with transacting on SBSEFs as well as fees and costs associated with transacting on unregulated trading venues that exist in today's OTC derivatives market. Commenters did not provide estimates of likely fees and costs associated with transacting on SBSEFs or fees and costs associated with transacting on unregulated trading venues.
As discussed in section XVII.B, prospective SBSEF registrants are likely
Several commenters agree that the Commission's general approach to finalizing requirements relating to SBS execution would mitigate costs for registered SBSEFs.
One commenter is concerned that Rule 816 as proposed would permit SBSEFs to make an SBS available to trade even absent objective evidence of a sufficiently liquid trading market.
One commenter states that requiring a fund to disclose its trading interest in an SBS of a large notional size to multiple participants—via an order book or an RFQ system—would enable opportunistic market participants to piece together information about the fund's holdings or investment strategy and lead to front-running of those potential trades.
One commenter states that Proposed Rule 834 would have the effect of prohibiting certain SBSEF participants from having common ownership and control as the SBSEF. The commenter is concerned that the proposed rule would prevent prospective SBSEFs that are CFTC-registered SEFs from onboarding their affiliated introducing brokers because doing so would exceed the ownership and voting caps set forth in Proposed Rule 834(b).
In response to these concerns, the Commission is adopting Rule 834(b)(3), which provides an exemption from the ownership and voting caps for an SBSEFs that has mitigated the potential conflict of interest with respect to compliance with the rules of the SBSEF by entering into an agreement with a registered futures association or a national securities association for the provision of regulatory services that encompass, at a minimum, real-time monitoring under Rule 819(d)(5) and investigations and investigation reports under Rule 819(d)(6). This exemption should address concerns regarding certain SBSEF participants not being able to have common ownership and control as the SBSEF (provided these appropriate conditions are met); the onboarding of affiliated introducing brokers by certain prospective SBSEFs; access to capital and entry barriers; and potential disruption or delays to the implementation of Regulation SE.
With respect to the Daily Market Data Report required by Proposed Rule 825, one commenter states that the Daily Market Data Report would require inappropriate and detrimental disclosures that would undermine the Commission's goal of fostering a competitive and efficient market for SBS trading. This commenter states that there are significant differences in the information required to be reported under the SEC and CFTC regimes. The commenter states that Proposed Rule 825(c)(1) increases the burden on SBSEFs compared to SEFs by requiring additional information regarding sale and offer prices, as well as qualitative descriptions of certain data that are reported.
This commenter further states that the Commission's proposal does not address why the CFTC's approach would not be acceptable in the context of SBSEFs and does not justify the increased operational costs to SBSEFs (which will ultimately be passed on to members). The commenter also states that the Commission has not considered the costs and potential for duplicative requirements in the context of Regulation SBSR reporting requirements. The commenter concludes that, in sum, the Daily Market Data Report is overly granular and duplicative, is unnecessary for transparency purposes, and could negatively impact the market and market participants. The commenter states that the Commission should therefore remove the Daily Market Data Report in favor of harmonizing with the analogous CFTC rules and that, if the Commission does not eliminate the Daily Market Data Report requirement altogether, it should adopt additional masking protections for trades, specifically with respect to block trades. Failure to do so, the commenter states, would cause inappropriate and detrimental disclosures and would “negate the benefits that the rule purports to achieve by exempting block trades from clearing [sic] requirements.”
As discussed in Section IV.H, many of the reporting requirements of the Daily Market Data Report under Proposed Rule 825 are closely aligned with the data required to be disclosed on a daily basis by SEFs under § 16.01 of the CFTC's rule. Further, the Commission is modifying Proposed Rule 825 to resolve the two differences between the proposed Daily Market Data Report and the existing CFTC reporting scheme under § 16.01: (1) that the Daily Market Data Report would include the number of block trades executed;
Rule 825(c)(1), as adopted, does not require the disclosure of the number of block trades.
With respect to the concern that the Daily Market Data Report is duplicative of Regulation SBSR and unnecessary for transparency purposes, the former performs a function that is different from the reporting and public dissemination of SBS transactions required by Regulation SBSR.
Several commenters are concerned that Proposed Rule 832(b)(3), which would apply the trade execution requirement to ANE transactions, could create complexities,
Several commenters are concerned that many foreign SBS trading venues would not be able to obtain a Rule 833(b) exemption because they believe the rule would require foreign jurisdictions to require RFQ-to-3 and order book methods of execution, while hardly any foreign jurisdictions have identical requirements, with some jurisdictions not requiring SBS to be traded on an organized trading venue.
The Commission acknowledges the concerns raised by commenters, which appear to emanate from commenters' interpretation—and misunderstanding—of what would be required in order to receive a Rule 833(b) exemption. Specifically, several commenters interpret the rule and the Commission's discussion of the rule in the Proposing Release to mean that a foreign SBS trading venue must have RFQ-to-3 and an order book for Required Transactions in order for transactions on that venue to qualify for a Rule 833(b) exemption.
We detail below cost estimates for specifics parts of the adopted rules. Many of these cost estimates are based on the PRA estimates of costs and burdens from section XVIII.
The registration provisions would impose costs on entities that seek registration as SBSEFs. The Commission estimates that initial filings on Form SBSEF by prospective SBSEFs seeking to register with the Commission
As discussed in section XVIII.D.2.b, the Commission estimates the aggregate annual paperwork burden for SBSEFs to comply with all of the SBSEF rules that have analogs in part 37 to be 1935 hours.
The Commission estimates that the aggregate ongoing annual costs incurred by all SBSEFs to prepare and submit rule and product filings under Rules 804, 805, 806, and 807 (including the cover sheet) would be $33,000.
The Commission estimates the aggregate ongoing annual costs incurred by SBSEFs to comply with Rule 809 would be $604.
The Commission estimates the aggregate ongoing annual costs incurred by SBSEFs to comply with requests for documents or information pursuant to Rule 811(d) would be $88.
The Commission estimates the aggregate ongoing annual costs incurred by SBSEFs to comply with Rule 819(i) would be $27,142.
The Commission estimates the aggregate ongoing annual costs incurred by SBSEFs to comply with Rule 819(j) would be $1,208.
The Commission estimates the aggregate ongoing annual costs incurred by SBSEFs to update information required by Rule 826(f) would be $162.
The Commission estimates that SBSEFs and SBS exchanges would incur aggregate one-time costs of $50,880 associated with drafting and implementing rules to comply with Rules 834(b) and (c).
The Commission estimates that SBSEFs and SBS exchanges would incur aggregate ongoing annual costs of $680 to comply with Rules 834(d), 834(e), and 834(f).
The Commission estimates that SBSEFs and SBS exchanges would incur aggregate one-time costs of $1,088 to comply with Rule 834(g).
The Commission estimates that SBSEFs would incur aggregate ongoing annual costs of $21,735 to comply with Rule 835.
SBSEFs likely would incur costs to comply with the financial resources requirement of Rule 829(b). Assuming that SBSEFs satisfy this requirement by holding financial resources in the form of their own capital pursuant to Rule 829(c)(1), the Commission estimates that SBSEFs would incur an aggregate annual cost of capital of $35,436.
The Commission estimates that 86 entities likely would incur assessment costs as a result of Rule 832, based on a staff analysis of counterparties to U.S. single-name CDS for the 12-month period from October 2021 to September 2022. Such costs would be related primarily to the identification of the counterparty status and origination location of the transaction to determine whether the trade execution requirement would apply. Market participants would request representations from their transaction counterparties to determine the U.S.-person status of their counterparties. In addition, if the transaction is guaranteed by a U.S. person, the guarantee would be part of the trading documentation and, therefore, the existence of the guarantee would be a readily ascertainable fact. Similarly, market participants would be able to rely on their counterparties' representations as to whether a transaction is arranged, negotiated, or executed by a person within the United States. Therefore, the assessment costs associated with Rule 832 should be limited to the costs of establishing a compliance policy and procedure of requesting and collecting representations from trading counterparties and maintaining the collected representations as part of the market participants' recordkeeping procedures. Such assessment costs would be approximately $19,320 per entity.
The Commission also considers the likelihood that market participants could implement systems to keep track of counterparty status for purposes of future trading of SBS that are similar to, if not the same as, the systems implemented by market participants for purposes of assessing SBS dealer or major SBS participant status. Implementation of such a system would involve one-time programming costs of $15,758 per entity.
As mentioned previously, the Commission will require many of the disclosures required under Regulation SE to be provided via EDGAR in a structured data language. SBSEFs will likely incur limited costs to comply with the proposed requirement in Rule 825(c)(3) to publish Daily Market Data Reports using the most recent versions of the associated XML schema and PDF renderer as published on the Commission's website. Because SBSEFs are required to use structured data to fulfill their reporting requirements under Regulation SBSR, the compliance cost associated with the Rule 825(c)(3) requirement will be limited to the cost prospective SBSEF registrants will incur to update their systems to incorporate the Commission's XML schema for Daily Market Data Reports.
With respect to the Inline XBRL requirements for various disclosures required under Regulation SE, SBSEFs will incur initial Inline XBRL implementation costs (such as the cost of training in-house staff to prepare filings in Inline XBRL, and the cost to license Inline XBRL filing preparation software from vendors) and ongoing Inline XBRL compliance burdens that will result from the tagging requirements, because prospective SBSEF registrants are not currently subject to Inline XBRL requirements. The custom XML requirements under Regulation SE will not impose these costs on SBSEFs, because SBSEFs will have the option of complying with those requirements by completing a fillable web form rather than structuring the disclosures in custom XML themselves. Also, as discussed in greater detail below, the Inline XBRL implementation costs could be mitigated to some extent, because six of the seven SEFs that list index CDS for trading (
Further, the compliance costs associated with the structured data requirements, as adjusted for inflation, will likely decrease over time. SBSEFs will likely comply with structuring requirements more efficiently after gaining experience over repeated filings, though such an effect will likely be diminished for affected entities that already have experience structuring similar data in other documents. Third-party vendors of structured data compliance software or services may decrease the prices of their products over time; the XBRL compliance costs reported in the 2018 AICPA survey of smaller operating companies reflect such a trend, as they represented a 45% decline in average cost and a 69% decline in median cost from 2014.
In addition to costs associated with structured data requirements, because prospective SBSEF registrants are not currently subject to EDGAR requirements, hey will incur a one-time compliance burden of submitting a Form ID as required by Rule 10(b) of Regulation S-T.
As noted above, we are requiring SBSEFs to submit rule and product filings in unstructured format using EFFS, rather than structuring the filings and submitting them via EDGAR.
The new rules and amendments would likely affect competition, capital formation, and efficiency in various ways discussed below.
As discussed earlier, currently, the SBS market is dominated by a small group of SBS dealers.
Rules 815(f) and 815(g), by reducing the risk of information leakage and protecting market participants' anonymity for an SBS that is anonymously executed on an SBSEF and intended to be cleared, could increase participation on SBSEFs. This in turn could increase competition in liquidity provision, liquidity, and efficiency in the SBS market.
Rule 806(a)(5), which requires an SBSEF to explain the anticipated benefits and potential anticompetitive effects on market participants of a proposed new rule or rule amendment, potentially could help foster a competitive SBS market because it could prompt SBSEFs to consider the positive as well as negative aspects of their proposed rules or rule amendments with respect to competition.
As discussed earlier, Rules 819(c) and 819(e) would promote competition among entities that act as third-party service providers to SBSEFs. To the extent that increased competition among third-party service providers incentivizes them to offer cheaper, higher quality services to SBSEFs thereby lowering their costs, market participants that are SBSEF members could benefit if the SBSEFs pass on the cost savings in the form of lower fees to their members.
Regulation SE could promote capital formation by helping to improve regulatory oversight, market integrity, and market predictability. Regulation SE requires, among other things, that SBSEFs maintain an audit trail and automated trade surveillance system; conduct real-time market monitoring; establish and enforce rules for information collection; and comply with reporting and recordkeeping requirements. These requirements are designed to provide an SBSEF with sufficient information to oversee trading on its market, including detecting and
Also, by reducing the risk of trading disruptions on SBSEFs, Rules 829 and 830 could increase market participants' confidence in the soundness of SBSEFs, which in turn could lead to the greater use of SBS traded on SBSEFs thereby promoting capital formation as discussed above.
