[Federal Register Volume 59, Number 62 (Thursday, March 31, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7691]
Federal Register / Vol. 59, No. 62 / Thursday, March 31, 1994 /
[[Page Unknown]]
[Federal Register: March 31, 1994]
VOL. 59, NO. 62
Thursday, March 31, 1994
DEPARTMENT OF AGRICULTURE
Agricultural Stabilization and Conservation Service
7 CFR Part 735
RIN 0560-AD14
Using Electronic Cotton Warehouse Receipts--Amendment to the
United States Warehouse Act Regulations
AGENCY: Agricultural Stabilization and Conservation Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule revises the regulations under the United
States Warehouse Act (USWA) for cotton warehouses. This final rule
permits the use of automated electronic data (electronic warehouse
receipts (EWRs)) through a provider for the purpose of establishing
rights to cotton held in storage by licensed warehousemen. The intent
of these changes is to maintain the integrity of USWA cotton warehouse
receipts, while permitting licensed warehousemen to use electronic
information management systems in place of negotiable paper receipts.
EFFECTIVE DATE: May 2, 1994.
FOR FURTHER INFORMATION CONTACT: Lynda Moore or Steve Mikkelsen,
Agricultural Marketing Specialists, United States Department of
Agriculture (USDA), Agricultural Stabilization and Conservation Service
(ASCS), PO Box 2415, Washington, DC 20013-2415, telephone 202-720-2121,
FAX 202-690-0014.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule is issued in conformance with Executive Order
12866. Based on information compiled by the USDA, it has been
determined that this final rule:
(1) Would not have an annual effect on the economy of $100 million
or more or adversely affect in a material way the economy, a sector of
the economy, productivity, competition, jobs, the environment, public
health or safety, or State, local, or tribal governments or
communities;
(2) Would not create a serious inconsistency or otherwise interfere
with an action taken or planned by another agency;
(3) Would not materially alter the budgetary impact of
entitlements, grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or
(4) Would not raise novel legal or policy issues arising out of
legal mandates, the President's priorities, or the principles set forth
in this Executive Order.
No Significant Impact
The Administrator of ASCS certifies that this action will not have
a significant economic impact on a substantial number of participating
individuals or entities because the procedure set out in this rule
would not increase, but would rather decrease, the time and paperwork
necessary to process an administrative review.
Executive Order 12612
Executive Order 12612 of October 26, 1987, entitled ``Federalism'',
requires that Executive departments and agencies shall, to the extent
permitted by law, adhere to certain principles of federalism. The
Administrator of ASCS has determined that this program 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.
Environmental Evaluation
It has been determined by an environmental evaluation that this
action would have no significant impact on the quality of the human
environment. Therefore, neither an Environmental Assessment nor an
Environmental Impact Statement is needed.
Executive Order 12372
This program is not subject to the provisions of Executive Order
12372 which requires intergovernmental consultation with State and
local officials. See the notice related to 7 CFR part 3015, subpart V,
published at 48 FR 29115 (June 24, 1983).
Executive Order 12778
This final rule has been reviewed in accordance with Executive
Order 12778. This final rule does not have any preemptive effect with
respect to State laws with the exception that for State law purposes an
EWR on cotton stored in a federally licensed warehouse shall have the
same effect as a paper warehouse receipt issued by the same warehouse.
Regulatory Flexibility Act
It has been determined that the Regulatory Flexibility Act is not
applicable to this final rule because it has been determined that this
rule will not have a significant effect on a substantial number of
small businesses. This rule will substantially reduce the paperwork for
those warehousemen participating in the EWR program. However, these
warehousemen have the option of participating and may choose which
system they prefer to use.
Paperwork Reduction Act
This final rule contains new recordkeeping requirements for
warehousemen that elect to participate. However, since this procedure
is voluntary, not mandatory, all additional workload and time will not
affect licensed warehousemen who do not participate in the EWR system.
Background
Pursuant to the provisions of the USWA, the Secretary has the
authority to license public warehousemen of cotton (7 U.S.C. 241 et
seq.). As a part of this licensing authority, the Secretary has the
responsibility to regulate the issuance of warehouse receipts by the
cotton warehousemen it licenses (7 U.S.C. 260). Currently, the
provisions of section 18 of the USWA and 7 CFR part 735 of the
regulations prescribe the content and the issuance of cotton warehouse
receipts.
The USWA was amended twice to provide the Secretary (through ASCS)
with the discretionary authority to allow the cotton warehousemen it
licenses to issue cotton warehouse receipts in electronic format
(EWRs). This final rule implements this discretionary authority.
