Animal and Plant Health Inspection Service
Commodity Credit Corporation
Farm Service Agency
International Trade Administration
National Oceanic and Atmospheric Administration
Federal Energy Regulatory Commission
Centers for Disease Control and Prevention
Centers for Medicare & Medicaid Services
Food and Drug Administration
National Institutes of Health
Federal Emergency Management Agency
Fish and Wildlife Service
Alcohol, Tobacco, Firearms, and Explosives Bureau
Employment and Training Administration
Federal Aviation Administration
Federal Motor Carrier Safety Administration
National Highway Traffic Safety Administration
Pipeline and Hazardous Materials Safety Administration
Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws.
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Federal Deposit Insurance Corporation.
Final rule.
The Federal Deposit Insurance Corporation (FDIC) is adopting a final rule to amend the FDIC's company-run stress testing regulations applicable to state nonmember banks and state savings associations, consistent with section 401 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Specifically, the final rule revises the minimum threshold for applicability from $10 billion to $250 billion, revises the frequency of required stress tests by FDIC-supervised institutions, and reduces the number of required stress testing scenarios from three to two. The final rule also makes certain conforming and technical changes.
The final rule is effective November 25, 2019.
Ryan Sheller, Section Chief, (202) 412-4861,
The policy objective of the final rule is to conform the FDIC's regulations to section 401 of EGRRCPA, which raises the applicability threshold for company-run stress testing required by section 165(i)(2) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) from $10 billion to $250 billion, revises the required periodicity of such stress testing from “annual” to “periodic,” and removes the requirement that such stress testing include an “adverse” scenario.
Prior to the enactment of EGRRCPA, section 165(i)(2) of the Dodd-Frank Act required a financial company, including an insured depository institution, with total consolidated assets of more than $10 billion and regulated by a primary federal regulatory agency to conduct annual stress tests and submit a report to the Board of Governors of the Federal Reserve System (Board) and to its primary federal regulatory agency.
In October 2012, the FDIC published in the
EGRRCPA, enacted on May 24, 2018,
Prior to the enactment of EGRRCPA, on April 2, 2018, the FDIC issued a notice of proposed rulemaking that also proposed certain revisions to the FDIC stress testing regulations (April 2018 NPR).
On December 28, 2018, the FDIC published in the
The FDIC received six comments in response to the proposed rule. With respect to raising the applicability threshold from $10 to $250 billion, some commenters supported raising the threshold, others acknowledged that such a revision was statutorily required, and others expressed concern that eliminating stress testing requirements for banks under $250 billion may raise prudential concerns. Similarly, some commenters supported the proposed rule's elimination of the “adverse” scenario, positing that the adverse scenario is of limited utility,
With respect to the proposed rule's requirement that covered banks generally be subject to biennial stress testing, some commenters supported biennial stress testing as being an appropriate frequency for most covered banks, while others contended that reducing the frequency from annual to biennial would not be appropriate. Among the concerns highlighted by these commenters was that such a reduction in the frequency of stress testing could lead to complacency by covered banks in managing risk, and that biennial stress tests would not be sufficiently current to be credible. One commenter specifically suggested that a data-driven empirical analysis should support the change from annual to biennial stress testing, and that biennial stress testing would not be appropriate since firms make choices about dividends and repurchases on an annual basis. This commenter also suggested that the risks associated with reducing the frequency of stress testing would be amplified by other regulatory proposals addressing capital and liquidity requirements.
Based on its experience in overseeing and reviewing the results of company-run stress testing, the FDIC believes that biennial stress testing would be appropriate under most conditions for covered banks. The FDIC expects biennial stress testing to sufficiently satisfy the purposes of stress testing, including assisting in an overall assessment of a covered bank's capital adequacy, identifying risks and the potential impact of adverse financial and economic conditions on a covered bank's capital adequacy, and determining whether additional analytical techniques and exercises would be appropriate for a covered bank to employ in identifying, measuring, and monitoring risks to the soundness of the covered bank. In addition, the FDIC would continue to review the covered bank's stress testing processes and procedures. Under the final rule, all covered banks that conduct stress tests on a biennial basis are required to conduct stress tests in the same reporting year (
The FDIC is adopting without change the proposed revisions to the FDIC's stress testing rule, as described in detail below.
Section 401 of EGRRCPA amended section 165 of the Dodd-Frank Act by raising the minimum asset threshold for banks required to conduct stress tests from $10 billion to $250 billion. The final rule implements this change by eliminating the two existing subcategories of “covered bank”—“$10 to $50 billion covered bank” and “over $50 billion covered bank”—and revising the term “covered bank” to mean a state nonmember bank or state savings association with average total consolidated assets that are greater than $250 billion. In addition, the final rule makes certain technical and conforming changes to 12 CFR part 325 in order to consolidate requirements, such as those related to reporting and publication, that are currently referenced separately with respect to $10 billion to $50 billion covered banks and over $50 billion covered banks.
Section 401 of EGRRCPA also changed the requirement under section 165 of the Dodd-Frank Act to conduct stress tests from “annual” to “periodic.” Consistent with proposals by the Board and the OCC, the final rule provides that, in general, an FDIC-supervised institution that is a covered bank as of December 31, 2019, is required to conduct, report, and publish a stress test once every two years, beginning on January 1, 2020, and continuing every even-numbered year thereafter (
Certain covered banks may be required to conduct stress tests annually under the final rule. This subset of covered banks is limited to those that are consolidated under holding companies that are required to conduct stress tests more frequently than once every other year. On November 29, 2018, the Board published a proposed rule that would establish risk-based categories for determining the application of prudential standards, including stress testing.
Because the FDIC's final stress testing rule would require a covered institution to conduct stress tests annually if its parent holding company is required to do so under Board regulations, the FDIC's stress testing regulation would adopt by reference any potential changes to stress testing frequency in the Board's regulations, including from the Board's proposed rule. This treatment aligns with the FDIC's, OCC's, and Board's long-standing policy of applying similar standards to holding companies and their subsidiary banks, and reflects the FDIC's expectation that covered banks that would be required to stress test on an annual basis would be subsidiaries of the largest and most systemically important banking organizations, (
For covered banks that are required to conduct stress tests biennially or annually, the dates and deadlines in the FDIC's stress testing rule applies for each reporting year for a covered bank. For example, a biennial stress testing covered bank preparing its 2022 stress test would rely on financial data available as of December 31, 2021; use stress test scenarios that would be provided by the FDIC no later than February 15, 2022; provide its report of the stress test to the FDIC by April 5, 2022; and publish a summary of the results of its stress test in the period starting June 15 and ending July 15 of 2022.