The general approach of harmonizing as closely as practicable with analogous CFTC rules for SEFs, unless a reason exists to do otherwise in a particular area, likely will generate cost efficiencies and reduced burdens for SBSEF registrants that likely would be registered SEFs that have established systems and policies and procedures to comply with CFTC rules.
The automation and systems development associated with the regulation of SBSEFs could provide SBS market participants with new platforms and tools to execute and process transactions in SBS more rapidly and at a lower expense per transaction. Such increased efficiency could enable members of the SBSEF to handle increased volumes of SBS with greater efficiency and timeliness.
The requirements with respect to pre-trade price transparency could lead to more efficient pricing in the SBS market. The rules are designed to increase pre-trade price transparency for SBS, which should aid market participants in evaluating current market prices for SBS, thereby furthering more efficient price discovery. Increased pre-trade price transparency, coupled with increased competition in liquidity provision as discussed above,
The Commission recognizes the possibility that pre-trade price transparency could cause market participants to reveal more information about trading interest than they believe would be economically desirable. If market participants consider that pre-trade price transparency requirements are too burdensome and choose not to participate in the market, market efficiency could be reduced insofar as these market participants forgo any potential economic benefits that may have resulted from transacting in the SBS market. However, several factors mitigate such concerns. First, pursuant to Rule 815(c)(2), an SBSEF may offer any execution method for Permitted Transactions. Thus, a market participant engaging in a Permitted Transaction may choose to use an execution method that reveals the desired, or at least preferred, amount of information about trading interest. Second, pursuant to Rule 815(a)(2), an SBSEF will be required to offer two execution methods for Required Transactions (limit order book and RFQ-to-3). Thus, market participants have flexibility in the degree of pre-trade transparency they wish to employ, which should attenuate potential concerns associated with revealing too much information about trading interest.
The Commission considered a number of alternatives when finalizing the rules and amendments in this release.
Several commenters suggest that the Commission provide abbreviated registration procedures for CFTC-registered SEFs either by using the Commission's exemptive authority to provide a streamlined registration process for such applicants
In connection with the ten-business-day review period under Proposed Rule 804(a)(2), two commenters recommend a shorter review period of one business day to harmonize with the CFTC's approach.
Several commenters urge the Commission to incorporate the CFTC's impartial access requirement guidance with respect to access to SBSEFs into the text of Rule 819. According to these commenters, such an alternative would provide market participants with guidance and clarity regarding how Proposed Rule 819(c) will be interpreted and applied in practice. The commenters believe that the alternative would increase competition, transparency, and liquidity in the SBS markets; lower transaction costs through increased competition; and result in greater market-led innovation in the SBS markets.
Second, as discussed in section VI.B.3 above, efforts to undermine the principle of impartial access may take myriad forms over time. It is preferable to emphasize the principle of impartial access in the rule text as an affirmative requirement with which to comply. The adopted approach would incentivize SBSEFs to constantly review their practices to ensure compliance with the principle of impartial access. The Commission also considered the alternative of incorporating into the text of Rule 819 a non-exclusive list of the means that may violate the principle of impartial access. This alternative would raise the same concerns discussed above.
The adopted approach may nevertheless generate the beneficial effects suggested by the commenters. Rule 819(c) is broad enough to permit market participants to use the same practices that they are using pursuant to the CFTC guidance. Consistent with the Commission's belief that prospective SBSEF registrants are likely to be CFTC-registered SEFs that are active in the index CDS market,
In connection with Proposed Rule 823, several commenters recommend that the Commission harmonize with CFTC's STP requirements by establishing STP standards, incorporating relevant CFTC guidance, and prohibiting breakage agreements for SBS that are intended to be cleared.
The adopted approach may nevertheless generate the beneficial effects suggested by the commenters. As discussed in section VI.F.3, Rule 823(c) is broad enough to permit market participants to use the same practices that they are using pursuant to the CFTC guidance. Consistent with the Commission's belief that prospective SBSEF registrants are likely to be CFTC-registered SEFs that are active in the index CDS market,
In finalizing Regulation SE, the Commission considered the alternative of not adopting a block trade exception from the Required Transaction requirement in Rule 815(a)(2) for credit SBS. This alternative could extend the benefits of increased pre-trade transparency
The Commission agrees with commenters that a block-trade exception is appropriate for credit SBS, not only to maintain harmonization with the CFTC regime for swaps but also to
Accordingly, the adopted approach is preferable to the alternative.
In finalizing Regulation SE, the Commission considered the alternative of adopting the proposed definition of “block trade” under Rule 802. For the third prong of the “block trade” definition, the Commission proposed that the SBS be based on a single credit instrument (or issuer of credit instruments) or a narrow-based index of credit instruments (or issuers of credit instruments) having a notional size of $5 million or greater.
As discussed earlier,
As discussed above, the Commission acknowledges these commenters' concerns. Further, unless and until the Commission has made a mandatory clearing determination regarding an SBS, it is not necessary to define a block-trade threshold for SBS, and it would be appropriate for the Commission to identify a block-trade threshold in the future after considering credit SBS transaction data and credit SBS markets at that time. In addition, the Commission agrees with commenters that additional consideration of credit SBS transaction data would help the Commission determine the appropriate block-trade threshold for credit SBS products, including whether different thresholds should apply to different types or groups of SBS. The Commission also agrees with commenters that the credit SBS markets are likely to evolve over time and that analysis of market data continues to be an important aspect of setting appropriate thresholds for both block trades and credit SBS public trade reporting.
Therefore, as discussed above, the Commission is not adopting the proposed definition of “block trade” under Proposed Rule 802, or any other block-trade threshold. Instead, Rule 802 will include a note that a definition of “block trade” has not yet been adopted. This would allow the Commission to identify a block-trade threshold in the future after considering credit SBS transaction data and the evolution of the credit SBS markets. In light of the above, the adopted approach is preferable to the alternative.
In finalizing Regulation SE, the Commission considered the alternative of adopting a definition of “block trade” applicable to equity SBS. One commenter suggests that the alternative would facilitate timely and efficient executions of equity SBS thereby supporting risk management activities, encourage the use of equity SBS for legitimate business purposes, including hedging, and facilitate capital formation.
The Commission acknowledges that the alternative could have beneficial effects as suggested by the commenters. However, as discussed in section V.E.1(c)(iii), an inappropriate block trade threshold for equity SBSs could create incentives for market participants to trade equity SBS over cash equities, listed equity options, and equity swaps. The Commission is concerned, in particular, that a shift in trading activity away from cash equities and listed equity options towards equity SBS could generate several adverse effects. First, such a shift in trading activity could reduce participation in the cash equities and listed equity options markets, including participation by liquidity providers. Reduced participation by liquidity providers could reduce competition in liquidity provision in these markets, which in turn could increase trading costs and decrease liquidity. Trading in these markets could become less efficient because of increased trading costs and decreased liquidity. Second, to the extent that trading becomes more costly in the cash equities and listed equity options markets, trading in these markets could be reduced, which could impede the incorporation of new information into the prices of cash equities and listed equity options through trading. This in turn could reduce price efficiency in the cash equities and listed equity options markets. Third, decreased liquidity in the cash equities market could raise the cost of capital for cash equities,
The adopted approach may nevertheless generate the beneficial effects suggested by the commenters. Regulation SE would increase pre-trade price transparency and competition in liquidity provision, which could decrease the spread in quoted prices and lead to higher efficiency in the trading of SBS.
As discussed in section XVII.D.2, Regulation SE could improve regulatory oversight, market integrity, and market predictability, which could lead to the greater use of SBS (including equity SBS) and promote capital formation.
Regulation SE would address concerns about information leakage in various ways. First, pursuant to Rule 815(c)(2), an SBSEF may offer any execution method for Permitted Transactions. Thus, a market participant engaging in a Permitted Transaction (
In addition, until the Commission has made a clearing determination with respect to equity SBS, equity SBS will be able to trade OTC, just as their underlying cash equities can trade OTC. Moreover, before making a clearing determination for an equity SBS—which would create the circumstances in which equity SBS might be MAT and therefore subject to the trade-execution requirement—the Commission would have the opportunity to solicit and consider additional public comment on the effect of such a determination, including comment with respect to the concerns commenters have raised to date regarding, among other things, timely and efficient executions, hedging, and capital formation.
In light of the above, the adopted approach is preferable to the alternative.
In finalizing Rule 833, the Commission considered alternative approaches suggested by commenters. Four commenters suggest that the Commission grant automatic exemptions for foreign trading venues that are currently exempt under the CFTC's rules.
With respect to these alternatives, the Commission is concerned that granting automatic exemptions would not afford the Commission the opportunity to appropriately consider the relevant facts and circumstances in support of a finding that an exemption is necessary or appropriate in the public interest and consistent with the protection of investors. Further, to the extent that there are certain CFTC exempt foreign trading venues that do not intend to offer trading in SBS, it is unclear how the Commission's granting of an automatic exemption to these venues would benefit market participants that wish to trade SBS on regulated platforms. In light of the above, the adopted approach is preferable to these alternatives.
The Commission also considered certain alternatives discussed in the Proposing Release: (1) not harmonizing Regulation SE with analogous CFTC rules; (2) harmonizing the third prong of the definition of “block trade” with the third prong of the CFTC definition of “block trade”; (3) requiring SBSEFs to submit the information in the Daily Market Data Report directly to the Commission; (4) requiring an exemption order under Rule 833(a) to apply to a foreign trading venue only if it traded SBS and no other types of securities; (5) applying the revocation provisions of Rule 3a1-1(b) to SBSEFs and clearing agencies that are covered by paragraphs (a)(4) and (a)(5), respectively of Rule 3a1-1; and (6) not exempting SBSEF-Bs from section 17(a) of the SEA.
The Commission also considered the alternative of requiring, as proposed, Inline XBRL for all SBSEF filings other than Daily Market Data Reports under Rule 825. However, limiting the scope of Inline XBRL requirements under Regulation SE will ease compliance burdens for SBSEFs while maintaining a significant level of machine-readability for SBSEF data available to market participants and public data users as well as Commission staff. Some of the disclosures proposed with Inline XBRL structuring will still be structured in the final rule, but with a custom XML requirement rather than an Inline XBRL requirement. This will allow SBSEFs to, at their option, input those disclosures into fillable web forms rather than structure the disclosures in the custom XML data language themselves, thereby providing greater flexibility to SBSEFs and potentially easing compliance burdens. For copies of existing documents attached to Form SBSEF, and for rule and product filings that were proposed with an Inline XBRL requirement will instead be filed in unstructured formats. Given the reduced compliance burdens on SBSEFs resulting from a more limited scope of Inline XBRL requirements, the adopted rules are preferable to the alternative.
Certain provisions of the rules in Regulation SE contain new “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
In addition, the Commission is amending Rule 3a1-1 under the SEA to exempt a registered SBSEF from the statutory definition of “exchange.” Furthermore, the Commission is adopting new Rule 15a-12 under the SEA that, while affirming that an SBSEF would also be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements under the SEA.
Regulation SE includes rules regarding the registration of a prospective SBSEF on Form SBSEF, the
The rules and rule amendments contained in Regulation SE include a collection of information within the meaning of the PRA for SBSEFs that are required to comply with Regulation SE and file a Form SBSEF with the Commission for registration as an SBSEF and, among other things, submit certain filings to the Commission pursuant to Rules 804-807 with respect to new products and proposed rule changes. In addition, Rule 833 includes a collection of information within the meaning of the PRA for persons that wish to seek an exemption order under that rule, and Rule 834 includes a collection of information within the meaning of the PRA for SBS exchanges (in addition to SBSEFs). The Commission generally is adopting Regulation SE as proposed, except for certain sections that have been modified in response to comments received. The modified Rules that have associated paperwork burdens are Rules 804, 815, 819, 825, and 834. Each of these modifications and their impact on the paperwork burden are described in more detail below.