Licensed cotton warehousemen may issue EWRs for bales of cotton
stored in their warehouses. The system which contains these EWRs will
be maintained by private providers. Providers used by licensed
warehousemen must be approved by and have an Agreement with ASCS. EWRs
issued under the authority of the USWA will be considered equal to, and
have the same legal effect as, paper warehouse receipts. The USWA was
enacted in 1916 to improve this country's agricultural warehousing
industry and establish warehouse receipts that are uniformly dependable
and acceptable in financial circles and represent a commodity serving
as reliable collateral for loans through a voluntary warehouse
licensing program. USWA paper warehouse receipts have consistently
maintained high integrity.
With the advent of safe, reliable, and secure electronic storage
and processing of data, the use of paper warehouse receipts may become
obsolete. The introduction of USWA EWRs will serve the warehousing
industry and its customers by allowing cotton warehouses to take
advantage of today's electronic data storage and transmission systems.
To ensure the continuation of the integrity and respect of USWA
warehouse receipts, ASCS expects high standards of approved providers.
Approved providers must have an Agreement with ASCS; comply with the
terms of that Agreement; maintain specific financial and bonding
requirements; pay user fees established by ASCS; establish and retain
contemporaneous records of each EWR entry and access; and be liable to
the Secretary for issues associated with system failure or malfunction.
Additionally, providers must furnish annual audit level financial
statements and submit to electronic data processing audits. Providers,
at all times, must grant the Secretary, or his designee, free access to
all records pertaining in any way to the USWA or the system.
The proposed rule contained new requirements regarding additional
information required to be contained in EWRs that are not currently in
section 18 of the USWA or 7 CFR 735.16. Some of the proposed
requirements have not been adopted in this final rule. The primary
requirement eliminated is that EWRs must designate the names of the
current owners. Section 735.16 has been amended allowing additional
information, such as, classing data; quality factors; and other items
pertinent to the transfer of EWRs from one holder to another.
General Summary of Comments
A proposed rule was published in the Federal Register (58 FR 43298)
on August 16, 1993. Comments from interested parties were due on or
before October 15, 1993. Twenty-four letters were received after the
close of the comment period and were not considered.
One hundred and twenty-seven letters from 130 individuals and
entities were received during the comment period. Of the 127 letters,
112 were identical, and appeared to be part of an organized campaign.
These comments will be weighed appropriately. These 112 covered three
topics: provider restrictions, State-licensed warehouses, and fees. The
130 individuals and entities are comprised of: 94 individuals, 9 cotton
gins, 5 co-ops, 8 warehousemen, 4 Members of Congress, 4 Associations,
4 cotton merchants, and 2 millers. Because most of the letters contain
more than one comment, the total number of comments received was 423.
Discussion of Comments
In general the comments were supportive of the concepts behind the
proposed rule. However, many of the comments suggested that the final
rule should contain more specific regulations defining how EWR records
should be maintained and how they should be transferred, as well as
more regulations regarding providers and their relationship with ASCS
and the users. In short, these commenters saw ASCS as having a
substantial regulatory role by controlling every detail of this
process.
The final rule did adopt some of the changes suggested. The final
rule does include more detail regarding the financial and insurance
requirements for providers. However, in most cases it does not include
the detailed regulations regarding specific operations, such as, the
manner in which backup files should be maintained or what specific
security measures must be taken to protect the central filing system.
The approach taken in the final rule is that this regulation addresses
issues that will advance and grow substantially over the next few
years. As a result, technology and experience will lead to an evolution
of how these matters should be resolved. Thus, any regulation that
provides details suggested would soon become obsolete. Therefore, these
regulations were drafted with the intent of establishing and defining
responsibilities among ASCS, warehousemen, providers, and users. The
affected parties will be required to determine how best to satisfy
these responsibilities now, and they will be allowed to improve these
solutions in the future without first seeking an amendment to this
regulation.
Because many sections of this regulation are interrelated, the
individual comments received were applicable to different sections of
the regulation. As a result, ASCS will discuss the comments and the
changes to the regulation they produced on a topical, as opposed to
section by section, basis. The comments have been divided into the
following categories: Providers, State-Licensed Warehouses, Fees,
Warehouse Receipt Conversion, Cotton Ownership, and Central Filing
System.
1. Providers
Two issues were discussed involving providers: the restrictions on
who can be a provider and the qualifications of a provider.
A. Restrictions
A total of 119 comments were received regarding the limitations
contained in the proposed rule on who could act as a provider (112 of
these were identical). 117 comments expressed concern that these
regulations would discriminate against entities in the cotton industry
providing this service. Further, the 112 identical comments stated that
Plains Cotton Cooperative Association has provided an electronic system
for the past four years and should be allowed to continue. One comment
questioned whether the proposed rule language would limit providers to
USWA warehouses. One comment suggested that the restrictions on
providers listed in the proposed rule were not strict enough. This
commenter indicated that providers should be involved in no
``activities associated with marketing cotton''.