As enacted by the Dodd-Frank Act, section 165(i)(2)(C) required the FDIC to establish methodologies for conducting stress tests and further required the inclusion of at least three different stress-testing scenarios: “Baseline,” “adverse,” and “severely adverse.” EGRRCPA amended section 165(i) to no longer require the FDIC to include an “adverse” stress-testing scenario and to reduce the minimum number of required stress test scenarios from three to two. Given that the “adverse” stress-testing scenario has provided limited incremental information to the FDIC and market participants beyond what the “baseline” and “severely adverse” stress testing scenarios provide, the final rule removes the “adverse” scenario in the FDIC's stress testing rule and maintains the requirement to conduct stress tests under the “baseline” and “severely adverse” stress testing scenarios. The final rule also amends the definition of “severely adverse scenario” so that the term is defined relative to the “baseline scenario,” rather than relative to the “adverse scenario.”
Currently, 12 CFR 325.3 provides for a transition period between when a bank becomes a covered bank and when the bank must report its first stress test. The final rule revises the transition period in 12 CFR 325.3 to conform to the other changes in this final rule. Accordingly, paragraph (a)(2) generally requires a state nonmember bank or state savings association that becomes a covered bank after December 31, 2019, to conduct its first stress test under this part in the first reporting year that begins more than three calendar quarters after the date the state nonmember bank or state savings association becomes a covered bank. For example, if a covered bank that conducts stress tests on a biennial basis becomes a covered bank on March 31 of a non-reporting year (
The final rule does not establish a transition period for covered banks that move from a biennial stress testing requirement to an annual stress testing requirement. Accordingly, a covered bank that becomes subject to annual stress testing would be required to begin stress testing annually as of the next reporting year. The FDIC expects that covered banks would anticipate and make arrangements for this development. To the extent that particular circumstances warrant the extension of a transition period, the FDIC would do so based on its reservation of authority and supervisory discretion.
Currently, 12 CFR 325.5(b)(2) requires a covered bank's board of directors, or a committee thereof, to approve and review the policies and procedures of the stress testing processes as frequently as economic conditions or the bank's condition may warrant, but no less than annually. The final rule revises the frequency of this requirement from “annual” to “once every reporting year” in order to make review by the board of directors consistent with the covered bank's stress testing cycle.
12 CFR 325.1(c) currently includes a reservation of authority, pursuant to which the FDIC may revise the frequency and methodology of the stress testing requirement as appropriate for a particular covered bank. The final rule amends the reservation of authority by clarifying the FDIC's authority to exempt a covered bank from the requirement to conduct a stress test in a particular reporting year.
Under 12 CFR 325.4(c), the FDIC may require a covered bank with significant trading activities to include trading and counterparty components in its adverse and severely adverse scenarios. The trading data to be used in this component is as of a date between January 1 and March 1 of a calendar year.
As originally proposed in the April NPR and in the proposed rule, the final rule removes certain obsolete transitional language in 12 CFR 325.3 that was included to facilitate a 2014 shift in the dates of the annual stress testing cycle.
Additionally, in order to update and standardize the language used in part 325, references to “this subpart” is changed to “this part” following the redesignation of the FDIC's stress test rule from Subpart C of 12 CFR part 325 to occupy all of part 325.
The RCDRIA requires that the FDIC, in determining the effective date and administrative compliance requirements of new regulations that impose additional reporting, disclosure, or other requirements on insured depository institutions (IDIs), consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations.
The final rule imposes no additional reporting, disclosure, or other requirements on IDIs, including small depository institutions, nor on the customers of depository institutions. The final rule reduces the frequency of company-run stress tests for a subset of banks, raises the threshold for covered banks from $10 billion to $250 billion, and reduces the number of required stress test scenarios from three to two for all covered banks. The requirement to conduct, report, and publish a company-run stress testing is a previously existing requirement imposed by section 165(i) of the Dodd-Frank Act. Accordingly, RCDRIA does not apply to the final rule.
The final rule is effective 30 days after publication in the
The Regulatory Flexibility Act (RFA), 5 U.S.C. 601
The FDIC has considered the potential impact of the final rule on small entities in accordance with the RFA. The FDIC supervises 3,424 depository institutions,
The FDIC has determined that this final rule involves a collection of information pursuant to the provisions of the Paperwork Reduction Act of 1995 (the PRA) (44 U.S.C. 3501
A Federal agency may not conduct or sponsor, and an organization is not required to respond to, this information collection unless the information collection displays a currently valid Office of Management and Budget (OMB) control number. The FDIC has obtained an OMB control number for this information collection (3064-0189) and will make a submission to OMB in connection with the final rule. The FDIC did not receive any comments on its estimated total annual burden for the stress testing rule. The estimates are as follows:
Section 722 of the Gramm-Leach-Bliley Act requires the FDIC to use plain language in all proposed and final rules published after January 1, 2000. In the proposal, the FDIC requested comment on how to make this proposed rule easier to understand, and received no responsive comments.
Pursuant to the Congressional Review Act, the Office of Management and Budget's Office of Information and Regulatory Affairs designated this rule as not a “major rule,” as defined at 5 U.S.C. 804(2).
Administrative practice and procedure, Banks, banking, Reporting and recordkeeping requirements, State savings associations, Stress tests.
For the reasons stated in the preamble, the FDIC amends 12 CFR part 325 as follows:
12 U.S.C. 5365(i)(2), 12 U.S.C. 5412(b)(2)(C), 12 U.S.C. 1818, 12 U.S.C. 1819(a)(Tenth), 12 U.S.C. 1831o, and 12 U.S.C. 1831p-1.
(b)
(c)
(1) The Corporation may accelerate or extend any deadline for stress testing, reporting, or publication of the stress test results.
(2) The Corporation may require different or additional tests not otherwise required by this part or may require or permit different or additional analytical techniques and methodologies, different or additional scenarios (including components for the scenarios), or different assumptions for the covered bank to use in meeting the requirements of this part. In addition, the FDIC may specify a different as-of date for any or all categories of financial data used by the stress test.
(3) The Corporation may modify the reporting requirements of a report under this part or may require additional reports. The Corporation may modify the publication requirements of this part and or may require different or additional publication disclosures.
(4) The Corporation may also exempt a covered bank from the requirement to conduct a stress test in a particular reporting year.
(5) Factors considered: Any exercise of authority under this section by the Corporation will be in writing and will consider the activities, level of complexity, risk profile, scope of operations, and the regulatory capital of the covered bank, in addition to any other relevant factors.
(6) Notice and comment procedures: In exercising its authority to require different or additional stress tests and different or additional scenarios (including components for the scenarios) under paragraph (c)(2) of this section, the Corporation will apply notice and response procedures in the same manner and to the same extent as the notice and response procedures in 12 CFR 324.5, as appropriate.
(7) Nothing in this subpart limits the authority of the Corporation under any other provision of law or regulation to take supervisory or enforcement action, including action to address unsafe and unsound practices or conditions, or violations of law or regulation.