Many of the rules that constitute Regulation SE are modeled after analogous CFTC rules, with only minor edits to reflect differences between the statutory regimes of the two agencies. Entities that are most likely to register with the Commission as SBSEFs are those already registered with the CFTC as SEFs. Such entities have made substantial investments in systems, policies, and procedures to comply with and adapt to the regulatory system developed by the CFTC. Harmonization will allow these dually registered entities to utilize their existing systems, policies, and procedures to comply with the Commission's SBSEF rules, and SEF members would likely face only marginal additional burdens to trade SBS as well as swaps on those SEF/SBSEFs. In light of these factors, the Commission has based many of its paperwork burden estimates on CFTC burden estimates calculated for analogous CFTC rules.
The CFTC estimated PRA burdens by aggregating the burdens produced by a group of related rules, as explained more fully in section XX(D) below. In most cases, the Commission has modeled its methodology, assumptions, and calculations on those used by the CFTC with respect to its SEF regulations, while making adjustments that reflect differences between the scale of the market for swaps relative to the market for SBS—for example, the estimated number of SBSEFs, number of SBS market participants, and number of SBS transactions—as necessary. The Commission received no comments on its proposed PRA methodology, assumptions, calculations, and estimates, and such an approach continues to be appropriate. As noted above, almost all of the burden estimates are based on CFTC estimates that have been approved by OMB. The CFTC estimates that serve as the basis for the Commission's estimates have not changed since the Proposing Release has been published, with the exception of one estimate for Rule 811(d). Consequently, the Commission continues to estimate the burdens as those set forth in the Proposing Release, except for one adjustment to match a subsequent adjustment in the CFTC estimate relevant to Rule 811(d). As explained in more detail below, for rules that have been modified that contain associated paperwork burdens, the modifications do not result in any change in paperwork burden.
The following is a summary of the rules contained in Regulation SE.
Regulation SE imposes various requirements relating to SBSEF registration, which are set forth in Rule 803.
The information collected pursuant to these adopted rules will enhance the ability of the Commission to determine whether to approve the registration of an entity as an SBSEF; to monitor and oversee SBSEFs; to determine whether
Various provisions of Regulation SE require SBSEFs to establish certain rules, policies, and procedures to comply with applicable requirements of the SEA and the Commission's rules thereunder.
Various provisions of Regulation SE require SBSEFs and certain other persons to submit reports or provide specified information.
Regulation SE requires an SBSEF to keep specified records.
Regulation SE imposes certain publication burdens on SBSEFs in Rule 825.
The requirement contained in Rule 825 that an SBSEF have the capacity to electronically capture, transmit, and disseminate information on price, trading volume, and other trading data on all SBS executed on or through the SBSEF will assist the SBSEF in carrying out its regulatory responsibilities under the SEA and enable the SBSEF to comply with reasonable requests to provide information to others. Furthermore, Rule 825 requires an SBSEF to publish a Daily Market Data Report that is designed to provide market observers with a daily snapshot of market activity on the SBSEF.
Regulation SE establishes various filing requirements applicable to SBSEFs. Rules 804 and 805 provide mechanisms for an SBSEF to submit filings for new products that it seeks to list either through a self-certification process or by voluntarily requesting Commission approval, respectively. Rules 806 and 807 require an SBSEF to submit new rule or rule amendments either through a self-certification process or by voluntarily requesting Commission approval, respectively.
Rule 808 addresses the public availability of certain information in an application to register as an SBSEF and SBSEF filings made under the self-certification procedures or pursuant to Commission review and approval. Rule 809 establishes procedures for addressing a situation where an SBSEF wishes to list a product and it is unclear whether that product is an SBS or swap (
The information collected under Rules 804 and 805 will help the Commission assess whether an SBS listed by an SBSEF complies with relevant provisions of the SEA. In addition, this information will assist the Commission in overseeing the SBSEF's compliance with its regulatory obligations generally and to learn about developments in the SBS product market. Rules 804 and 805 also provide a mechanism whereby market participants, other SBSEFs, other regulators, and the public generally could learn what products an SBSEF intends to list and to obtain information regarding such products.
The information collected under Rules 806 and 807 will help the Commission assess whether a new rule or rule amendment of an SBSEF complies with relevant provisions of the SEA and assist the Commission in overseeing the SBSEF's compliance with its regulatory obligations generally. Rules 806 and 807 also provide a mechanism whereby an SBSEF's members (and prospective members) could learn what new rules or rule amendments the SBSEF intends to apply in its market.
The information collected under Rules 809 and 810 will help the Commission assess an SBSEF's compliance with relevant provisions of the SEA and assist the Commission in overseeing the SBSEF's compliance with its regulatory obligations. This information also will be useful to the SBSEF's members, because they would be subject to such new or amended rules or products and thus would have an interest in learning about those rules or products. Other market participants, other SBSEFs, and other regulators, as well as the public generally, may find information about proposed new or amended rules or products useful.
Regulation SE includes Rule 831 that would set out requirements relating to an SBSEF's CCO.
The information that will be collected under Rule 831 will help ensure compliance by SBSEFs with relevant provisions of the SEA and assist the Commission in overseeing SBSEFs generally. The Commission could use the annual compliance report to help it evaluate whether an SBSEF is carrying out its statutorily mandated regulatory obligations and, among other things, to discern the scope of any denials of access or refusals to grant access by the SBSEF and to obtain information on the status of the SBSEF's regulatory compliance program. The SBSEF's fourth-quarter financial report will provide the Commission with important information on the financial health of the SBSEF.
The rules that require an SBSEF to maintain surveillance systems and to monitor trading
The respondents subject to the collection of information burdens associated with Regulation SE are: (1) SBSEFs (and entities wishing to register with the Commission as SBSEFs); (2) in the case of Rule 833, persons that seek an exemption order under that rule; and (3) in the case of Rule 834, SBS exchanges.
Currently there are no registered SBSEFs. Based on the number of SEFs registered with the CFTC that trade index CDS (the closest analog to single-name CDS, which is likely to be the product most frequently traded on SEC-registered SBSEFs), as well as general industry information, the Commission preliminarily estimated that five entities will seek to register as SBSEFs and thus become subject to the collection of information requirements of these rules.
The Commission preliminarily estimated that three persons would request exemption orders under one or both paragraphs of Rule 833.
The Commission preliminarily estimated that three entities will operate as SBS exchanges.
The Commission considered whether any provision of proposed Regulation SE would impose any burdens (as defined in the PRA) on SBSEF members but received no comments on this point and continues to estimate that the provisions of Regulation SE would not impose PRA burdens on SBSEF members.
The CFTC, based on its experience in developing rules for SEFs and regulating the SEF market, has over the years developed, refined, and received approval from OMB for paperwork burden hours estimates, both for SEF rules directly as well as for ancillary rules on which various rules in Regulation SE are modeled.
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The rules applicable to SBSEFs are, with limited exceptions discussed above, substantively similar to those applicable to SEFs. Therefore, the Commission is basing its estimates for the paperwork burdens for SBSEFs on the CFTC's paperwork burden calculations for analogous rules that apply to SEFs, which have been approved by OMB.
Although there are minor differences between the CFTC rules and the Commission rules being adopted, the Commission does not need to
The Commission anticipates that most if not all entities that seek to register with the Commission as SBSEFs will also register, or will already be registered, with the CFTC as SEFs. With a few exceptions, the rules being adopted by the Commission are adapted from existing rules of the CFTC. With these rules, the Commission intends to obtain comparable regulatory benefits as the CFTC rules while imposing only marginal additional burdens on SEF/SBSEFs. However, for purposes of its PRA analysis, the Commission will estimate the burdens as if a respondent were subject only to the Commission's rules.
The burden hours discussed below represent annual/ongoing burdens, with three exceptions that represent initial, one-time burdens: registration burdens for SBSEFs under Rule 803, exemption requests regarding foreign SBS trading venues under Rule 833, and certain rules under Rules 834(b) and (c).
The Commission requested comments on its entire proposed approach to estimating burden hours and received no comment.
A submission by an entity wishing to register with the Commission as an SBSEF would be required to be made on Form SBSEF, pursuant to Rule 803, on a one-time basis. The Commission estimates that five entities initially would seek to register with the Commission as SBSEFs. The Commission estimates the burdens of Rule 803 and Form SBSEF to be per respondent and aggregate of 295 and 1,475 hours, respectively. These entities would incur initial, one-time burdens, because once an entity is registered as an SBSEF, its registration obligations are complete. The Commission's estimate regarding the initial burden that an entity would incur to file a Form SBSEF is informed by the estimates made by the CFTC for the completion of Form SEF and compliance with § 37.3 of the CFTC regulations (which governs registration of SEFs). Form SBSEF requests almost exactly the same information as required by Form SEF, and Rule 803 is substantially similar to § 37.3. The CFTC has estimated that the initial compliance burden associated with its registration requirements in § 37.3 and Form SEF to be 295 hours per SEF applicant.
The Commission estimates the aggregate ongoing annual hour burden for compliance with all of the SBSEF rules that have analogs in part 37 to be 1,935 hours.
As noted above, the Commission is adopting Rule 815 and 819 as proposed, except that it is: (1) removing the proposed definition of a “Block Trade”, a term used in Rule 815, from Rule 802 and reserving that definition; (2) modifying Rule 815(d)(2) and (d)(3) to
In addition, the Commission is modifying Rule 825 to make changes to what type of information is required to be submitted in and timing of publication of the daily market data report and to remove certain mentions of block trades because that term will not be defined in Regulation SE at this time. Rule 825 will not require the disclosure of the number of block trades and will require publication of the report as soon as reasonably practicable on the next business day but no later than 7 a.m. (rather than before the beginning of trading) and several mentions of block trades in Rule 825(c) have been removed. Not requiring the disclosure of the number of block trades will have a negligible impact on the reporting burden of preparing the daily market data report. Rule 825 requires the report to contain numerous items. The Commission estimates that eliminating block trades from one of the required items (trade count) will reduce the hours burden for compiling the report by a negligible amount. Similarly, changing the timing of the publication of the report will have no impact on burden hours. The Commission estimates that it will not require a greater or fewer number of hours to compile the report as a result of the change in timing for publication as it is the same report that is being compiled. Therefore, the Commission continues to estimate a per-respondent and aggregate totals of 387 hours and 1,935 hours, respectively.
As discussed in more detail below, certain SBSEF rules being adopted in Regulation SE are derived from other parts of the CFTC's rules (
A number of rules contained in Regulation SE are modeled on rules in part 40 of the CFTC's rules, including §§ 40.2 (Listing products for trading by certification), 40.3 (Voluntary submission of new products for Commission review and approval), 40.5 (Voluntary submission of rules for Commission review and approval), and 40.6 (Self-certification of rules). The Commission is adopting Rules 804, 805, 806, and 807—which are closely modeled on §§ 40.2, 40.3, 40.5, and 40.6, respectively—in order to harmonize with the procedures that the CFTC applies to SEFs with respect to establishing new rules and listing products. In addition, Rule 808 is modeled after § 40.8 and provides that certain information in a Form SBSEF application or a rule or product filing would be made publicly available, unless confidential treatment is obtained pursuant to Rule 24b-2. Rule 809 is loosely modeled after § 40.12 and sets forth a mechanism for a tolling of the period for consideration of a product pending the issuance by the SEC and the CFTC of joint interpretation clarifying which agency has jurisdiction over the product.
Rules 804 and 805 require an SBSEF to submit filings for new products that it seeks to list. Under Rules 806 and 807, an SBSEF is required to submit rule filings for new rules or rule amendments, including changes to a product's terms or conditions. The Commission's estimate regarding the burdens that an SBSEF would incur to comply with the rule and product filing processes in Rules 804, 805, 806, and 807 is informed by the estimates made by the CFTC for compliance with §§ 40.2, 40.3, 40.5, and 40.6, the burden hours for which have been approved by OMB.
Based on the CFTC's experience with SEFs, the Commission estimates that on average an SBSEF would incur an ongoing annual burden of 2 hours of work per rule or product filing. Although the CFTC estimated an average of 100 responses per year per respondent,
As noted above, the Commission is stating in this release that, where a respondent is seeking to list a new category of product of which there would be multiple specific products based on different underlying securities, separate submissions under Rule 804 with respect to each underlying security would not be required, but the submission made would have to address why each of the included underlying securities meets the relevant standards required by Regulation SE. “Blanket” certifications—
Certain definitions contained in Rule 802 are modeled after provisions of part 40. These definitions do not result in any paperwork burden.