After reviewing these comments, the final rule modified the
proposed rule to allow any individual or entity that meets the
financial and security requirements of this regulation to be a
provider. The financial and security requirements of these regulations
will provide users with sufficient protection against the potential
failure of a provider. ASCS did consider the risk that a provider may
attempt to use information in its central filing system to its
advantage, which is why ASCS included strict conflict of interest
provisions in the proposed rule. However, after further review, it was
determined that such restrictions would unduly limit the number of
providers and potentially jeopardize the program. Since use of the
system is voluntary, those participating should be aware that the
provider may have a conflict of interest and those participants should
act accordingly. These regulations do not require that a holder of a
USWA warehouse receipt have an EWR issued or retained electronically. A
holder who has concerns regarding EWRs has the right to require that
the receipt be reissued as a paper receipt.
While ASCS does not believe that the proposed rule limited
providers to USWA warehousemen, ASCS has clarified this section of the
final rule to clearly indicate that providers may be any individual or
entity, including USWA warehousemen.
B. Qualifications
A total of four comments were received regarding the qualifications
of a provider. One comment indicated that the provisions of the
proposed rule were not specific enough regarding the financial
standards that must be met. The commenter suggested that high dollar
capitalization and insurance amounts (unspecified) should be required.
One comment suggested a very specific list of insurance ($2 million),
bond ($300,000 to $750,000), and net worth (up to $1 millon)
requirements. One comment suggested that a sizable bonding requirement
be imposed. One comment suggested that strict financial and technical
requirements, unspecified, be imposed.
After consideration of these comments, ASCS added to the final rule
a list of very specific financial and insurance requirements for
providers in Sec. 735.102(a) and believes that the financial
requirements, performance security, and suspension terms provide
adequate protection to users and providers.
2. State-Licensed Warehouses
One-hundred and fourteen comments (112 of which were identical)
were received regarding State-licensed warehousemen. All commenters
indicated that State-licensed warehouses should be included under these
regulations.
It was determined that it was not necessary to amend this portion
of the proposed rule. The background information provided in the
proposed rule discussed this issue. It stated that this regulatory
change would allow providers to accept EWRs from warehousemen not
licensed by the Secretary. However, the Secretary would not regulate or
take any responsibility for such warehousemen, the content of such
warehouse receipts, or the manner in which such warehouse receipts are
issued. Such matters must be governed by applicable State laws.
The final rule does not include any regulation of State-licensed
warehouses or their receipts. However, the definition of ``user'' in
these regulations and in the provider agreements that will be executed
will include any individual or entity that uses the services of the
provider to file or access warehouse receipt information. Therefore,
nothing in this regulation prohibits a provider from accepting EWRs
from non-federally licensed warehousemen.
3. Fees
One-hundred and twenty comments were received on the subject of
fees (112 of these were identical). All commenters question the per
bale fee of $0.10 to $1.00 to administer and supervise the EWR system.
The commenters suggested that if the fee set by ASCS was too high, it
would render the program uneconomical.
ASCS considered these comments and understands that the level of
fees could affect the use of this program. When the proposed rule was
written, the fees quoted were nothing more than conjecture, since it is
unknown exactly what fees will be charged. These regulations and the
provider agreement will state that the provider's fees will be
announced and assessed by ASCS annually prior to April 30th of each
year. The Secretary is obligated by law to ``* * * charge and provide
for the collection of reasonable fees to cover the estimated costs to
the Department of Agriculture incident to the functioning and
maintenance of any central filing system * * *'' The Secretary will not
operate and regulate such a system for a profit. If fees set are
determined to be excessive, they will be adjusted.
4. Warehouse Receipt Conversion
Eight comments were received that addressed the conversion from
paper warehouse receipts to electronic and vise versa. One comment
indicated that the right to have an EWR converted to a paper receipt be
limited to the first three crop seasons after the final rule is
promulgated so as to reduce costs and encourage the phasing out of
paper warehouse receipts. Three comments indicated that a user must
have an unlimited right to convert an EWR to a paper warehouse receipt.
One comment indicated that the conversion of EWRs to paper should be
done in such a way to prevent the need to retag bales. One comment
indicated that by adopting a proposal of universal tag numbers for
bales of cotton, the conversion of warehouse receipts between the paper
and electronic systems would be smoother. One comment indicated that
the final rule should contain more specific procedures describing the
conversion of receipts between the paper and electronic systems. One
comment indicated that providers should issue paper warehouse receipts
and that these receipts could be issued in blank.