The revisions and addition read as follows:
(c)
(h)
(i)
(j)
(m)
(a)
(2) A state nonmember bank or state savings association that becomes a covered bank after December 31, 2019, shall conduct its first stress test under this part in the first reporting year that begins more than three calendar quarters after the date the state nonmember bank or state savings association becomes a covered bank, unless otherwise determined by the Corporation in writing.
(b)
(c)
(2) A covered bank that elects to conduct its stress test under paragraph (c)(1) of this section will remain subject to the same timeline requirements of its parent company until otherwise approved by the FDIC.
Each covered bank must conduct the periodic stress test under this part subject to the following requirements:
(a)
(b)
(c)
(d)
(b)
(2) The board of directors, or a committee thereof, of a covered bank must approve and review the policies and procedures of the stress testing processes as frequently as economic conditions or the condition of the covered bank may warrant, but no less than once every reporting year. The board of directors and senior management of the covered bank must receive a summary of the results of the stress test.
(3) The board of directors and senior management of each covered bank must consider the results of the stress tests in the normal course of business, including but not limited to, the covered bank's capital planning, assessment of capital adequacy, and risk management practices.
(a)
(b)
(2) The description of aggregate losses and net income must include the cumulative losses and cumulative net income over the planning horizon, and the description of each regulatory capital ratio must include the beginning value, ending value, and minimum value of each ratio over the planning horizon.
(c)
(a)
(1) Unless the Corporation determines otherwise, if the covered bank is a consolidated subsidiary of a bank holding company or savings and loan holding company subject to supervisory stress tests conducted by the Board of Governors of the Federal Reserve System under 12 CFR part 252, then, within the June 15 to July 15 period, such covered bank may not publish the required summary of its periodic stress test earlier than the date that the Board of Governors of the Federal Reserve System publishes the supervisory stress test results of the covered bank's parent holding company.
(2) If the Board of Governors of the Federal Reserve System publishes the supervisory stress test results of the covered bank's parent holding company prior to June 15, then such covered bank may publish its stress test results prior to June 15, but no later than July 15, through actual publication by the covered bank or through publication by the parent holding company under paragraph (b) of this section.
(b)
(c)
By order of the Board of Directors.
Federal Aviation Administration (FAA), Department of Transportation (DOT).
Final rule.
The FAA is adopting a new airworthiness directive (AD) for all Airbus SAS Model A300 B4-600, B4-600R, and F4-600R series airplanes, and Model A300 C4-605R Variant F airplanes (collectively called Model A300-600 series airplanes). This AD was prompted by a determination that new or more restrictive airworthiness limitations are necessary. This AD requires revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations. The FAA is issuing this AD to address the unsafe condition on these products.
This AD is effective November 29, 2019.
The Director of the Federal Register approved the incorporation by reference of a certain publication listed in this AD as of November 29, 2019.
For service information identified in this final rule, contact Airbus SAS, Airworthiness Office—EAW, Rond-Point Emile Dewoitine No: 2, 31700 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 44 51; email
You may examine the AD docket on the internet at
Dan Rodina, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3225.
The European Union Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2019-0090, dated April 26, 2019 (“EASA AD 2019-0090”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Airbus SAS Model A300-600 series airplanes.
The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Airbus SAS Model A300 B4-600, B4-600R, and F4-600R series airplanes, and Model A300 C4-605R Variant F airplanes (collectively called Model A300-600 series airplanes). The NPRM published in the
The FAA is issuing this AD to address fatigue cracking, damage, and corrosion in principal structural elements, which could result in reduced structural integrity of the airplane. See the MCAI for additional background information.
The FAA gave the public the opportunity to participate in developing this final rule. The following presents the comments received on the NPRM and the FAA's response to each comment.
FedEx had no objection to the NPRM.
United Parcel Service (UPS) requested that paragraph (g) of the proposed AD be revised to allow the use of later approved variations or revisions to Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018. The commenter stated that the approval of later approved program variations and revisions would maintain the level of safety through expedient inclusion of the latest changes to address fatigue cracking, damage, and corrosion in principle structural elements.
The commenter noted that in the FAA's ongoing efforts to improve efficiency of the AD process, the FAA worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with the requirements of corresponding FAA ADs. The commenter explained that EASA ADs include the approval of the use of later approved service information for compliance with the applicable requirements. The commenter noted that EASA AD 2019-0090, which corresponds to the proposed FAA AD, includes this approval so operators can use later approved variations or revisions of Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018.
The FAA agrees with the commenter's observation regarding the FAA's new “IBR the MCAI” process, which uses EASA ADs as the primary source of information for compliance with corresponding FAA ADs. However, the FAA currently only uses the new “IBR the MCAI” process with certain MCAI ADs (primarily those with service bulletins as the primary source of information). When the Airbus A300-600 Airworthiness Limitations Section is revised, and EASA issues an AD, the FAA will consider drafting the corresponding FAA AD as an “IBR the MCAI” AD. Thus, all provisions specified in the EASA AD would apply to the corresponding FAA AD.
Based on the information above, the FAA disagrees with the commenter's request to revise paragraph (g) of this AD to include text that would allow operators to use later approved variations or revisions of Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018, for compliance with the requirements of this AD. The FAA cannot refer to any document that does not yet exist in an AD. To allow operators to use later revisions of the referenced document (issued after AD publication), the most expeditious approach would be for operators to request approval to use later revisions as an alternative method of compliance with this AD, under the provisions of paragraph (j)(1) of this AD. The alternative would be for the FAA to revise the AD to reference specific later revisions, which would take longer and consume more resources. The FAA has not revised this AD regarding this issue.
The FAA reviewed the relevant data, considered the comments received, and determined that air safety and the public interest require adopting this final rule as proposed, except for minor editorial changes. The FAA determined that these minor changes:
• Are consistent with the intent that was proposed in the NPRM for addressing the unsafe condition; and
• Do not add any additional burden upon the public than was already proposed in the NPRM.
Airbus has issued A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018. This service information describes airworthiness limitations for certification maintenance requirements applicable to the DT-ALI. 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
The FAA estimates that this AD affects 128 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:
The FAA determined that revising the existing maintenance or inspection program takes an average of 90 workhours per operator, although we recognize that this number may vary from operator to operator. In the past, the FAA has estimated that this action takes 1 work-hour per airplane. 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. Therefore, the FAA estimates the total cost per operator 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.
This AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.
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 AD is effective November 29, 2019.
This AD affects AD 2018-01-07, Amendment 39-19148 (83 FR 2042, January 16, 2018) (“AD 2018-01-07”); and AD 2018-19-33, Amendment 39-19434 (83 FR 48932, September 28, 2018) (“AD 2018-19-33”).