Rule 809 is loosely modeled on § 40.12 of the CFTC's rules and would apply when an SBSEF wishes to list a product and it is unclear whether the product should be classified as an SBS subject to the jurisdiction of the SEC or a swap subject to the jurisdiction of the CFTC. Rule 809 provides that a product certification made by an SBSEF pursuant to Rule 804 shall be stayed, or the review period for a product that has been submitted for Commission approval by an SBSEF pursuant to Rule 805 shall be tolled, upon a request, made pursuant to Rule 3a68-2 under the SEA
Rule 809 itself does not include a process for determining whether the SEC or CFTC has jurisdiction over a product. Rule 809 would enable the SEC to stay or toll the product filing while the SEC and CFTC consider a joint interpretation under existing SEA Rule 3a68-2, the burden hours of which have already been approved by OMB.
Adopted rules similar to rules of the CFTC other than part 37 and part 40 are Rules 811(d), 816(e), 819(h), 819(i), 819(j), 819(k), 826(f), and 834. These rules generate various categories of burdens for SBSEFs or market participants.
Section 1.60 of the CFTC's rules requires a SEF to provide the CFTC with copies of any legal proceeding to which it is a party, or to which its property or assets is subject.
Paragraph (d) of Rule 811 adapts paragraphs (a), (c), and (e) of § 1.60 to apply to SBSEFs. Paragraph (d)(1) requires an SBSEF to provide the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the SBSEF is a party or to which its property or assets are subject. Paragraph (d)(2) requires an SBSEF to provide notices of similar actions against any officer, director, or other official of the SBSEF from conduct in such person's capacity as an official of the SBSEF alleging violations of certain enumerated actions.
The Commission estimates that an SBSEF would provide the information required by Rule 811(d) once per year, and that each submission would take 0.25 hours. Thus, the Commission estimates that the aggregate ongoing annual burden for all SBSEFs to comply with requests for documents or information pursuant to Rule 811(d) would be 1.25 hours.
For PRA purposes, it is reasonable to apply the CFTC's approach to Rule 811(d).
Paragraph (h) of Rule 819 generally prohibits persons who are employees of an SBSEF, or who otherwise might have access to confidential information because of their role with the SBSEF, from improperly utilizing that information. Rule 819(h) is modeled on § 1.59 of the CFTC's rules. The Commission does not estimate that this rule would result in a paperwork burden.
Paragraph (i) of Rule 819 bars persons with specified disciplinary histories from serving on the governing board or committees of an SBSEF and impose certain other duties on the SBSEF associated with that fundamental requirement. Rule 819(i) is modeled on § 1.63 of the CFTC's rules.
The Commission estimates that an SBSEF would provide the information required by Rule 819(i) once per year, and that each submission would take 79.83 hours. Thus, the Commission estimates that the aggregate ongoing annual burden for all SBSEFs to comply with Rule 819(i) would be 399.15 hours.
For PRA purposes, it is reasonable to apply the CFTC's approach to Rule 819(i), and this work is likely to be conducted internally.
Paragraph (j) of Rule 819 is modeled on § 1.67 of the CFTC's rules. Rule 819(j)(1) provides that, upon any final disciplinary action in which an SBSEF finds that a member has committed a rule violation that involved a transaction for a customer, whether executed or not, and that resulted in financial harm to the customer, the SBSEF must promptly provide written notice of the disciplinary action to the member.
The Commission estimates that an SBSEF would need 0.5 hours to prepare a notice and provide it to a member. This estimate is based on a previous Commission estimate for the time that it would take to prepare and submit a simple notice.
Paragraph (k) of Rule 819 requires non-U.S. persons who trade on an SBSEF to have an agent for service process, which could be an agent of its own choosing or, by default, the SBSEF.
Rule 826(f) is modeled on § 1.37(c) and requires an SBSEF to keep a record in permanent form, which shall show the true name, address, and principal occupation or business of any non-U.S. member that executes transactions on the SBSEF and must, upon request, provide to the Commission information regarding the name of any person guaranteeing such transactions or exercising any control over the trading of such non-U.S. member.
The Commission estimates that each SBSEF would need to update information required by Rule 826(f) once per year and that each submission would take 0.4 hours. Thus, the Commission estimates that the aggregate ongoing annual burden for all SBSEFs to comply with requests for documents or information pursuant to Rule 826(f) would be 2 hours.
For PRA purposes, it is reasonable to apply the CFTC's approach to Rule 826(f). This work, should it be required, is likely to be conducted internally.
Rule 834 of Regulation SE implements section 765 of the Dodd-Frank Act with respect to SBSEFs and SBS exchanges and, in addition, adapt certain CFTC rules that are designed to mitigate conflicts of interest at SEFs (and other CFTC-registered entities). Rule 834 provides that each SBSEF and SBS exchange must create and maintain rules to mitigate conflicts of interest between SBSEFs and SBS exchanges and their members, including by prohibiting members from owning 20% or more of the voting rights of an SBSEF or SBS exchange and from exercising disproportionate influence in disciplinary proceedings. Rule 834 also requires each SBSEF and SBS exchange to submit to the Commission after every governing board election a list of each governing board's members, the groups they represent, and how the composition of the board complies with the requirements of Rule 834. Establishing such rules and submitting such lists to the Commission would result in a paperwork burden for SBSEFs and SBS exchanges.
The Commission estimates that Rules 834(b) and (c) together would have an initial, one-time paperwork burden of 15 hours per entity associated with drafting and implementing any such rules, for an aggregate one-time paperwork burden of 120 hours.
Additionally, the Commission estimates that Rule 834(d), Rule 834(e), and Rule 834(f), combined, would result in an aggregate ongoing annual paperwork burden of 10 hours.
The Commission estimates that Rule 834(g) would have an aggregate ongoing annual burden of 16 hours.
The Commission does not estimate that Rule 834(h) would result in a paperwork burden not already included in the above estimates. Rule 834(h) incorporates into a single rule the requirements for an SBSEF to file rules to comply with Rule 834. As it has already described the paperwork burdens of Rules 834(b) through (g), the Commission does not estimate that Rule 834(h) would result in a separate paperwork burden not already included above. Thus, the total aggregate ongoing annual burden is estimated at 26 hours.
Rule 833 describes how exemptions could be obtained for foreign SBS trading venues from the SEA definitions of “exchange,” “security-based swap execution facility,” and “broker” and how SBS executed on a foreign trading venue could become exempt from the SEA's trade execution requirement. Based on the CFTC's experience in the SEF market,
Rule 835 provides that, if an SBSEF issues a final disciplinary action against a member, takes final action with respect to a denial or conditioning membership, or takes final action with respect to a denial or limitation of access of a person to any services offered by the SBSEF, the SBSEF shall file a notice of such action with the Commission within 30 days and serve a copy on the affected person.
The Commission estimates that it would take 0.5 hours to prepare this notice and provide it to the Commission and the affected person. This estimate is based on a previous Commission estimate for the time that it would take to prepare and submit a simple notice.
Based on the foregoing, the Commission estimates that the total one-time burden for all SBSEFs, persons that seek an exemption order under Rule 833, and SBS exchanges combined pursuant to the requirements under Regulation SE is equal to 1,995 hours. The Commission estimates that annual ongoing burden for all SBSEFs, persons that seek an exemption order under Rule 833, and SBS exchanges combined pursuant to the requirements under Regulation SE is equal to 2,712.15 hours.
The collections of information imposed on SBSEFs throughout Regulation SE is mandatory for registered SBSEFs. The collection of information with respect to Rule 833 is mandatory for persons that seek an exemption order under Rule 833. The collection of information with respect to Rule 834 is mandatory for SBS exchanges.
The collection of information required under Regulation SE would generally not be kept confidential, unless confidential treatment is requested and granted by the Commission pursuant to Rule 24b-2 under the SEA.
Although recordkeeping and retention requirements have not yet been established for SBSEFs, the Commission is authorized to adopt such rules under section 3D of the SEA. Rule 826 under Regulation SE implements section 3D(d)(9) of the SEA to require an SBSEF to maintain records, for a minimum of five years, of all activities relating to the business of the SBSEF, including a complete audit trail.
The Regulatory Flexibility Act (“RFA”)
Most of Regulation SE, and the related rules and rule amendments, apply to registered SBSEFs (or entities that are seeking to register with the Commission as SBSEFs). In the Dodd-Frank Act, Congress defined SBSEFs as a new type of trading venue for SBS and mandated the registration of these entities. Based on its understanding of the market, and review of and consultation with industry sources, the Commission estimates that five entities will seek to register as SBSEFs and thus would be subject to Regulation SE and the related rules and rule amendments.
For purposes of Commission rulemaking in connection with the FRFA, a small entity includes: (1) when used with reference to an “issuer” or a “person,” other than an investment company, an “issuer” or “person” that, on the last day of its most recent fiscal year, had total assets of $5 million or less;
Most, if not all, SBSEFs would be large business entities or subsidiaries of large business entities, and that every SBSEF (or its parent entity) would have assets in excess of $5 million (or in the case of a broker-dealer, total capital of less than $500,000) and annual receipts in excess of $41,500,000. Therefore, for purposes of the RFA none of the potential SBSEFs would be considered small entities.
Rule 833 describes how foreign SBS trading venues could become exempt from the SEA definitions of “exchange,” “security-based swap execution facility,” and “broker” and how SBS executed on a foreign trading venue could become exempt from the SEA's trade execution requirement. Based on the fact that the CFTC has granted similar exemptions with respect to three foreign jurisdictions,
Based on the Commission's existing information about the SBS market, the Commission estimates that for purposes of the FRFA no person likely to request an exemption order pursuant to Rule 833 would be considered a small entity. The Commission estimates that most, if not all, of the persons requesting exemptions would be large business entities or subsidiaries of large business entities, and on its own, or through its parent entity, would have assets in excess of $5 million (or in the case of a broker-dealer, total capital of less than $500,000) and annual receipts in excess of $41,500,000. Therefore, the Commission estimates that for purposes of the RFA they would not be considered small entities.
Certain rules under Regulation SE apply to SBS exchanges. Currently, there are no SBS exchanges. However, the Commission estimates that there could be up to three entities that would be considered SBS exchanges and would thus be subject to certain requirements of Regulation SE.
For purposes of Commission rulemaking in connection with the RFA, a small entity includes, when used with reference to an exchange, an exchange that has been exempted from the reporting requirements of Rule 601 of Regulation NMS
Based on these definitions and the Commission's existing information about national securities exchanges, for purposes of the RFA the entities likely to be considered SBS exchanges would not be considered small entities. Under the standard requiring exemption from the reporting requirements of Rule 601 under the SEA, none of the exchanges subject to Regulation SE is a “small entity” for the purposes of the RFA. In addition, the Commission estimates that any SBS exchange would have annual receipts in excess of $41,500,000. Therefore, for purposes of the RFA, no potential SBS exchange would be considered small entities.
For the foregoing reasons, the Commission certifies, pursuant to section 605(b) of Title 5 of the U.S. Code, that the rules, form, and cover sheet under Regulation SE and the related rules and rule amendments will not have a significant economic impact on a substantial number of small entities.
If any of the provisions of these rules, or the application thereof to any person or circumstance, is held to be invalid, such invalidity shall not affect other
Pursuant to the Congressional Review Act,
Pursuant to the SEA (particularly sections 3(b), 3C, 3D, and 36 thereof, 15 U.S.C. 78c, 78c-3, 78c-4, and 78mm, respectively) and the Dodd-Frank Act (particularly section 765 thereof, 15 U.S.C. 8343), the Commission is amending §§ 201.101, 201.202, 201.210, 201.401, 201.450, 201.460, 232.405, and 240.3a1-1 of chapter II of title 17 of the Code of Federal Regulations and is adopting new §§ 201.442, 201.443, 240.15a-12, and 242.800 through 242.835, as set forth below.