Based on a review of these comments, it was determined to retain
the rights for holders to convert receipts between the paper and
electronic systems with the exception that such conversions do not need
to be approved by the owner of the cotton. ASCS believes the
convertibility of these receipts is necessary until electronic receipts
are fully accepted by the industry as a replacement for paper receipts
and to serve as a backup for situations when a warehouse may be having
difficulties with the provider.
While some in the cotton industry believe that eventually
electronic receipts will replace paper receipts, ASCS could not
determine whether such a total conversion is appropriate, or even
feasible, in the foreseeable future. As supported by other comments
received, the convertibility of receipts is necessary to provide the
industry with the confidence that if problems should develop with the
electronic receipt system, ASCS has a viable paper system as a backup.
As noted previously, any system which allows the provider to operate
with a built-in conflict of interest must give users an alternative
opportunity.
Providers do not have the authority to issue any warehouse receipt,
either paper or electronic. They provide the recordkeeping system for
warehouse receipts issued by the warehousemen. Pursuant to the
provisions of the USWA, warehousemen are responsible for the issuance
of all warehouse receipts. Therefore, ASCS cannot authorize providers
to issue paper receipts.
5. Cotton Ownership
Four comments were received regarding the listing of the ownership
of cotton on the EWR. All comments indicated that it was inappropriate
to have owners of cotton listed on the receipt. They believed that such
a listing was not necessary and would cause an undue burden and
expense.
After considering these comments, ASCS has removed the requirement
for listing owners on EWRs.
6. Central Filing System
Fifty comments were received regarding the central filing system.
These comments can be grouped into the following subjects: security of
the system, management of central filing system, providers agreement,
bale numbers, and system access.
A. Security of the System
Seven comments were received regarding the provisions that address
the security of the system. Three comments indicated that the proposed
rule did not provide standards to determine whether the security
measures for a central filing system are adequate. One comment
indicated that ASCS' financial statement auditing requirements should
be strengthened to require that all audits be done at the audited
level. One comment indicated that the requirement for a ``statement of
changes in financial position'' should be changed to a requirement for
a ``statement of cash flow.'' One comment indicated that the proposed
rule should be changed to eliminate the requirement that the
accountants provide certifications or comments on financial statements.
Under the applicable standards of accounting, certifications or
comments to a financial statement are not required. One comment
indicated under current procedures, before an accountant can express an
opinion regarding the status of an electronic data processing system,
the provider must be required to make certain assertions regarding the
system which then can be audited. There has not been developed an
independent set of data processing security standards that have been
accepted by the accounting community.
It has been determined that the security provisions of the proposed
rule will be retained in the final rule with the exception that ASCS
has eliminated the need for an electronic data processing audit
performed in accordance with the standards of the American Institute of
Certified Public Accountants. The reason for this change is that
appropriate standards that may be adapted for our use do not appear to
exist.
It has been determined that holders should not be allowed to
unilaterally move a warehouse receipt from one provider to another. In
order to maintain the integrity of the system and to require that
licensed warehousemen be responsible for the receipts they issue, ASCS
must require that warehousemen be in control over the provider that
retains their warehouse receipts. Otherwise, any one warehouseman's
receipts could be spread out among several providers which would make
it impossible to audit the warehouseman's inventory. Even the
warehousemen may not know where all of their receipts are retained.
The final rule does not provide more specifics regarding the
security measures that must be imposed by the provider to protect the
system for two reasons. First, ASCS anticipates that providers would
separately develop systems around their efficiencies. Limiting
providers to one particular system would not promote such efficiencies.
Second, it is impossible to foresee all of the potential problems that
could arise in a central filing system. Therefore, the final rule
places the responsibility for security on the provider. However, should
ASCS determine that a provider's security system is inadequate for any
reason, ASCS has the authority to immediately shut down that system to
protect the integrity of the program.
B. Management of Central Filing System
Twenty-two comments were received regarding the regulation and
management of the central filing systems. One comment indicated that
the Secretary should approve providers, as opposed to, licensing them.