This AD applies to Airbus SAS Model A300 B4-601, B4-603, B4-620, B4-622, B4-605R, B4-622R, F4-605R, F4-622R, and C4-605R Variant F airplanes, certificated in any category, all manufacturer serial numbers.
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 fatigue cracking, damage, and corrosion in principal structural elements, which could result in reduced structural integrity of the airplane.
Comply with this AD within the compliance times specified, unless already done.
Within 90 days after the effective date of this AD, revise the existing maintenance or inspection program, as applicable, to incorporate the information specified in Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018. The initial compliance time for doing the tasks is at the time specified in Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018, or within 90 days after the effective date of this AD, whichever occurs later.
After the existing maintenance or inspection program has been revised as required by paragraph (g) of this AD, no alternative actions (
Accomplishing the actions required by this AD terminates all requirements of AD 2018-01-07 and AD 2018-19-33.
The following provisions also apply to this AD:
(i) Before using any approved AMOC, notify your appropriate principal inspector, or lacking a principal inspector, the manager of the local flight standards district office/certificate holding district office.
(ii) AMOCs approved previously for AD 2018-19-33 are approved as AMOCs for the corresponding provisions of this AD.
(3)
(1) Refer to Mandatory Continuing Airworthiness Information (MCAI) EASA AD 2019-0090, dated April 26, 2019, for related information. This MCAI may be found in the AD docket on the internet at
(2) For more information about this AD, contact Dan Rodina, Aerospace Engineer, International Section, Transport Standards Branch, FAA, 2200 South 216th St., Des Moines, WA 98198; telephone and fax 206-231-3225.
(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.
(i) Airbus A300-600 Airworthiness Limitations Section (ALS), Part 2, “Damage Tolerant Airworthiness Limitation Items (DT-ALI),” Revision 03, dated December 14, 2018.
(ii) [Reserved]
(3) For service information identified in this AD, contact Airbus SAS, Airworthiness Office—EAW, Rond-Point Emile Dewoitine No: 2, 31700 Blagnac Cedex, France; telephone +33 5 61 93 36 96; fax +33 5 61 93 44 51; email
(4) You may view this service information at the FAA, Transport Standards Branch, 2200 South 216th St., Des Moines, WA. For information on the availability of this material at the FAA, call 206-231-3195.
(5) You may view this service information that is incorporated by reference at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, email
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (the “Commission”) is adopting revisions to the Electronic Data Gathering, Analysis, and Retrieval System (“EDGAR”) Filer Manual (“EDGAR Filer Manual” or “Filer Manual”) and related rules. The EDGAR system was upgraded on September 30, 2019.
Effective October 24, 2019. The incorporation by reference of the EDGAR Filer Manual is approved by the Director of the Federal Register as of October 24, 2019.
For questions concerning mining property disclosure exhibit EX-96, please contact Heather Macintosh in the Division of Corporation Finance at (202) 551-8111. For questions regarding Rule of Practice 194 and the removal of Schedule C to security-based swap entity registration forms, please contact Devin Ryan in the Division of Trading and Markets at (202) 551-7654. For questions concerning EDGAR password complexity requirements or EDGAR last account login activity information, please contact EDGAR Filer Support at (202) 551-8900. For questions concerning Form ATS-N/UA and ATS-N/CA submissions with revised Market Participant Identifier numbers, please contact Tyler Raimo or Michael Broderick in the Division of Trading and Markets at (202) 551-6227 or (202) 551-5058. For questions concerning Form N-CEN submissions or submissions by deregistered investment companies during a limited time period following deregistration, please contact Heather Fernandez in the Division of Investment Management at (202) 551-6708. For questions concerning Inline XBRL validations or retired taxonomies, please contact the Division of Economic and Risk Analysis, Office of Structured Disclosure at (202) 551-5494.
We are adopting an updated EDGAR Filer Manual, Volumes I and II. The Filer Manual describes the technical requirements for the preparation and submission of electronic filings through the EDGAR system.
The revisions reflect changes in EDGAR Filer Manual, Volume I: “General Information,” (Version 34) and EDGAR Filer Manual, Volume II: “EDGAR Filing,” (Version 52) (September 2019). The updated Filer Manual is incorporated by reference into the Code of Federal Regulations.
The Filer Manual contains all the technical specifications for filers to submit filings using the EDGAR system. Filers must comply with the applicable provisions of the Filer Manual in order to assure the timely acceptance and processing of filings made in electronic format.
The EDGAR System was updated in Release 19.3 and corresponding amendments to the Filer Manual are being made to reflect the changes described below.
In Release No. 33-10570,
In Release No. 34-84858, the Commission adopted Rule of Practice 194, which, among other things, provides an exclusion for a registered security-based swap dealer or major security-based swap participant from the statutory disqualification prohibition in Section 15F(b)(6) of the Securities Exchange Act of 1934 (the “Exchange Act”) with respect to associated persons that are not natural persons (
To enhance the security of access to filer accounts in EDGAR, EDGAR Release 19.3 introduced enhanced password complexity requirements. Filers will be required to use twelve-character passwords instead of eight-character passwords when logging into the EDGAR Filing website and the EDGAR Online Forms Management website. See Chapter 3 (Becoming an EDGAR Filer) and Chapter 4 (Generating Access Codes) of the EDGAR Filer Manual, Volume I: “General Information” and Chapter 7 (Preparing and Transmitting EDGARLink Online Submissions) and Chapter 8 (Preparing and Transmitting Online Submissions) of the EDGAR Filer Manual, Volume II: “EDGAR Filing.”
To faciliate filer account management and security, EDGAR Release 19.3 updated EDGAR to provide filers with information about account login activity on the EDGAR Filing website and the EDGAR Online Forms Management website. Filers will be able to access information regarding the date, time, and whether the last login attempt was successful with respect to their account for the past 30 calendar days. See Chapter 4 (Generating EDGAR Access Codes) of the EDGAR Filer Manual, Volume I: “General Information” and
EDGAR Release 19.3 upgraded EDGAR to permit EDGAR acceptance of submissions by deregistered investment companies for a limited period of 400 calendar days from the date of the investment company's deregistration. During the 400 calendar-day period, EDGAR will accept mandatory filings on submission form types 24F-2NT, 24F-2NT/A, N-CR, N-CR/A, N-CSR, N-CSR/A, N-CSRS, N-CSRS/A, N-PX, N-PX/A, N-PX-FM, N-PX-FM/A, N-PX-NT, N-PX-NT/A, N-PX-VR, N-PX-VR/A, N-PX-CR, N-PX-CR/A, N-Q, N-Q/A, N-CEN, N-CEN/A, N-LIQUID, N-LIQUID/A, N-MFP2, N-MFP2/A, NPORT-EX, NPORT-EX/A, NPORT-NP, NPORT-NP/A, NPORT-P, NPORT-P/A, N-30D, N-30D/A, and N-30B-2. EDGAR will not accept submissions by deregistered investment companies following the expiration of the 400 calendar-day period.