Organization; Conduct and Ethics; and Information and Requests.
Administrative practice and procedure.
Administrative practice and procedure, Confidential business information, Incorporation by reference, Reporting and recordkeeping requirements, Securities.
Brokers, Dealers, Registration, Securities.
Brokers, Security-based swap execution facilities, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, the Commission is amending title 17, chapter II of the Code of the Federal Regulations as follows:
5 U.S.C. 552, 552a, 552b, and 557; 11 U.S.C. 901 and 1109(a); 15 U.S.C. 77c, 77e, 77f, 77g, 77h, 77j, 77
(a) * * *
(95) Pursuant to §§ 242.803 and 242.808(a) and (b) of this chapter (Rules 803 and 808(a) and (b)):
(i) To publish notice on the Commission's website of a completed application (“Form SBSEF”), to register as a security-based swap execution facility;
(ii) To make available on the Commission's website certain specified parts of a Form SBSEF;
(iii) To notify the applicant that its application is incomplete and will not be deemed to have been submitted for purposes of the Commission's review;
(iv) To request from the applicant any additional information and documentation necessary to review an application;
(v) To notify the applicant that its application is materially incomplete and to specify the deficiencies in the application, for purposes of staying the 180-day period for Commission review of the Form SBSEF; and
(vi) Upon receipt of a request submitted in good form by a security-based swap execution facility for vacation of its registration, to issue an order vacating the security-based swap execution facility's registration and to send a copy of the request and its order to all other security-based swap execution facilities, national securities exchanges that trade security-based swaps, and registered clearing agencies that clear security-based swaps.
(96) Pursuant to §§ 242.804(c)(1) and (2) and 242.808(b) of this chapter:
(i) To make publicly available on the Commission's website a security-based swap execution facility's filing of new products pursuant to the self-certification procedures of § 242.804 of this chapter;
(ii) To stay for a period of up to 90 days the effectiveness of a security-based swap execution facility's self-certification of a new product;
(iii) To publish notice on the Commission's website of a 30-day period for public comment; and
(iv) To withdraw the stay or notify the security-based swap execution facility that the Commission objects to the proposed certification.
(97) Pursuant to §§ 242.805(b) through (e) and 242.808(b) of this chapter:
(i) To make publicly available on the Commission's website a security-based swap execution facility's filing of new products for Commission review and approval pursuant to § 242.805 of this chapter (Rule 805);
(ii) To notify the submitting security-based swap execution facility that a submission for a new product does not comply with paragraph (a) of § 242.805 of this chapter (Rule 805);
(iii) To extend by an additional 45 days the period for consideration of a new product voluntarily submitted by a security-based swap execution facility to the Commission for approval, if the product raises novel or complex issues that require additional time to analyze, and to notify the security-based swap execution facility of the extension within the initial 45-day review period and briefly describe the nature of the specific issue(s) for which additional time for review is required;
(iv) To extend the period for consideration of a new product voluntarily submitted by a security-based swap execution facility to the Commission for approval by such longer period as to which the security-based swap execution facility agrees in writing;
(v) To approve a proposed new product and provide notice of the approval to the security-based swap execution facility;
(vi) To notify the security-based swap execution facility that the Commission will not, or is unable to, approve the product, and to specify the nature of the issues raised and the specific provision of the Act or the Commission's rules thereunder, including the form or content requirements § 242.805(a) of this chapter, that the product violates, appears to violate, or potentially violates but which cannot be ascertained from the submission.
(98) Pursuant to §§ 242.806(b) through (e) and 242.808(b) of this chapter:
(i) To make publicly available on the Commission's website a security-based
(ii) To notify the submitting security-based swap execution facility that a submission for a new rule or rule amendment does not comply with § 242.806(a) of this chapter;
(iii) To extend by an additional 45 days the period for consideration of a new rule or rule amendment voluntarily submitted by a security-based swap execution facility to the Commission, if the proposed rule or rule amendment raises novel or complex issues that require additional time to review or is of major economic significance, the submission is incomplete, or the requester does not respond completely to the Commission questions in a timely manner, and to notify the security-based swap execution facility of the extension within the initial 45-day review period and briefly describe the nature of the specific issue(s) for which additional time for review is required;
(iv) To extend the period for consideration of a new rule amendment voluntarily submitted by a security-based swap execution facility to the Commission for approval by such longer period as to which the security-based swap execution facility agrees in writing;
(v) To approve a proposed rule or rule amendment and provide notice of the approval to the security-based swap execution facility;
(vi) To notify a security-based swap execution facility that the Commission will not, or is unable to, approve the new rule or rule amendment and to specify the nature of the issues raised and the specific provision of the Act or the Commission's rules thereunder, including the form or content requirements of this section, with which the new rule or rule amendment is inconsistent or appears to be inconsistent with the Act or the Commission's rules thereunder, including the form or content requirements of Rule 806, with which the new rule or rule amendment is inconsistent or appears to be inconsistent; and
(vii) To approve a proposed rule or a rule amendment, including changes to terms and conditions of a product, on an expedited basis under such conditions as shall be specified in the written notification.
(99) Pursuant to §§ 242.807(c) and 242.808(b) of this chapter:
(i) To make publicly available on the Commission's website a security-based swap execution facility's filing of new rules and rule amendments pursuant to the self-certification procedures of § 242.807 of this chapter;
(ii) To stay for a period of up to 90 days the effectiveness of a security-based swap execution facility's self-certification of a new rule or rule amendment;
(iii) To publish notice on the Commission's website of a 30-day period for public comment; and
(iv) To withdraw the stay or notify the security-based swap execution facility that the Commission objects to the proposed certification.
(100) Pursuant to §§ 242.809 of this chapter, to provide written notice to a security-based swap execution facility of a stay or tolling pending issuance of a joint interpretation upon request for a joint interpretation of whether a proposed product is a swap, security-based swap, or mixed swap made pursuant to § 240.3a68-2 of this chapter by the security-based swap execution facility, the Commission, or the Commodity Futures Trading Commission.
(101) Pursuant to § 242.811 of this chapter:
(i) To request pursuant § 242.811(a) of this chapter that a security-based swap execution facility file with the Commission information related to its business as a security-based swap execution facility, and to specify the form, manner, and timeframe for the filing by the security-based swap execution facility;
(ii) To request pursuant to § 242.811(b) of this chapter that a security-based swap execution facility file with the Commission a written demonstration, containing supporting data, information, and documents, that it is in compliance with one or more Core Principles or with its other obligations under the Act or the Commission's rules thereunder, to specify the Core Principles and other obligations under the Act or the Commission's rules that the security-based swap execution facility's filing must address, and to specify the form, manner, and timeframe for the security-based swap execution facility's filing;
(iii) To specify, pursuant to § 242.811(c)(2) of this chapter, the form and manner of the notification required pursuant to § 242.811(c)(1) of this chapter by a security-based swap execution facility of any transaction involving the direct or indirect transfer of 50 percent or more of the equity interest in the security-based swap execution facility, and to request supporting documentation of the transaction;
(iv) To specify the form and manner of the certification required pursuant to § 242.811(c)(4) of this chapter; and
(v) To specify the form and manner of the submission by a security-based swap execution facility of documents filed in any material legal proceeding to which the security-based swap execution facility is a party or its property or assets is subject, as specified in § 242.811(d)(1) of this chapter, or in any material legal proceeding instituted against any officer, director, or other official of the security-based swap execution facility from conduct in such person's capacity as an official of the security-based swap execution facility, as specified in § 242.811(d)(2) of this chapter, and to request further documents.
(102) Pursuant to § 242.822 of this chapter (Rule 822), to require that a security-based swap execution provide information in its possession to the Commission and to specify the form and manner of that provision, and to require a security-based swap execution facility to share information with other regulation organizations, data repositories, and third-party data reporting services as necessary and appropriate to fulfill the security-based swap execution facility's regulatory and reporting responsibilities.
(h) * * *
(4) With respect to proceedings conducted under sections 19(d), (e), and (f) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(d), (e), and (f), Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, and § 201.442 of this chapter (Rule 442 of the Commission's Rules of Practice) to determine that an application for review under any of those sections has been abandoned, under the provisions of'§ 201.420, § 201.440, or § 201.442 of this chapter (Rule 420, Rule 440, or Rule 442 of the Commission's Rules of Practice), or otherwise, and accordingly to issue an order dismissing the application.
(5) With respect to proceedings conducted pursuant to the Securities Exchange Act of 1934, 15 U.S.C. 78a
(7) In connection with Commission review of actions taken by self-regulatory organizations pursuant to sections 19(d), (e), and (f) of the Securities Exchange Act of 1934, 15 U.S.C. 78s(d), (e), and (f), by the Public Company Accounting Oversight Board pursuant to Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, or by a security-based swap execution facility pursuant to § 201.442 of this chapter (Rule 442 of the Commission's Rules of Practice) to grant or deny requests for oral argument in accordance with the provisions of § 201.451 of this chapter (Rule 451 of the Commission's Rules of Practice).
(8) In connection with Commission review of actions taken by the Public Company Accounting Oversight Board pursuant to Title I of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7211-7219, or by a security-based swap execution facility pursuant to § 201.442 of this chapter (Rule 442 of the Commission's Rules of Practice), to determine whether to lift the automatic stay of a disciplinary sanction.
15 U.S.C. 77s, 77sss, 78w, 78x, 80a-37, and 80b-11; 5 U.S.C. 504(c)(1).
15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 77sss, 78c(b), 78d-1, 78d-2, 78
(a) * * *
(9) * * *
(ix) By the filing, pursuant to § 201.442, of an application for review of a determination of a security-based swap execution facility;
(a)
(1) Whether there should be an initial decision by a hearing officer;
(2) Whether any interested division of the Commission may assist in the preparation of the Commission's decision; and
(3) Whether there should be a 30-day waiting period between the issuance of the Commission's order and the date it is to become effective.
(a)
(b)
(c)
(f)
(2)
(3)
(a)
(1) Final disciplinary action, as defined in § 240.835(b)(1) of this chapter;
(2) Final action with respect to a denial or conditioning of membership, as defined in § 240.835(b)(2) of this chapter; or
(3) Final action with respect to a denial or limitation of access to any service offered by the security-based swap execution facility, as defined in § 240.835(b)(2) of this chapter.
(b)
(c)
(d)
(1) The security-based swap execution facility shall file electronically with the Commission one copy of an index of such record in the form and manner specified by the Commission and shall serve one copy of the index on each party. If such index contains any sensitive personal information, as defined in paragraph (d)(2) of this section, the security-based swap execution facility also shall file electronically with the Commission one redacted copy of such index, subject to the requirements of paragraph (d)(2) of this section.
(2)
(i)
(A) The last four digits of a financial account number, credit card or debit card number, passport number, driver's license number, and State-issued identification number;
(B) Home addresses and telephone numbers of parties and persons filing documents with the Commission; and
(C) Business telephone numbers.
(ii) [Reserved]
(e)
(a)
(b)
The addition reads as follows:
(a) * * *
(2) * * *
(iv) Receipt by the Commission of an index to the record of a determination by a security-based swap execution facility filed pursuant to § 201.442(d).
(a) * * *
(4) In a proceeding for final decision before the Commission reviewing a determination of a security-based swap execution facility, the record shall consist of:
(i) The record certified pursuant to § 201.442(d) by the security-based swap execution facility;
(ii) Any application for review; and
(iii) Any submissions, moving papers, and briefs filed on appeal or review.