One comment indicated that prior approval should not be required before
the transfer of EWRs from one provider to another. Two comments
indicated that warehousemen should be able to freely change from one
provider to another within the 12-month agreement cycle indicated in
the proposed rule. One comment indicated that the word ``its'' was
missing from Sec. 735.105(b). One comment questioned the meaning of the
term ``valid contract'' in Sec. 735.105(d). Two comments suggested that
the provision in the proposed rule that gives the Secretary the
authority to suspend a provider agreement if the provider fails to
maintain ``control'' over its central filing system, is too vague. One
comment questioned whether a suspended provider could accept warehouse
receipts from warehousemen who are not licensed by the Secretary. Two
comments questioned the meaning of the term ``central filing system''
in the context of the use of the term in the Food and Security Act of
1985 regarding liens. Two comments suggested that the final rule should
delete the provision requiring written permission to agree to the
transfer of receipts between providers. One of these comments
recommended that the best way to handle this is to simply allow the
creation of a paper warehouse receipt as a means of transferring
receipts between providers. One comment suggested that the final rule
should contain more regulations regarding the transfer of warehouse
receipt records between providers. One comment suggested that there are
several provisions of the proposed rule that are contradictory
regarding the transfer of warehouse receipts between providers. One
comment suggested the Secretary regulate the relationship between the
users and the providers. One comment indicated that the use of the word
``on'' in the definition ``central filing system'' makes the meaning of
the term too restrictive and should be replaced with either
``concerning'' or ``relating to.'' One comment suggested that the
proposed rule failed to identify any additional recordkeeping
requirements for warehousemen who issue EWRs. One comment suggested
that the final rule should allow for additional information to be on
the EWRs, especially for ``certificated bales of cotton.'' One comment
sought clarification to be sure that only one active warehouse receipt
record should exist at a time for any bale of cotton. One comment
recommended that the USWA warehousemen should not be required to notify
the Secretary 60 calendar days in advance of the use of the provider
they have selected before they can issue EWRs. One comment suggested
that the provisions of Sec. 735.17 regarding the need for backup
information is inconsistent with the creation of EWRs.
Based on the comments received, the final rule modified the
proposed rule in the following ways: (1) ASCS will not license
providers, it will approve them through agreements; (2) technical
changes were made to the definition of the EWRs and other provisions to
make them clearer; (3) warehousemen will be allowed to change providers
at will so long as they inform the Secretary of such change at least 60
calendar days prior to making such a change, unless otherwise indicated
by the Secretary. This will allow warehousemen to change providers
during the 12-month agreement cycle but will also allow the Secretary
to keep track of these changes for the purposes of auditing the
warehousemen as necessary; and (4) the proposed rule provision that
allows warehousemen and providers to retain other data associated with
the cotton not otherwise required was clarified. Under the final rule,
warehousemen and providers may retain other data in addition to the
USWA required warehouse receipt information, including cotton classing
information, other bale numbers, etc.
Provisions in the proposed rule concerning suspension or revocation
of providers were not significantly changed for the final rule. The
word ``revoked'' was replaced with ``terminated''. ASCS choose to adopt
the statement ``for cause'' in the final rule, rather than specify
individual circumstances where ASCS would unfortunately have to suspend
or terminate a provider.
In the comments, a question was raised regarding how a suspension
would affect the ability of a provider to accept warehouse receipts
from a non-federally licensed warehouse. Neither these regulations nor
the legislation authorizes the Secretary to regulate a provider's
activities with State licensed warehouses. Therefore, a suspended
provider is only prohibited from accepting warehouse receipts from USWA
warehouses.
The suggested changes regarding the use of the term ``central
filing system'' were not adopted. ASCS understands that this term is
used to describe a vehicle for recording liens in the 1985 Food and
Security Act. However, this is the term used to describe the system for
retaining EWRs in the legislation that authorized this regulation.
Therefore, it was determined that this term should be retained.
However, ASCS has clearly defined this term in the final rule to avoid
any confusion.
The suggested changes regarding the transfer of EWR records from
one provider to another were not adopted. Under the final rule, the
only regulation regarding the transfer of records between providers is
that the new provider have an agreement with the Secretary and the
Secretary be notified 60 calendar days prior to the transfer. It was
determined that additional regulations were not needed and that the
provisions contained in the proposed rule are not inconsistent with the
final rule.
Furthermore, ASCS does not believe additional regulations are
needed regarding these transfers. It will be the responsibility of the
warehouseman to ensure that all applicable receipts are properly
transferred.
The suggestion to increase the regulation of the agreements between
users and providers was not adopted. It was determined that any
additional regulation is not necessary, because a holder may request a
paper warehouse receipt at any time.
Several comments were received regarding the records required by
this regulation. The final rule does not include any additional
recordkeeping requirements, because ASCS does not believe that any
additional requirements are needed, since nearly all additional records
required by this regulation are retained with the provider. Finally,
ASCS received a comment regarding the application of the regulations
concerning backups to EWRs. For the purposes of these regulations, any
backup files will be considered equivalent to the backup files
otherwise required by these regulations.