EDGAR Release 19.3 updated submission types ATS-N/UA and ATS-N/CA to allow filers to indicate when their Market Participant Identification or MPID number has changed. See Chapter 8 (Preparing and Transmitting Online Submissions) of the EDGAR Filer Manual, Volume II: “EDGAR Filing.”
EDGAR Release 19.3 updated applicable taxonomies and will no longer support the superseded IFRS-2017 and DEI-2014 taxonomies. For a complete list of supported standard taxonomies, please see
In addition, EDGAR Release 19.3 implemented revised validation rules to facilitate EDGAR acceptance of documents that contain properly tagged inline XBRL cover page data that may differ from EDGAR header information.
Along with the adoption of the Filer Manual, we are amending Rule 301 of Regulation S-T to provide for the incorporation by reference into the Code of Federal Regulations of the current revisions. This incorporation by reference was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51.
The updated EDGAR Filer Manual is available for website viewing and printing; the address for the Filer Manual is
Because the Filer Manual and the corresponding rule and form amendments relate solely to agency procedures or practice, publication for notice and comment is not required under the Administrative Procedure Act (“APA”).
The effective date for the updated Filer Manuals and the related rule and form amendments is October 24, 2019. In accordance with the APA,
We are adopting the amendments to Regulation S-T under the authority in Sections 6, 7, 8, 10, and 19(a) of the Securities Act of 1933,
Incorporation by reference, Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, title 17, chapter II of the Code of Federal Regulations is amended as follows:
15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78
Filers must prepare electronic filings in the manner prescribed by the EDGAR Filer Manual, promulgated by the Commission, which sets forth the technical formatting requirements for electronic submissions. The requirements for becoming an EDGAR Filer and updating company data are set forth in the updated EDGAR Filer Manual, Volume I: “General Information,” Version 34 (September 2019). The requirements for filing on EDGAR are set forth in the updated EDGAR Filer Manual, Volume II: “EDGAR Filing,” Version 52 (September 2019). All of these provisions have been incorporated by reference into the Code of Federal Regulations, which action was approved by the Director of the Federal Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. You must comply with these requirements in order for documents to be timely received and accepted. The EDGAR Filer Manual is available for website viewing and printing; the address for the Filer Manual is
By the Commission.
Federal Energy Regulatory Commission, Department of Energy.
Final rule.
The Commission is revising its Policy Statement on Consultation with Indian Tribes in Commission Proceedings by adding a specific reference to treaty rights; a statement that the Commission addresses tribal input in its NEPA documents and orders, and consultation with Alaska Native Corporations.
Effective November 25, 2019.
Elizabeth Molloy, Office of the General Counsel, 888 First Street NE, Washington, DC 20426; 202-502-8771;
1. By this order, the Commission is amending its Policy Statement on Consultation with Indian Tribes in Commission Proceedings (policy statement)
2. In 2003, the Commission issued its Policy Statement on Consultation with Indian Tribes in Commission Proceedings. The 2003 policy statement recognizes the unique relationship between the Federal government and Indian tribes as defined by treaties, statutes, and judicial decisions and acknowledges the Commission's trust responsibilities. It states that the Commission will endeavor to work with the tribes on a government-to-government basis and will seek to address the effects of proposed projects on tribal rights and resources through consultation pursuant to trust responsibilities, the statutes governing the Commission's authority,
3. In March 2017, the U.S. Government Accountability Office (GAO) commenced an engagement on tribal consultation practices, in which it sought to review tribal consultation practices of 21 federal agencies involved in permitting, review, or funding of infrastructure projects.
4. In March 2019, GAO issued its final report entitled, “Tribal Consultation: Additional Federal Actions Needed for Infrastructure Projects (GAO-19-22).”
5. As noted above, the Commission functions as a neutral, quasi-judicial body and as such is bound by the Administrative Procedure Act and Commission rules regarding off-the-record communications. In order to comply with the requirements that decisions be on the record, it has been the Commission's practice to address tribal input and concerns in its environmental documents and decisions. However, the Commission's policy statement does not expressly include language to that effect. Therefore, the Commission is adding language stating that the Commission will set forth in its environmental documents and orders how tribe's input from consultation was considered in agency decisions on infrastructure projects.
6. The Commission, in its final rule on Hydroelectric Licensing under the Federal Power Act issued contemporaneously with the policy statement, stated that, “tribal consultation pursuant to our trust responsibility encompasses more than implementation of [National Historic Preservation Act] Section 106. It includes every issue of concern to an Indian tribe related to a treaty, statute, or executive order where the Commission can, through the exercise of its authorities under the FPA, fulfill its
7. While the Commission already considers the effect of actions on treaty rights in its NEPA and decision documents,
8. The policy statement addresses consultation with federally-recognized Indian tribes (including Alaska Native tribes, villages, and communities) that the Secretary of the Interior acknowledges to exist as an Indian tribe pursuant to the Federally Recognized Indian Tribe List Act of 1994.
9. After the Commission issued its policy statement, Congress directed that “[t]he Director of the Office of Management and Budget [and all Federal agencies] shall hereafter consult with Alaska Native corporations on the same basis as Indian tribes under Executive Order No. 13175.”
10. To be consistent with Congress' directive, the Commission is updating its policy to include ANCSA Corporations. The Commission recognizes and respects the distinct, unique, and individual cultural traditions and values of Alaska Native peoples and the statutory relationship between ANCSA Corporations and the Federal Government.
11. The Commission distinguishes the Federal relationship to ANCSA Corporations from the government-to-government relationship between the Federal Government and federally recognized Indian Tribes in Alaska and elsewhere, and the update to the policy will not diminish in any way that relationship and the consultation obligations towards federally recognized Indian Tribes.
12. The Paperwork Reduction Act and implementing regulations of the Office of Management and Budget (OMB) require OMB to approve certain information collection requirements imposed by agency rule.
13. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.
14. The Regulatory Flexibility Act of 1980 (RFA)
15. In addition to publishing the full text of this document in the
16. From the Commission's Home Page on the internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.
17. User assistance is available for eLibrary and the Commission's website during normal business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at
18. This revised policy statement is effective November 25, 2019 without a period for public comment. Under 5 U.S.C. 533(b), notice and comment procedures are unnecessary where a rulemaking concerns only agency procedure or practice, or where the agency finds that notice and comment is unnecessary. This revised policy statement concerns only matters of agency procedure, and will not significantly affect regulated entities or the general public.
19. The Revised Policy Statement will be provided to the Congress and Government Accountability Office.
General policy and interpretations.
By the Commission.