15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78
The revisions and addition read as follows:
This section applies to electronic filers that submit Interactive Data Files. Section 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), General Instruction F of § 249.311 (Form 11-K), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), § 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), § 240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of § 240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 1 of § 240.14c-101 of this chapter (Rule 14c-101 under the Exchange Act), General Instruction I of § 249.333 of this chapter (Form F-SR), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), General Instruction 2.(
(a) * * *
(2) Be submitted only by an electronic filer either required or permitted to submit an Interactive Data File as specified by § 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K), Instruction F of Form 11-K (§ 249.311 of this chapter), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), § 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), § 240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of § 240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 1 of § 240.14c-101 of this chapter (Rule 14c-101 under the Exchange Act), General Instruction I to Form F-SR (§ 249.333 of this chapter), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), General Instruction 2.(
(3) * * *
(i) If the electronic filer is not a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a
(ii) If the electronic filer is a management investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a
(4) Be submitted in accordance with the EDGAR Filer Manual and, as applicable, Item 601(b)(101) of § 229.601(b)(101) of this chapter (Regulation S-K), General Instruction F of Form 11-K (§ 249.311 of this chapter), paragraph (101) of Part II—Information Not Required to be Delivered to Offerees or Purchasers of Form F-10 (§ 239.40 of this chapter), § 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act), paragraph 101 of the Instructions as to Exhibits of Form 20-F (§ 249.220f of this chapter), paragraph B.(15) of the General Instructions to Form 40-F (§ 249.240f of this chapter), paragraph C.(6) of the General Instructions to Form 6-K (§ 249.306 of this chapter), § 240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange Act), Note D.5 of § 240.14a-101 of this chapter (Rule 14a-101 under the Exchange Act), Item 1 of § 240.14c-101 of this chapter (Rule 14c-101 under the Exchange Act), General Instruction I to Form F-SR (§ 249.333 of this chapter), General Instruction C.3.(g) of Form N-1A (§§ 239.15A and 274.11A of this chapter), General Instruction I of Form N-2 (§§ 239.14 and 274.11a-1 of this chapter), General Instruction C.3.(h) of Form N-3 (§§ 239.17a and 274.11b of this chapter), General Instruction C.3.(h) of Form N-4 (§§ 239.17b and 274.11c of this chapter), General Instruction C.3.(h) of Form N-6 (§§ 239.17c and 274.11d of this chapter), Instruction 2.(
(b) * * *
(5) If the electronic filer is a clearing agency that provides a central matching service, or is subject to §§ 242.800 through 242.835 (Regulation SE), an Interactive Data File must consist only of a complete set of information for all corresponding data in the Related Official Filing, no more and no less, as follows:
(ii) For electronic filers subject to Regulation SE, the content of documents required to be filed electronically under §§ 242.829 and 242.831 of this chapter (Rules 829 and 831 of Regulation SE); and the Registration Instructions to § 249.1701 of this chapter (Form SBSEF), as applicable.
Section 229.601(b)(101) of this chapter (Item 601(b)(101) of Regulation S-K) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to § 239.11 of this chapter (Form S-1), § 239.13 of this chapter (Form S-3), § 239.25 of this chapter (Form S-4), § 239.18 of this chapter (Form S-11), § 239.31 of this chapter (Form F-1), § 239.33 of this chapter (Form F-3), § 239.34 of this chapter (Form F-4), § 249.310 of this chapter (Form 10-K), § 249.308a of this chapter (Form 10-Q), and § 249.308 of this chapter (Form 8-K). General Instruction F of § 249.311 of this chapter (Form 11-K) specifies the circumstances under which an Interactive Data File must be submitted, and the circumstances under which it is permitted to be submitted, with respect to Form 11-K. Paragraph (101) of Part II—Information not Required to be Delivered to Offerees or Purchasers of § 239.40 of this chapter (Form F-10) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form F-10. Paragraph 101 of the Instructions as to Exhibits of § 249.220f of this chapter (Form 20-F) specifies the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to Form 20-F. Paragraph B.(15) of the General Instructions to § 249.240f of this chapter (Form 40-F) and Paragraph C.(6) of the General Instructions to § 249.306 of this chapter (Form 6-K) specify the circumstances under which an Interactive Data File must be submitted and the circumstances under which it is permitted to be submitted, with respect to § 249.240f of this chapter (Form 40-F) and § 249.306 of this chapter (Form 6-K). Section 240.17Ad-27(d) of this chapter (Rule 17Ad-27(d) under the Exchange Act) specifies the circumstances under which an Interactive Data File must be submitted with respect the reports required under Rule 17Ad-27. Note D.5 of § 240.14a-101 of this chapter (Schedule 14A) and Item 1 of § 240.14c-101 of this chapter (Schedule 14C) specify the circumstances under which an Interactive Data File must be submitted with respect to Schedules 14A and 14C. Section 240.13a-21 of this chapter (Rule 13a-21 under the Exchange Act) and General Instruction I to § 249.333 of this chapter (Form F-SR) specify the circumstances under which an Interactive Data File must be submitted, with respect to Form F-SR. §§ 242.829 and 242.831 of this chapter (Rules 829 and 831 of Regulation SE) and the Registration Instructions to § 249.1701 of this chapter (Form SBSEF), as applicable, specify the circumstances under which an Interactive Data File must be submitted with respect to filings made under Regulation SE.
15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78
The additions and revisions read as follows:
(a) * * *
(4) Has registered with the Commission as a security-based swap execution facility pursuant § 242.803 of this chapter and provides a market place or facilities for no securities other than security-based swaps; or
(5) Has registered with the Commission as a clearing agency pursuant to section 17A of the Act (15 U.S.C. 78q-1) and limits its exchange functions to operation of a trading session that is designed to further the accuracy of end-of-day valuations of security-based swaps.
(b) Notwithstanding paragraphs (a)(1) through (3) of this section, an organization, association, or group of persons shall not be exempt under this section from the definition of “exchange,” if:
(a) For purposes of this section, an
(b) An SBSEF-B that registers with the Commission pursuant to § 242.803 of this chapter shall be deemed also to have registered with the Commission pursuant to sections 15(a) and (b) of the Act (15 U.S.C. 78
(c) Except as provided in paragraph (d) of this section, an SBSEF-B shall be exempt from any provision of the Act or the Commission's rules thereunder applicable to brokers that, by its terms, requires, prohibits, restricts, limits, conditions, or affects the activities of a broker, unless such provision specifies that it applies to a security-based swap execution facility.
(d) Notwithstanding paragraph (c) of this section, the following provisions of the Act and the Commission's rules thereunder shall apply to an SBSEF-B:
(1) Section 15(b)(4) of the Act (15 U.S.C. 78
(2) Section 15(b)(6) of the Act (15 U.S.C. 78
(3) Section 17(b) of the Act (15 U.S.C. 78q(b)).
(e) An SBSEF-B shall be exempt from the Securities Investor Protection Act.
15 U.S.C. 77g, 77q(a), 77s(a), 78b, 78c, 78c-4, 78g(c)(2), 78i(a), 78j, 78k-1(c), 78
The provisions of §§ 242.800 through 242.835 shall apply to every security-based swap execution facility that is registered or is applying to become registered as a security-based swap execution facility under section 3D of the Securities Exchange Act (“Act”).
A security-based swap execution facility shall comply with the requirements of §§ 242.800 through 242.835 and all other applicable Commission rules, including any related definitions and cross- referenced sections.
The following terms, and any other terms defined within §§ 242.800 through 242.835, are defined as follows solely for purposes of §§ 242.800 through 242.835:
(1) Any security-based swap listed on security-based swap execution facility that has no open interest and in which no trading has occurred for a period of 12 complete calendar months following a certification to, or approval by, the Commission; provided, however, that no security-based swap initially and originally certified to, or approved by, the Commission within the preceding 36 complete calendar months shall be considered to be a dormant product;
(2) Any security-based swap of a dormant security-based swap execution facility; or
(3) Any security-based swap not otherwise a dormant product that a security-based swap execution facility self-declares through certification to be a dormant product.
(1) Any rule of a security-based swap execution facility which remains unimplemented for 12 consecutive calendar months following a certification with, or an approval by, the Commission; or
(2) Any rule or rule amendment of a dormant security-based swap execution facility.
(1) Any manipulative or attempted manipulative activity;
(2) Any actual, attempted, or threatened corner, squeeze, congestion, or undue concentration of positions;
(3) Any circumstances which may materially affect the performance of security-based swaps or transactions, including failure of the payment system or the bankruptcy or insolvency of any market participant;
(4) Any action taken by any governmental body, or any other security-based swap execution facility, market, or facility which may have a direct impact on trading or clearing and settlement; and
(5) Any other circumstance which may have a severe, adverse effect upon the functioning of the security-based swap execution facility.
(1) Any governing board member compensated by the security-based swap execution facility solely for governing board activities; or
(2) Any committee member compensated by a security-based swap execution facility solely for committee activities; or
(3) Any consultant hired by a security-based swap execution facility.
(1) Identification of the major group, category, type, or class in which the security-based swap falls (such as a credit or equity security-based swap) and of any further sub-group, category, type, or class that further describes the security-based swap;
(2) Notional amounts, quantity standards, or other unit size characteristics;
(3) Any applicable premiums or discounts for delivery of a non-par product;
(4) Trading hours and the listing of security-based swaps;
(5) Pricing basis for establishing the payment obligations under, and mark-to-market value of, the security-based swap including, as applicable, the accrual start dates, termination, or maturity dates, and, for each leg of the security-based swap, the initial cash flow components, spreads, and points, and the relevant indexes, prices, rates, coupons, or other price reference measures;
(6) Any price limits, trading halts, or circuit breaker provisions, and procedures for the establishment of daily settlement prices;
(7) Payment and reset frequency, day count conventions, business calendars, and accrual features;
(8) If physical delivery applies, delivery standards and procedures, including fees related to delivery or the delivery process, alternatives to delivery, and applicable penalties or sanctions for failure to perform;
(9) If cash-settled, the definition, composition, calculation, and revision of the cash settlement price, and the settlement currency;
(10) Payment or collection of option premiums or margins;
(11) Option exercise price, if it is constant, and method for calculating the exercise price, if it is variable;
(12) Threshold prices for an option, the existence of which is contingent upon those prices;
(13) Any restrictions or requirements for exercising an option; and
(14) Life cycle events.
(i) By accepting bids or offers made by other participants that are open to multiple participants in the facility or system; or
(ii) Through the interaction of multiple bids or multiple offers within a system with a pre- determined non-discretionary automated trade matching and execution algorithm.
(2)
(A) A person or group of persons solely because the person or group of persons constitutes, maintains, or provides an electronic facility or system that enables participants to negotiate the terms of and enter into bilateral transactions as a result of communications exchanged by the parties and not from interaction of multiple bids and multiple offers within a predetermined, nondiscretionary automated trade matching and execution algorithm;
(B) A government securities dealer or government securities broker, to the extent that the dealer or broker executes or trades agreements, contracts, or transactions in government securities, or assists persons in communicating about, negotiating, entering into, executing, or trading an agreement, contract, or transaction in government securities (as the terms
(C) A facility on which bids and offers, and acceptances of bids and offers effected on the facility, are not binding.
(ii) Any person, group of persons, dealer, broker, or facility described in paragraphs (2)(i)(A) through (C) of this definition of trading facility is excluded from the meaning of the term “trading facility” without any prior specific approval, certification, or other action by the Commission.
(3)
Note 1 to § 242.802. The Commission has not yet adopted a definition of “block trade.”
(a)
(2) A security-based swap execution facility shall, at a minimum, offer an order book.
(3) A security-based swap execution facility is not required to provide an order book under this section for transactions defined in § 242.815(d)(2), (3), and (4) except that a security-based swap execution facility must provide an order book under this section for Required Transactions that are components of transactions defined in § 242.815(d)(2), (3), and (4) when such Required Transactions are not executed as components of transactions defined in § 242.815(d)(2), (3), and (4).
(b)
(i) File electronically a complete Form SBSEF (referenced in § 249.1701), or any successor forms, and all information and documentation described in such forms with the Commission using the EDGAR system and, for the information specified in the Registration Instructions to Form SBSEF, as an Interactive Data File in accordance with § 232.405 of this chapter; and
(ii) Provide to the Commission, upon the Commission's request, any additional information and documentation necessary to review an application.
(2)
(ii) As set forth in § 242.808, certain information provided in an application shall be made publicly available.
(3)
(4)
(5)
(6)
(ii) The Commission may issue an order denying registration upon a Commission determination, in its own discretion, that the applicant has not demonstrated compliance with the Act and the Commission's rules applicable to security-based swap execution facilities. If the Commission denies an application, it shall specify the grounds for the denial.