C. Providers Agreement
Eight comments were received regarding the terms of the provider
agreement with the Secretary. One comment suggested that the regulation
should contain more information regarding the terms of the provider
agreement. This comment suggested that the final rule and the provider
agreement should specify in detail the financial requirements and the
system backup records that must be maintained. One comment indicates
that a provider agreement should be in effect for more than one year.
One comment indicated that providers should not be strictly liable to
the Secretary or users for costs associated with lost or destroyed
receipts. One comment suggested that in addition to being strictly
liable, the provider must also be required to have the financial
resources to compensate users for such losses. One comment indicated
that providers should not be required to store records for a period of
six years. Currently, the Secretary only requires that paper receipt
records be retained for only two years. One comment suggested that the
Secretary should require more financial and background information be
supplied before the Secretary approves the application of a provider.
One comment indicated that when a provider agreement is suspended the
Secretary should make every effort to get the affected warehouses on
another approved provider system. One comment suggested that the
provider agreement contain a provision that all security measures must
meet the requirements of the American Institute of Certified Public
Accountants.
Based on a review of these comments, ASCS made the following
changes to the proposed rule: (1) Providers will be only strictly
liable for costs incurred by the Secretary associated with lost or
improperly destroyed EWRs; (2) the final rule restructured the
provisions affecting providers to more clearly identify their
responsibilities; and (3) the final rule more clearly identifies the
financial and insurance requirements for providers that would be
available to settle claims by users against providers.
The suggestion that the provider agreement should be in effect for
a period of more than one year was not adopted. ASCS could not agree
that the one year agreement cycle would cause problems for providers.
Currently, warehouse licenses are issued for a period of no more than
one year. One year agreement cycles will ensure that ASCS has current
financial and other related information regarding the providers.
However, the final rule clarifies that these agreements will
automatically renew, unless there is a problem.
The comment to change record retention for providers from six to
two years was not adopted. Given the fact that the records in question
are electronic records which can be stored easier than paper records,
ASCS does not believe that a six-year retention period is too
burdensome. Unlike the current paper system, providers will be storing
records for more than one warehouse. Thus, ASCS believes that these
records should be retained for a longer period of time.
The comment that suggested more detailed information should be
required of providers before they are approved was not adopted. ASCS
believes that the information requirements specified in the proposed
rule will provide enough information, in most cases, for a
determination to be made on a provider application. However, on a case-
by-case basis, should more information be needed, it will be required.
It is agreed that in cases where a provider is suspended, the
Secretary should give the affected warehousemen assistance to enable
them to issue electronic receipts through another provider. However,
ASCS does not believe that the proposed rule prohibited such
assistance.
Finally, a comment suggested that the final rule should require
that all data security systems of providers meet the requirements of
American Institute of Certified Public Accountants. As explained
previously, it appears that such a standard does not currently exist.
Therefore, ASCS could not adopt the comment.
D. Bale Numbers
Five comments were received that suggested a system of warehouse
receipt numbers and a uniform bale numbering system be merged into one
number system. This would eliminate the need to retag bales as they
move through the marketing process.
ASCS is not able to adopt these comments. The USWA requires that
each federally licensed warehouse assign warehouse receipt numbers on a
consecutive basis. The proposed universal bale numbering system is not
consistent with the statute. Thus, the USWA prohibits the adoption of
these comments.
E. System Access
Eight comments were received addressing system access. Five of
these comments discuss unlimited free access to the Secretary. One
comment opposes such access by stating that such broad access could
compromise the integrity of the electronic system. The same commenter
also states that the Secretary does not have similar information
available to him now. Another commenter stated that the only party that
should have unlimited access for audit requirements would be USDA. A
third comment on this subject is that the Commodity Credit Corporation
should have the right at any time to audit the system and the system
provider. The fourth comment provides full support for the Secretary's
right to have full access to the system for audit and control purposes.
The fifth comment states that allowing the Secretary such access is
extremely broad and should be more tailored.
ASCS believes that unlimited, free access to the Secretary, for
audit purposes, is necessary to provide all interested parties with
protection. Therefore, the final rule contains this authority for the
Secretary. The three additional comments address access by other
interested parties. One comment states that there is strong opposition
to making electronic receipt system information available to any party
on a nondiscriminatory basis. Another comment states that it so
strongly opposes access to any party on a nondiscriminatory basis that
it will not use any EWR system so long as such access is provided. A
third comment states that only the holder, owner, or their authorized
agent should have access to the system. The final rule eliminates the
part of the proposed rule, Sec. 735.104(a), that stated that providers
must allow read only access, at no cost, to interested parties. The
providers agreement will allow system access to warehousemen to create,
amend, or cancel warehouse receipts only when they are the warehouse
receipt holder; and that ``read only'' access can be exercised by
licensed warehousemen with respect to warehouse receipts originated by
that warehouseman at any time, at no cost. All other access to the
central filing system will be determined between the providers and the
users as they see fit.