In consideration of the foregoing, the Commission is amending part 2, chapter I, title 18,
5 U.S.C. 601; 15 U.S.C. 717-717z, 3301-3432; 16 U.S.C. 792-828c, 2601-2645; 42 U.S.C. 4321-4370h, 7101-7352.
The addition reads as follows:
(e) * * * The Commission will use the agency's environmental and decisional documents to communicate how tribal input has been considered.
Employment and Training Administration, Labor.
Withdrawal of direct final rule.
Due to the receipt of two significant adverse comments, the Department of Labor (Department) is withdrawing the August 29, 2019, direct final rule (DFR) that would have made two procedural changes to its Workforce Innovation and Opportunity Act (WIOA) Job Corps regulations. The changes would have enabled the Secretary of Labor to delegate procurement authority as it relates to the development and issuance of requests for proposals for the operation of Job Corps centers, outreach and admissions, career transitional services, and other operational support services. This action would have aligned regulatory provisions with the relevant WIOA statutory language to provide greater flexibility for internal operations and management of the Job Corps program.
Effective October 24, 2019, the direct final rule published at 84 FR 45403 on August 29, 2019, is withdrawn.
Heidi M. Casta, Deputy Administrator, Office of Policy Development and Research, U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5641, Washington, DC 20210; telephone (202) 693-3700 (this is not a toll-free number).
Individuals with hearing or speech impairments may access the telephone number above via TTY by calling the toll-free Federal Information Relay Service at 1-800-877-8339.
In the DFR, the Department stated that if a significant adverse comment was submitted by September 30, 2019, the agency would publish a timely withdrawal in the
Accordingly, effective October 24, 2019, the amendment to 20 CFR part 686 published in the
Environmental Protection Agency (EPA).
Final rule; correction.
The Environmental Protection Agency (EPA) is correcting the state implementation plan (SIP) for the Commonwealth of Virginia to remove from the Code of Federal Regulations (CFR) revisions to the Virginia SIP that were initially incorporated into the SIP in a February 22, 2018 final action that was subsequently vacated and remanded to EPA by the Court of Appeals for the Fourth Circuit. This action is exempt from notice-and-comment rulemaking because it is ministerial in nature.
This final rule is effective on October 24, 2019.
EPA has established a docket for this action under Docket ID Number EPA-R03-OAR-2017-0382. All documents in the docket are listed on the
Sara Calcinore, Planning & Implementation Branch (3AD30), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814-2043. Ms. Calcinore can also be reached via electronic mail at
Under the Clean Air Act (CAA or the Act), EPA establishes National Ambient Air Quality Standards (NAAQS) for criteria pollutants
On March 6, 2015, EPA issued a final rule titled “Implementation of the 2008 National Ambient Air Quality Standards for Ozone: State Implementation Plan Review Requirements,” which addressed a range of nonattainment area SIP requirements for the 2008 ozone NAAQS. 80 FR 12264. This final rule also revoked the 1997 ozone NAAQS and established anti-backsliding requirements for areas not attaining the 1997 ozone NAAQS in 40 CFR 51.1105 that became effective once the 1997 ozone NAAQS was revoked. The final rule also removed the conformity requirements for areas designated nonattainment or maintenance under the 1997 ozone NAAQS and attainment under the 2008 ozone NAAQS (referred to as “orphan nonattainment areas” and “orphan maintenance areas,” respectively). According to EPA's March 6, 2015 final rule, the revocation of the 1997 ozone NAAQS was effective April 6, 2015.
On September 9, 2016, Virginia amended the Virginia Administrative Code (VAC) to be consistent with EPA's March 6, 2015 final rule revoking the 1997 ozone NAAQS. On February 10, 2017, Virginia, through the Virginia Department of Environmental Quality (VADEQ), formally submitted a SIP revision (Revision G16) reflecting these amendments. Virginia's February 10, 2017 SIP revision included amendments to provisions 9VAC5-20-204, 9VAC5-30-55, 9VAC5-151-20, and 9VAC5-160-30 that reflected EPA's March 6, 2015 final rule.
On February 16, 2018, after EPA had signed the final rulemaking notice approving Virginia's February 10, 2017 SIP revision, but six days before it was published in the
On February 22, 2018, EPA's final rulemaking notice approving Virginia's February 10, 2017 SIP revision was published in the
In this action, EPA is correcting the codification of the Virginia SIP in the CFR, to reflect the vacatur of EPA's February 22, 2018 final rulemaking. This action corrects the CFR to be consistent with the Court's Judgement by removing the revisions to 9VAC5-20-204, 9VAC5-30-55, 9VAC5-151-20, and 9VAC5-160-30 that were approved in EPA's now vacated February 22, 2018 final action. By taking this final action, the CFR will correctly display the versions of 9VAC5-20-204, 9VAC5-30-55, 9VAC5-151-20, and 9VAC5-160-30 that are approved in the Virginia SIP (
EPA is correcting the codification of the Virginia SIP in the CFR to reflect the vacatur of EPA's February 22, 2018 final action. EPA is taking this action as a final rule without providing an opportunity for public comment or a public hearing because EPA finds that the Administrative Procedure Act (APA) good cause exemption applies. In general, the APA requires that general notice of proposed rulemaking shall be published in the
In addition, notice-and-comment would be contrary to the public interest because it would unnecessarily delay the correction of the Virginia SIP as displayed in the CFR. Such delay could result in confusion on the part of the regulated industry and state, local, and tribal air agencies on the actual SIP-approved provisions in the Virginia SIP.
For these reasons, EPA finds good cause to issue a final rulemaking pursuant to section 553 of the APA, 5 U.S.C. 553(b)(3)(B). Moreover, EPA finds that the problems outlined above regarding the effects of delaying issuance of the rule also provide good cause for not delaying its effective date. 5 U.S.C. 553(d)(3). Accordingly, the requirement for a delay in effective date does not apply and the rule will take effect upon publication in the
In 1995, Virginia adopted legislation that provides, subject to certain conditions, for an environmental assessment (audit) “privilege” for voluntary compliance evaluations performed by a regulated entity. The legislation further addresses the relative burden of proof for parties either asserting the privilege or seeking disclosure of documents for which the privilege is claimed. Virginia's legislation also provides, subject to certain conditions, for a penalty waiver for violations of environmental laws when a regulated entity discovers such violations pursuant to a voluntary compliance evaluation and voluntarily discloses such violations to the Commonwealth and takes prompt and appropriate measures to remedy the violations. Virginia's Voluntary Environmental Assessment Privilege Law, Va. Code Sec. 10.1-1198, provides a privilege that protects from disclosure documents and information about the content of those documents that are the product of a voluntary environmental assessment. The Privilege Law does not extend to documents or information that: (1) Are generated or developed before the commencement of a voluntary environmental assessment; (2) are prepared independently of the assessment process; (3) demonstrate a clear, imminent and substantial danger to the public health or environment; or (4) are required by law.