(c)
(d)
(2) A request for transfer of registration shall be filed no later than three months prior to the anticipated corporate change; or in the event that the security-based swap execution facility could not have known of the anticipated change three months prior
(3) The request for transfer of registration shall include the following:
(i) The underlying agreement that governs the corporate change;
(ii) A description of the corporate change, including the reason for the change and its impact on the security-based swap execution facility, including its governance and operations, and its impact on the rights and obligations of members;
(iii) A discussion of the transferee's ability to comply with the Act, including the core principles applicable to security-based swap execution facilities and the Commission's rules thereunder;
(iv) The governing documents of the transferee, including, but not limited to, articles of incorporation and bylaws;
(v) The transferee's rules marked to show changes from the current rules of the security-based swap execution facility;
(vi) A representation by the transferee that it:
(A) Will be the surviving entity and successor-in-interest to the transferor security-based swap execution facility and will retain and assume, without limitation, all of the assets and liabilities of the transferor;
(B) Will assume responsibility for complying with all applicable provisions of the Act and the Commission's rules thereunder;
(C) Will assume, maintain, and enforce all rules implementing and complying with the core principles applicable to security-based swap execution facilities, including the adoption of the transferor's rulebook, as amended in the request, and that any such amendments will be submitted to the Commission pursuant to § 242.806 or § 242.807;
(D) Will comply with all regulatory responsibilities except if otherwise indicated in the request, and will maintain and enforce all regulatory programs; and
(E) Will notify members of all changes to the transferor's rulebook prior to the transfer and will further notify members of the concurrent transfer of the registration to the transferee upon Commission approval and issuance of an order permitting this transfer.
(vii) A representation by the transferee that upon the transfer:
(A) It will assume responsibility for and maintain compliance with core principles for all security-based swaps previously made available for trading through the transferor, whether by certification or approval; and
(B) None of the proposed rule changes will affect the rights and obligations of any member.
(4) Upon review of a request for transfer of registration, the Commission, as soon as practicable, shall issue an order either approving or denying the request.
(e)
(f)
(a)
(1) The security-based swap execution facility has filed its submission electronically with the Commission using the EFFS system;
(2) The Commission has received the submission by the open of business on the business day that is 10 business days preceding the product's listing; and
(3) The submission includes:
(i) A copy of the submission cover sheet in accordance with the instructions therein;
(ii) A copy of the product's rules, including all rules related to its terms and conditions;
(iii) The intended listing date;
(iv) A certification by the security-based swap execution facility that the product to be listed complies with the Act and the Commission's rules thereunder;
(v) A concise explanation and analysis of the product and its compliance with applicable provisions of the Act, including core principles, and the Commission's rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources;
(vi) A certification that the security-based swap execution facility posted a notice of pending product certification with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter; and
(vii) A request for confidential treatment, if appropriate, as permitted under § 240.24b-2 of this chapter.
(b)
(c)
(2)
(3)
(a)
(1) Be filed electronically with the Commission using the EFFS system;
(2) Include a copy of the submission cover sheet in accordance with the instructions therein;
(3) Include a copy of the rules that set forth the security-based swap's terms and conditions;
(4) Include an explanation and analysis of the product and its compliance with applicable provisions of the Act, including the core principles and the Commission's rules thereunder. This explanation and analysis shall either be accompanied by the documentation relied upon to establish the basis for compliance with the applicable law, or incorporate information contained in such documentation, with appropriate citations to data sources;
(5) Describe any agreements or contracts entered into with other parties that enable the security-based swap execution facility to carry out its responsibilities;
(6) Include, if appropriate, a request for confidential treatment as permitted under § 240.24b-2 of this chapter;
(7) Certify that the security-based swap execution facility posted a notice of its request for Commission approval of the new product and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution facility's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter; and
(8) Include, if requested by Commission staff, additional evidence, information, or data demonstrating that the security-based swap meets, initially or on a continuing basis, the requirements of the Act, or other requirement for registration under the Act, or the Commission's rules or policies thereunder. The security-based swap execution facility shall submit the requested information by the open of business on the date that is two business days from the date of request by Commission staff, or at the conclusion of such extended period agreed to by Commission staff after timely receipt of a written request from the security-based swap execution facility.
(b)
(c)
(1) The submission complies with the requirements of paragraph (a) of this section; and
(2) The submitting security-based swap execution facility does not amend the terms or conditions of the product or supplement the request for approval, except as requested by the Commission or for correction of typographical errors, renumbering, or other non-substantive revisions, during that period. Any voluntary, substantive amendment by the security-based swap execution facility will be treated as a new submission under this section.
(d)
(1) An additional 45 days, if the product raises novel or complex issues that require additional time to analyze, in which case the Commission shall notify the security-based swap execution facility within the initial 45-day review period and shall briefly describe the nature of the specific issue(s) for which additional time for review is required; or
(2) Any extended review period to which the security-based swap execution facility agrees in writing.
(e)
(f)
(2) Notification to a security-based swap execution facility under paragraph (e) of this section of the Commission's refusal to approve a product shall be presumptive evidence that the security-based swap execution facility may not truthfully certify under § 242.804 that the same, or substantially the same, product does not violate the Act or the Commission's rules thereunder.
(a)
(1) Be filed electronically with the Commission using the EFFS system;
(2) Include a copy of the submission cover sheet in accordance with the instructions therein;
(3) Set forth the text of the rule or rule amendment (in the case of a rule amendment, deletions and additions must be indicated);
(4) Describe the proposed effective date of the rule or rule amendment and any action taken or anticipated to be taken to adopt the proposed rule by the security-based swap execution facility or by its governing board or by any committee thereof, and cite the rules of the security-based swap execution facility that authorize the adoption of the proposed rule;
(5) Provide an explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including the core principles relating to security-based swap execution facilities and the Commission's rules thereunder and, as applicable, a description of the anticipated benefits to market participants or others, any potential anticompetitive effects on market participants or others, and how the rule fits into the security-based swap execution facility's framework of regulation;
(6) Certify that the security-based swap execution facility posted a notice of the pending rule with the Commission and a copy of the submission, concurrent with the filing of a submission with the Commission, on the security-based swap execution facility's website. Information that the security-based swap execution facility seeks to keep confidential may be redacted from the documents published on the security-based swap execution facility's website but must be republished consistent with any determination made pursuant to § 240.24b-2 of this chapter;
(7) Provide additional information which may be beneficial to the Commission in analyzing the new rule or rule amendment. If a proposed rule affects, directly or indirectly, the application of any other rule of the security-based swap execution facility, the pertinent text of any such rule must be set forth and the anticipated effect described;
(8) Provide a brief explanation of any substantive opposing views expressed to the security-based swap execution facility by governing board or committee members, members of the security-based swap execution facility, or market participants that were not incorporated into the rule, or a statement that no such opposing views were expressed; and
(9) As appropriate, include a request for confidential treatment as permitted under § 240.24b-2 of this chapter.
(b)
(c)
(1) The submission complies with the requirements of paragraph (a) of this section;
(2) The security-based swap execution facility does not amend the proposed rule or supplement the submission, except as requested by the Commission, during the pendency of the review period, other than for correction of typographical errors, renumbering, or other non- substantive revisions. Any amendment or supplementation not requested by the Commission will be treated as the submission of a new filing under this section.
(d)
(1) An additional 45 days, if the proposed rule or rule amendment raises novel or complex issues that require additional time for review or is of major economic significance, the submission is incomplete, or the requestor does not respond completely to Commission questions in a timely manner, in which case the Commission shall notify the submitting security-based swap execution facility within the initial 45-day review period and shall briefly describe the nature of the specific issues for which additional time for review shall be required; or
(2) Any period, beyond the additional 45 days provided in paragraph (d)(1) of this section, to which the security-based swap execution facility agrees in writing.
(e)
(f)
(2) Notification to a security-based swap execution facility under paragraph (e) of this section of the Commission's determination not to approve a proposed rule or rule amendment shall be presumptive evidence that the security-based swap execution facility may not truthfully certify the same, or substantially the same, proposed rule or rule amendment under § 242.807(a).
(g)
(a)
(1) The security-based swap execution facility has filed its submission electronically with the Commission using the EFFS system.
(2) The security-based swap execution facility has provided a certification that
(3) The Commission has received the submission not later than the open of business on the business day that is 10 business days prior to the security-based swap execution facility's implementation of the rule or rule amendment.
(4) The Commission has not stayed the submission pursuant to § 242.807(c).
(5) A new rule or rule amendment that establishes standards for responding to an emergency shall be submitted pursuant to § 242.807(a). A rule or rule amendment implemented under procedures of the governing board to respond to an emergency shall, if practicable, be filed with the Commission prior to implementation or, if not practicable, be filed with the Commission at the earliest possible time after implementation, but in no event more than 24 hours after implementation. Any such submission shall be subject to the certification and stay provisions of paragraphs (b) and (c) of this section.
(6) The rule submission shall include:
(i) A copy of the submission cover sheet in accordance with the instructions therein (in the case of a rule or rule amendment that responds to an emergency, “Emergency Rule Certification” should be noted in the description section of the submission cover sheet);
(ii) The text of the rule (in the case of a rule amendment, deletions and additions must be indicated);
(iii) The date of intended implementation;
(iv) A certification by the security-based swap execution facility that the rule complies with the Act and the Commission's rules thereunder;
(v) A concise explanation and analysis of the operation, purpose, and effect of the proposed rule or rule amendment and its compliance with applicable provisions of the Act, including core principles relating to security-based swap execution facilities and the Commission's rules thereunder;
(vi) A brief explanation of any substantive opposing views expressed to the security-based swap execution facility by governing board or committee members, members of the security-based swap execution facility, or market participants, that were not incorporated into the rule, or a statement that no such opposing views were expressed; and
(vii) As appropriate, a request for confidential treatment pursuant to the procedures provided in § 240.24b-2 of this chapter.
(7) The security-based swap execution facility shall provide, if requested by Commission staff, additional evidence, information, or data that may be beneficial to the Commission in conducting a due diligence assessment of the filing and the security-based swap execution facility's compliance with any of the requirements of the Act or the Commission's rules or policies thereunder.
(b)
(c)
(2)
(3)
(d)
(1) The security-based swap execution facility provides to the Commission at least weekly a summary notice of all rule amendments made effective pursuant to this paragraph during the preceding week. Such notice must be labeled “Weekly Notification of Rule Amendments” and need not be filed for weeks during which no such actions have been taken. One copy of each such submission shall be furnished electronically using the EFFS system; and
(2) The rule governs:
(i)
(ii)
(A) Total $1.00 or more per contract, and
(B) Are established by an independent third party or are unrelated to delivery, trading, clearing, or dispute resolution.
(iii)
(iv)
(v)
(vi)
(3)
(i) The security-based swap execution facility maintains documentation regarding all changes to rules; and
(ii) The rule governs:
(A)
(B)
(C)
(D)
(E)
(
(
(F)
(a) The Commission shall make publicly available on its website the following parts of an application to register as a security-based swap execution facility, unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter:
(1) Transmittal letter and first page of the application cover sheet;
(2) Exhibit C;
(3) Exhibit G;
(4) Exhibit L; and
(5) Exhibit M.
(b) The Commission shall make publicly available on its website, unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter, a security-based swap execution facility's filing of new products pursuant to the self-certification procedures of § 242.804, new products for Commission review and approval pursuant to § 242.805, new rules and rule amendments for Commission review and approval pursuant to § 242.806, and new rules and rule amendments pursuant to the self-certification procedures of § 242.807.
(c) The terms and conditions of a product submitted to the Commission pursuant to § 242.804, 242.805, 242.806, or 242.807 shall be made publicly available at the time of submission unless confidential treatment is obtained pursuant to § 240.24b-2 of this chapter.
(a) A product certification made by a security-based swap execution facility pursuant to § 242.804 shall be stayed, or the review period for a product that has been submitted for Commission approval by a security-based swap execution facility pursuant to § 242.805 shall be tolled, upon request for a joint interpretation of whether the product is a swap, security-based swap, or mixed swap made pursuant to § 240.3a68-2 of this chapter by the security-based swap execution facility, the Commission, or the Commodity Futures Trading Commission.