In addition to the previously listed comments, four general
comments were received. These comments indicated their support to a
proposal regarding EWRs prepared by the National Cotton Council (NCC).
ASCS had difficulty addressing these comments, because ASCS
received a different set of comments from NCC. In general, the NCC
proposal is consistent with the current final rule, but NCC would
establish more regulation over the details of the transactions among
providers, users, and warehouses. As previously indicated, the intent
of these regulations is not to have ASCS micro-manage the issuance and
use of EWRs. These regulations assign the responsibilities among the
parties and allow them to determine how to satisfy these
responsibilities.
List of Subjects in 7 CFR Part 735
Administrative practice and procedure, Cotton, Reporting and
recordkeeping requirements, Surety bonds, Warehouses.
Accordingly, 7 CFR part 735 is amended as follows:
PART 735--COTTON WAREHOUSES
1. The authority citation for 7 CFR part 735 is revised to read as
follows:
Authority: 7 U.S.C. 268.
2. Section 735.2 is amended by adding paragraphs (bb) through (ii)
to read as follows:
Sec. 735.2 Terms defined.
* * * * *
(bb) Access. The ability when authorized, to read, change, and
transfer warehouse receipt information retained in the central filing
system.
(cc) Central filing system (CFS). An electronic computer system
operated and maintained by an approved provider where the information
relating to warehouse receipts is recorded.
(dd) Electronic warehouse receipt (EWR). An electronic file in the
CFS that contains at the least information required to be included in a
warehouse receipt by section 18 of the Act, and Sec. 735.16, regarding
a bale of cotton and has been identified to a holder.
(ee) Holder. An individual or entity in possession, in fact, or by
operation of law, of a receipt and by extension, of the cotton
represented thereby.
(ff) Issue. EWRs are considered issued when a licensed warehouseman
has transmitted all necessary information to an approved provider, and
when such information is entered into the provider's CFS.
(gg) Provider. An individual or entity that maintains EWRs in a
CFS, meets the requirements of this part, and has a Provider Agreement
with ASCS.
(hh) Provider Agreement. An agreement entered into between the
Secretary and a provider that delineates the provider's
responsibilities and defines the relationship between the provider and
ASCS regarding the provider's maintenance and security of EWRs in the
CFS and other requirements of this part.
(ii) User. An individual or entity that uses the provider's CFS but
shall not include ASCS in its regulatory capacity.
3. Section 735.16(h) is added to read as follows:
Sec. 735.16 Form.
* * * * *
(h) A warehouse receipt may contain additional information;
Provided that such information does not interfere with the information
required by this part.
Secs. 735.94, 735.95, 735.96, 735.97, 735.98, 735.99 [Added and
Reserved]
4. Sections 735.94 through 735.99 are added and reserved.
5. An undesignated centerheading entitled, ``Electronic Warehouse
Receipts'' (Secs. 735.100 through 735.105), is added to read as
follows:
Electronic Warehouse Receipts
Sec.
735.100 General statement.
735.101 Electronic warehouse receipts.
735.102 Provider requirements and standards for applicants.
735.103 Audits.
735.104 Provider-user relationship.
735.105 Security.
Electronic Warehouse Receipts
Sec. 735.100 General statement.
The regulations in Secs. 735.100 through 735.105 give a USWA
licensed warehouseman the option of issuing EWRs instead of paper
warehouse receipts for the cotton stored in its facility. EWRs may only
be created through a provider who is approved by ASCS.
Sec. 735.101 Electronic warehouse receipts.
(a) EWRs issued pursuant to this part establish the same rights and
obligations with respect to a bale of cotton as a paper receipt. With
the exception of the requirement that warehouse receipts be issued on
paper (Sec. 735.19), all other requirements applicable to paper
warehouse receipts shall apply to EWRs, unless otherwise specified. The
person identified as the ``holder'' of an EWR shall be entitled to the
same rights and privileges as the holder of a paper warehouse receipt.
(b) EWRs must be issued as single bale receipts.
(c) EWRs may only be issued through a provider.
(d) Warehousemen must notify all holders of cotton receipted by
inclusion in the CFS at least 30 calendar days before changing
providers, unless otherwise required or allowed by the Secretary.
(e) Licensed warehousemen may cancel EWRs only when they are the
holder of such receipts.