On January 12, 1998, the Commonwealth of Virginia Office of the Attorney General provided a legal opinion that states that the Privilege law, Va. Code Sec. 10.1-1198, precludes granting a privilege to documents and information “required by law,” including documents and information “required by Federal law to maintain program delegation, authorization or approval,” since Virginia must “enforce Federally authorized environmental programs in a manner that is no less stringent than their Federal counterparts. . . .” The opinion concludes that “[r]egarding § 10.1-1198, therefore, documents or other information needed for civil or criminal enforcement under one of these programs could not be privileged because such documents and information are essential to pursuing enforcement in a manner required by Federal law to maintain program delegation, authorization or approval.”
Virginia's Immunity law, Va. Code Sec. 10.1-1199, provides that “[t]o the extent consistent with requirements imposed by Federal law,” any person making a voluntary disclosure of information to a state agency regarding a violation of an environmental statute, regulation, permit, or administrative order is granted immunity from administrative or civil penalty. The Attorney General's January 12, 1998 opinion states that the quoted language renders this statute inapplicable to enforcement of any Federally authorized programs, since “no immunity could be afforded from administrative, civil, or criminal penalties because granting such immunity would not be consistent with Federal law, which is one of the criteria for immunity.”
Therefore, EPA has determined that Virginia's Privilege and Immunity statutes will not preclude the Commonwealth from enforcing its program consistent with the Federal requirements. In any event, because EPA has also determined that a state audit privilege and immunity law can affect only state enforcement and cannot have any impact on Federal enforcement authorities, EPA may at any time invoke its authority under the CAA, including, for example, sections 113, 167, 205, 211 or 213, to enforce the requirements or prohibitions of the state plan, independently of any state enforcement effort. In addition, citizen enforcement under section 304 of the CAA is likewise unaffected by this, or any, state audit privilege or immunity law.
This action merely makes ministerial corrections to the SIP consistent with state law that EPA had previously approved as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
The SIP is not approved to apply on any Indian reservation land as defined in 18 U.S.C. 1151 or in any other area where EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on tribal governments or preempt tribal law as
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by December 23, 2019. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action correcting the Virginia SIP to reflect the vacatur of EPA's February 22, 2018 final rule may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
40 CFR part 52 is amended as follows:
42 U.S.C. 7401
(c) * * *
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is approving a state implementation plan (SIP) revision submitted by the Pennsylvania Department of Environmental Protection (PADEP) on behalf of the City of Philadelphia, Department of Public Health, Air Management Services (AMS) for the purpose of satisfying the volatile organic compound (VOC) reasonably available control technology (RACT) requirements for source categories covered by control technique guidelines (CTGs) under the 2008 8-hour ozone national ambient air quality standard (NAAQS). EPA is approving these revisions addressing the VOC CTG RACT requirements set forth by the Clean Air Act (CAA) for the 2008 8-hour ozone NAAQS for Philadelphia County in accordance with the requirements of the CAA.
This final rule is effective on November 25, 2019.
EPA has established a docket for this action under Docket ID Number EPA-R03-OAR-2019-0082. All documents in the docket are listed on the
Elizabeth Gaige, Air Quality Analysis Branch (3AD40), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814-5676. Ms. Gaige can also be reached via electronic mail at
On August 27, 2019 (84 FR 44798), EPA published a notice of proposed rulemaking (NPRM) for the Commonwealth of Pennsylvania. In the NPRM, EPA proposed approval of a SIP revision addressing the VOC CTG RACT requirements set forth by the CAA for the 2008 8-hour ozone NAAQS for Philadelphia County (the 2018 VOC CTG RACT Submission for Philadelphia County). The formal SIP revision was submitted by Pennsylvania on behalf of Philadelphia County on August 13, 2018.
On August 13, 2018, PADEP submitted a SIP revision for Philadelphia County to address the VOC CTG RACT requirements set forth by the CAA for the 2008 8-hour ozone NAAQS. Specifically, the 2018 VOC CTG RACT Submission for Philadelphia County includes: (1) A certification that for certain categories of sources, previously-adopted VOC RACT controls in the Philadelphia County portion of Pennsylvania's SIP that were approved by EPA under the 1979 1-hour and 1997 8-hour ozone NAAQS continue to be based on the currently available technically and economically feasible controls, and continue to represent RACT for implementation of the 2008 8-hour ozone NAAQS; and (2) a negative declaration that certain CTG sources of VOC do not exist in Philadelphia County, PA. This SIP revision does not cover non-CTG sources in Philadelphia County. PADEP will address RACT for major sources of NO
Philadelphia County's Regulations, under Philadelphia County AMR V Sections II, III, IV, V, XI, XII, XIII, XV, XVI, and 25 Pa. Code Sections 129.52, 129.52a, 129.52b, 129.52d, 129.52e, 129 .55, 129.56, 129.57, 129.58, 129.59, 129.60, 129.62, 129.63, 129.63a, 129.64, 129.67, 129.67a, 129.67b, 129.68, 129.69, 129.71, 129.73, 129.74, 129.77, 129.101-129.107, and 130.701-130.704, contain the VOC CTG RACT controls that were implemented and approved into Pennsylvania's SIP under the 1-hour and 1997 8-hour ozone NAAQS. PADEP is certifying that these regulations, all previously approved by EPA into the SIP, continue to meet the RACT requirements for the 2008 8-hour ozone NAAQS for CTG-covered sources of VOCs in Philadelphia County, PA. PADEP also submitted a negative declaration for the CTGs that have not been adopted because Philadelphia County does not contain the affected source categories. More detailed information on these provisions as well as a detailed summary of EPA's review can be found in the Technical Support Document (TSD) for this action which is available on line at
An explanation of the Clean Air Act requirements, a detailed analysis of the
EPA is approving the Pennsylvania's 2018 VOC CTG RACT Submission for Philadelphia County on the basis that it demonstrates that existing regulations in the Philadelphia County portion of Pennsylvania's SIP represent RACT for the purposes of compliance with the 2008 8-hour ozone standard for all stationary sources of VOCs covered by a CTG issued prior to July 20, 2014.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866.
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA; and
• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, this rule does not have tribal implications as specified by Executive Order 13175 (65 FR 67249, November 9, 2000), because the SIP is not approved to apply in Indian country located in the state, and EPA notes that it will not impose substantial direct costs on tribal governments or preempt tribal law.
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by December 23, 2019. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action approving the 2018 VOC CTG RACT Submission for Philadelphia County may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Ozone, Reporting and recordkeeping requirements, Volatile organic compounds.
40 CFR part 52 is amended as follows:
42 U.S.C. 7401
(e) * * *
(1) * * *
Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy.
Notice of public meetings and webinars.