(b) The Commission shall provide the security-based swap execution facility with a written notice of the stay or tolling pending issuance of a joint interpretation.
(c) The stay shall be withdrawn, or the approval review period shall resume, if a joint interpretation finding that the Commission has jurisdiction over the product is issued.
(a) An applicant for registration as a security-based swap execution facility may submit a security-based swap's terms and conditions prior to listing the product as part of its application for registration.
(b) Any security-based swap terms and conditions or rules submitted as part of a security-based swap execution facility's application for registration shall be considered for approval by the Commission at the time the Commission issues the security-based swap execution facility's order of registration.
(c) After the Commission issues the order of registration, the security-based swap execution facility shall submit a security-based swap's terms and conditions, including amendments to such terms and conditions, new rules, or rule amendments pursuant to the procedures in §§ 242.804, 242.805, 242.806, and 242.807.
(d) Any security-based swap terms and conditions or rules submitted as part of an application to reinstate the registration of a dormant security-based swap execution facility shall be considered for approval by the Commission at the time the Commission approves the reinstatement of registration of the dormant security-based swap execution facility.
(a)
(b)
(c)
(2)
(3)
(4)
(d)
(2) A security-based swap execution facility shall submit to the Commission a copy of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decision, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the security-based swap execution facility from conduct in such person's capacity as an official of the security-based swap execution facility and alleging violations of:
(i) The Act or any rule, regulation, or order under the Act;
(ii) The constitution, bylaws, or rules of the security-based swap execution facility; or
(iii) The applicable provisions of State law relating to the duties of officers, directors, or other officials of business organizations.
(3) All documents required by this paragraph (d) to be submitted to the Commission shall be submitted electronically in a form and manner specified by the Commission within 10 days after the initiation of the legal proceedings to which they relate, after the date of issuance, or after receipt by the security-based swap execution facility of the notice of appeal, as the case may be.
(4) For purposes of this paragraph (d), a “material legal proceeding” includes but is not limited to actions involving alleged violations of the Act or the Commission rules thereunder. However, a legal proceeding is not “material” for the purposes of this rule if the proceeding is not in a Federal or State court or if the Commission is a party.
(a) A transaction entered into on or pursuant to the rules of a security-based swap execution facility shall not be void, voidable, subject to rescission, otherwise invalidated, or rendered unenforceable as a result of a violation by the security-based swap execution facility of the provisions of section 3D of the Act or the Commission's rules thereunder.
(b) A security-based swap execution facility shall, as soon as technologically practicable after the time of execution of a transaction entered into on or pursuant to the rules of the facility, provide a written record to each counterparty of all of the terms of the transaction that were agreed to on the facility, which shall legally supersede any previous agreement regarding such terms.
A security-based swap execution facility shall not use for business or marketing purposes any proprietary data or personal information it collects or receives, from or on behalf of any person, for the purpose of fulfilling its regulatory obligations; provided, however, that a security-based swap execution facility may use such data or information for business or marketing purposes if the person from whom it collects or receives such data or information clearly consents to the security-based swap execution facility's use of such data or information in such manner. A security-based swap execution facility shall not condition access to its market(s) or market services on a person's consent to the security-based swap execution facility's use of proprietary data or personal information for business or marketing purposes. A security-based swap execution facility, where necessary for regulatory purposes, may share such data or information with one or more security-based swap execution facilities or national securities exchanges registered with the Commission.
(a) An entity that intends to operate both a national securities exchange and a security-based swap execution facility shall separately register the two facilities pursuant to section 6 of the Act and § 242.803, respectively.
(b) A national securities exchange shall, to the extent that the exchange also operates a security-based swap execution facility and uses the same electronic trade execution system for listing and executing trades of security-based swaps on or through the exchange and the facility, identify whether electronic trading of such security-based swaps is taking place on or through the national securities exchange or the security-based swap execution facility.
(a)
(2)
(A) An order book; or
(B) A request-for-quote system that operates in conjunction with an order book.
(ii) In providing either one of the execution methods set forth in paragraph (a)(2)(i)(A) or (B) of this section, a security-based swap execution facility may for purposes of execution and communication use any means of interstate commerce, including, but not limited to, the mail, internet, email, and telephone, provided that the chosen execution method satisfies the requirements for order books in § 242.802 of this chapter or in paragraph (a)(3) of this section for request-for-quote systems.
(3)
(i) At the same time that the requester receives the first responsive bid or offer, the security-based swap execution facility shall communicate to the requester any firm bid or offer pertaining to the same instrument resting on any of the security-based swap execution facility's order books;
(ii) The security-based swap execution facility shall provide the requester with the ability to execute against such firm resting bids or offers along with any responsive orders; and
(iii) The security-based swap execution facility shall ensure that its trading protocols provide each of its market participants with equal priority in receiving requests for quotes and in transmitting and displaying for execution responsive orders.
(b)
(2)
(c)
(2)
(d)
(i) At least one component transaction is a Required Transaction;
(ii) Execution of each component transaction is contingent upon the execution of all other component transactions; and
(iii) The component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components.
(2) A Required Transaction that is executed as a component of a package transaction that includes a component security-based swap that is subject exclusively to the Commission's jurisdiction, but is not subject to the clearing requirement under section 3C of the Act and is not intended to be cleared, may be executed on a security-based swap execution facility in accordance with paragraph (c)(2) of this section as if it were a Permitted Transaction;
(3) A Required Transaction that is executed as a component of a package transaction that includes a component that is not a security-based swap may be executed on a security-based swap execution facility in accordance with paragraph (c)(2) of this section as if it were a Permitted Transaction. This provision shall not apply to:
(i) A Required Transaction that is executed as a component of a package transaction in which all other non-security-based swap components are U.S. Treasury securities;
(ii) A Required Transaction that is executed as a component of a package transaction in which all other non-security-based swap components are contracts for the purchase or sale of a commodity for future delivery;
(iii) A Required Transaction that is executed as a component of a package transaction in which all other non-security-based swap components are agency mortgage-backed securities;
(iv) A Required Transaction that is executed as a component of a package transaction that includes a component transaction that is the issuance of a bond in a primary market; and
(v) A Required Transaction that is executed as a component of a package transaction in which all other non-security-based swap components are swaps that are subject to a trade execution requirement under 17 CFR 37.9.
(4) A Required Transaction that is executed as a component of a package transaction that includes a component security-based swap that is not exclusively subject to the Commission's jurisdiction may be executed on a security-based swap in accordance with paragraph (c)(2) of this section as if it were a Permitted Transaction.
(e)
(i) Execute a correcting trade, in accordance with paragraph (c)(2) of this section, regardless of whether it is a Required or Permitted Transaction, for an error trade that has been rejected from clearing as soon as technologically practicable, but no later than one hour after a registered clearing agency provides notice of the rejection; or
(ii) Execute an offsetting trade and a correcting trade, in accordance with paragraph (c)(2) of this section, regardless of whether it is a Required or Permitted Transaction, for an error trade that was accepted for clearing as soon as technologically practicable, but no later than three days after the error trade was accepted for clearing at a registered clearing agency.
(2) If a correcting trade is rejected from clearing, then the security-based swap execution facility shall not allow the counterparties to execute another correcting trade.
(f)
(2) A security-based swap execution facility shall establish and enforce rules that prohibit any person from directly or indirectly, including through a third-party service provider, disclosing the identity of a counterparty to a security-based swap that is executed anonymously and intended to be cleared.
(3) For purposes of paragraphs (f)(1) and (2) of this section, “executed anonymously” shall include a security-based swap that is pre-arranged or pre-negotiated anonymously, including by a member of the security-based swap execution facility.
(4) For a package transaction that includes a component transaction that is not a security-based swap intended to be cleared, disclosing the identity of a counterparty shall not violate paragraphs (f)(1) or (2) of this section. For purposes of this paragraph (f), a “package transaction” consists of two or more component transactions executed between two or more counterparties where:
(i) Execution of each component transaction is contingent upon the execution of all other component transactions; and
(ii) The component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components.
(g)
(a) General. (1)
(2)
(b)
(1) Whether there are ready and willing buyers and sellers;
(2) The frequency or size of transactions;
(3) The trading volume;
(4) The number and types of market participants;
(5) The bid/ask spread; or
(6) The usual number of resting firm or indicative bids and offers.
(c)
(d)
(e)
(i) At least one component transaction is subject to the trade execution requirement in section 3C(h) of the Act;
(ii) Execution of each component transaction is contingent upon the execution of all other component transactions; and
(iii) The component transactions are priced or quoted together as one economic transaction with simultaneous or near-simultaneous execution of all components.
(2) Section 3C(h) of the Act does not apply to a security-based swap transaction that qualifies for an exception under section 3C(g) of the Act, or any exemption from the clearing requirement that is granted by the Commission, for which the associated requirements are met.
(3)(i) Section 3C(h) of the Act does not apply to a security-based swap transaction that is executed between counterparties that qualify as “eligible affiliate counterparties,” as defined below.
(ii) For purposes of this paragraph (e)(3), counterparties will be “eligible affiliate counterparties” if:
(A) One counterparty, directly or indirectly, holds a majority ownership interest in the other counterparty, and the counterparty that holds the majority interest in the other counterparty reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of the majority-owned counterparty; or
(B) A third party, directly or indirectly, holds a majority ownership interest in both counterparties, and the third party reports its financial statements on a consolidated basis under Generally Accepted Accounting Principles or International Financial Reporting Standards, and such consolidated financial statements include the financial results of both of the counterparties.
(iii) For purposes of this paragraph (e)(3), a counterparty or third party directly or indirectly holds a majority ownership interest if it directly or indirectly holds a majority of the equity securities of an entity, or the right to receive upon dissolution, or the contribution of, a majority of the capital of a partnership.
(a) A security-based swap transaction shall be subject to the requirements of section 3C(h) of the Act upon the later of:
(1) A determination by the Commission that the security-based swap is required to be cleared as set forth in section 3C(a) or any later compliance date that the Commission may establish as a term or condition of such determination or following a stay and review of such determination pursuant to section 3C(c) of the Act and § 240.3Ca-1 of this chapter thereunder; and
(2) Thirty days after the available-to-trade determination submission or certification for that security-based swap is, respectively, deemed approved under § 242.806 or deemed certified under § 242.807.
(b) Nothing in this section shall prohibit any counterparty from complying voluntarily with the requirements of section 3C(h) of the Act sooner than as provided in paragraph (a) of this section.
(a)
(b)
(a)
(1) Establish and enforce compliance with any rule established by such security-based swap execution facility, including the terms and conditions of the security-based swaps traded or processed on or through the facility, and any limitation on access to the facility;
(2) Establish and enforce trading, trade processing, and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means to provide market participants with impartial access to the market and to capture information that may be used in establishing whether rule violations have occurred; and
(3) Establish rules governing the operation of the facility, including rules specifying trading procedures to be used in entering and executing orders traded or posted on the facility.
(b)
(2) A security-based swap execution facility shall establish and impartially enforce compliance with the rules of the security-based swap execution facility, including, but not limited to:
(i) The terms and conditions of any security-based swaps traded or processed on or through the security-based swap execution facility;
(ii) Access to the security-based swap execution facility;
(iii) Trade practice rules;
(iv) Audit trail requirements;
(v) Disciplinary rules; and
(vi) Mandatory trading requirements.
(c)
(i) Criteria governing such access that are impartial, transparent, and applied in a fair and non-discriminatory manner;
(ii) Procedures whereby eligible contract participants provide the security-based swap execution facility with written or electronic confirmation of their status as eligible contract participants, as defined by the Act and Commission rules thereunder, prior to obtaining access; and
(iii) Comparable fee structures for eligible contract participants and independent software vendors receiving comparable access to, or services from, the security-based swap execution facility.
(2)
(3)
(4)
(ii)
(d)
(1)
(2)
(3)
(4)
(5)
(6)
(ii)
(iii)
(iv)
(v)
(e)
(2)
(3)
(f)
(1)
(2)
(ii)
(A) All data that are input into the trade entry or matching system for the transaction to match and clear;
(B) The customer type indicator code; and
(C) Timing and sequencing data adequate to reconstruct trading.
(iii)
(iv)
(3)
(ii)