(f) Licensed warehousemen, only as holder, may correct information
on the EWR.
(g) Only the holder of the receipt may transfer the receipt to a
new holder.
(h) The identity of the holder must be included as additional
information for every EWR.
(i) An EWR shall only designate one entity as a holder at any one
time.
(j) An EWR shall not be issued for a bale of cotton if another
receipt, paper or electronic, on such bale is outstanding. No two
warehouse receipts issued by a licensed warehouse may have the same
receipt number.
(k) Prior to issuing EWRs, each warehouseman shall request and
receive from ASCS a range of consecutive warehouse receipt numbers
which the warehouseman shall use for the EWRs it issues.
(l) If a warehouseman has a contract with a provider, all warehouse
receipts issued by the warehouseman shall initially be issued as EWRs.
(m) An EWR may only be issued to replace a paper receipt if the
current holder of the warehouse receipt agrees.
(n) EWRs shall not be issued for defective cotton as defined in
Sec. 735.70.
(o) Licensed warehousemen must inform the Secretary of the identity
of their approved provider 60 calendar days in advance of issuing
warehouse receipts through that provider. The Secretary may waive or
modify this 60 day requirement.
(p) Holders and licensed warehousemen may authorize any other user
of a provider to act on their behalf with respect to their activities
with such provider. Such authorization must be in writing,
acknowledged, and retained by the provider.
(q) Provisions of Sec. 735.18 shall be applicable to lost or
destroyed EWRs.
Sec. 735.102 Provider requirements and standards for applicants.
(a) Financial requirements. All providers to be approved under this
part must meet the following requirements:
(1) Have a net worth of at least $25,000, and
(2) Maintain two insurance policies; one for ``errors and
omissions'' and another for ``fraud and dishonesty''. Each policy must
have a minimum coverage of $2 million.
(b) User fee charges. Providers shall pay to ASCS user fees set by
ASCS and announced annually prior to April of each calendar year.
(c) Provider agreement. The provider agreement shall contain, but
not be limited to, the following basic elements:
(1) Records. The retention period for records.
(2) Liability. The liability of the provider.
(3) Transfer of records. The requirements for transferring EWRs to
another provider.
(d) Suspension and termination. (1) The Secretary may suspend or
terminate a provider's agreement for cause at any time.
(2) Hearings and appeals will be conducted in accordance with
procedures that are contained in Secs. 735.7 and 735.89.
(3) Without specific written authority by the Secretary, suspended
or terminated providers may not accept, transfer, or execute any other
function pertaining to EWRs during the pendency of any appeal or
subsequent to such appeal if the appeal is denied.
(4) The provider or ASCS may terminate the provider agreement
without cause solely by giving the other party written notice 60
calendar days prior to the termination.
(e) Renewal. Each provider agreement will be automatically renewed
annually on April 30th as long as the provider complies with the terms
contained in the provider agreement, the regulations in Secs. 735.100
through 735.105 and the Act.
(f) Application form. Application for a provider agreement shall be
made to the Secretary upon forms prescribed and furnished by ASCS.
Sec. 735.103 Audits.
(a) The provider must submit to the Secretary an annual audit level
financial statement that meets the requirements of Sec. 735.5 with the
exception of Secs. 735.5(d)(1), (e), (g), and (h); and an electronic
data processing audit. These audits shall encompass the provider's
fiscal year. The completed audits shall be submitted to the Secretary
no later than four calendar months following the end of the provider's
fiscal year. The electronic data processing audit shall result in an
evaluation as to current computer operations, security, disaster
recovery capabilities of the system, and other systems.
(b) The provider will grant the Secretary or his designees
unlimited, free access at any time to all records under the provider's
control relating to activities conducted under this part and as
specified in the provider agreement.
Sec. 735.104 Provider-user relationship.
(a) The provider shall not discriminate among its users regarding
use of and access to its CFS and must charge fees on an equal basis to
all users for its services.
(b) The provider must furnish the Secretary with copies of its
current schedule of fees for all services and charges as they become
effective.
(c) Fees charged any user by the provider must be in effect for a
minimum period of one year.
(d) Providers must furnish the Secretary and all users a 60
calendar day advance notice of their intent to change any fee.
Sec. 735.105 Security.
(a) Security must be in accordance with the standards set out in
the provider agreement.
(b) Security copies of the system are to be maintained off-site.
Both on-site and off-site record security must be maintained.
Signed at Washington, DC, on March 28, 1994.
Bruce R. Weber,
Acting Administrator, Agricultural Stabilization and Conservation
Service.
[FR Doc. 94-7691 Filed 3-30-94; 8:45 am]
BILLING CODE 3410-05-P