The U.S. Department of Energy (DOE or the Department) announces public meetings and webinars for the variable refrigerant flow multi-split air conditioners and heat pumps (VRF multi-split systems) working group. The Federal Advisory Committee Act (FACA) requires that agencies publish notice of an advisory committee meeting in the
See the
The next several rounds of public meetings will be held at multiple locations. Please see the
Mr. John Cymbalsky, U.S. Department of Energy, Office of Building Technologies (EE-5B), 950 L'Enfant Plaza SW, Washington, DC 20024. Telephone: (202) 287-1692. Email:
On January 10, 2018, the Appliance Standards and Rulemaking Federal Advisory Committee (ASRAC) met and passed the recommendation to form a VRF multi-split systems working group to meet and discuss and, if possible, reach a consensus on proposed Federal test procedures and energy conservation standards for VRF multi-split systems. On April 11, 2018, DOE published a notice of intent to establish a working group for VRF multi-split systems to negotiate a notice of proposed rulemaking for test procedures and energy conservations standards. The notice also solicited nominations for membership to the working group. 83 FR 15514.
On August 22, 2019, DOE published a notice announcing public meetings for the VRF working group. 84 FR 43731. This notice makes changes to the meetings announced in the August 2019 notice. These changes include the cancellation of the late October public meetings, changes to the meeting dates and times of the early November meetings, as well as the announcement of one mid-December webinar and two late December public meetings. This notice announces the updated schedule for this working group as follows.
DOE will host a public meeting and webinar on the following dates:
• Tuesday, November 5, 2019 from 9:00 a.m. to 5:00 p.m. at Federal Mediation & Conciliation Services, Room 7008, 250 E Street SW, Washington, DC 20427.
• Wednesday, November 6, 2019 from 9:00 a.m. to 3:00 p.m. at Federal Mediation & Conciliation Services, Room 7008, 250 E Street SW, Washington, DC 20427.
• Wednesday, November 20, 2019 from 9:00 a.m. to 5:00 p.m. at U.S. Department of Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW, Washington, DC 20585-0121.
• Thursday, November 21, 2019 from 9:00 a.m. to 3:00 p.m. at U.S. Department of Energy, Forrestal Building, Room 8E-089, 1000 Independence Avenue SW, Washington, DC 20585-0121.
• Wednesday, December 18, 2019 from 9:00 a.m. to 5:00 p.m. at Federal Mediation & Conciliation Services, Room 7008, 250 E Street SW, Washington, DC 20427.
• Thursday, December 19, 2019 from 9:00 a.m. to 3:00 p.m. at Federal Mediation & Conciliation Services, Room 7008, 250 E Street SW, Washington, DC 20427.
DOE will host a webinar on Thursday, December 12, 2019 from 11:00 a.m. to 1:00 p.m.
The purpose of these meetings will be to negotiate in an attempt to reach consensus on proposed Federal test procedures and energy conservation standards for VRF multi-split systems.
The times, dates, and locations of the public meetings are listed in this
Please note that foreign nationals participating in the public meeting or webinar are subject to advance security screening procedures which require advance notice prior to attendance at the public meeting. If a foreign national wishes to participate in the public meeting or webinar, please inform DOE as soon as possible by contacting Ms. Regina Washington at (202) 586-1214 or by email:
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Commodity Futures Trading Commission.
Notice of proposed rulemaking.
The Commodity Futures Trading Commission (“Commission” or “CFTC”) is seeking comment on a proposed amendment to the margin requirements for uncleared swaps for swap dealers (“SD”) and major swap participants (“MSP”) for which there is no prudential regulator (the “CFTC Margin Rule”). As adopted in 2016, the CFTC Margin Rule, which mandates the collection and posting of variation margin and initial margin (“IM”), takes effect under a phased compliance schedule extending from September 1, 2016 to September 1, 2020. The proposed amendment would extend the compliance schedule to September 1, 2021, for entities with smaller average daily aggregate notional amounts of swaps and certain other financial products. By extending the compliance schedule, the proposed amendment would mitigate the potential market disruption that could result from such a large number of entities coming into the scope of the IM requirements on September 1, 2020.
Comments must be received on or before December 23, 2019.
You may submit comments, identified by RIN 3038-AE89, by any of the following methods:
•
•
•
Please submit your comments using only one of these methods. Submissions through the CFTC Comments Portal are encouraged.
All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to
The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from
Joshua B. Sterling, Director, 202-418-6056,
Section 4s(e) of the Commodity Exchange Act (“CEA”)
The Basel Committee on Banking Supervision (“BCBS”) and the Board of the International Organization of Securities Commissions (“IOSCO”) established an international framework for margin requirements for uncleared derivatives in September 2013 (the “BCBS/IOSCO framework”).
Covered swap entities are required to post and collect IM with counterparties that are SDs, MSPs, or financial end users with material swap exposure (“MSE”)
The fourth compliance date, September 1, 2019, brought within the scope of compliance CSEs and covered counterparties each exceeding $750 billion in AANA. On the fifth and last compliance date (“phase 5”), September 1, 2020, remaining CSEs and covered counterparties, including financial end user counterparties with an MSE exceeding $8 billion in AANA, will come into compliance. As a result of the large reduction in the compliance threshold from $750 billion to $8 billion at the end of the compliance schedule, a significant number of financial end user counterparties, including relatively small counterparties, will be required to comply with the IM requirements and implement related operational processes. According to the CFTC's Office of the Chief Economist (“OCE”), compared with the first through the fourth phase of compliance, which brought approximately 40 entities into scope, phase 5 would bring approximately 700 entities, along with 7,000 relationships, which represent the number of IM agreements that would have to be in place in phase 5 to carry out swap transactions.
Market participants have expressed concerns regarding the onset of phase 5 given the operational complexity associated with IM calculation and third-party segregation of IM collateral.
The CFTC believes it is appropriate to amend the CFTC Margin Rule consistent with the BCBS/IOSCO framework's revision.
In proposing the change in the phase 5 compliance date, the Commission also considered the relatively small amount of swap activity of the financial end users that would be subject to the one year extension. The OCE estimated in 2018 that the average AANA per entity in phase 5 is $54 billion compared to an average $12.71 trillion AANA for each entity in phases 1, 2, and 3 and $1 trillion in phase 4. OCE also estimated that total AANA for entities that would be subject to the one year extension is approximately three percent of the total AANA across all the phases.
Accordingly, the Commission proposes to amend Commission § 23.161(a), which sets forth the schedule for compliance with the CFTC Margin Rule, to add a sixth phase of compliance for certain smaller entities that are currently subject to phase 5. The proposed amendment would require compliance by September 1, 2020, for CSEs and covered counterparties with an AANA ranging from $50 billion up to $750 billion. The compliance date for all other remaining CSEs and covered counterparties, including financial end user counterparties exceeding an MSE of $8 billion in AANA, would be extended to September 1, 2021.
In addition, the Commission is proposing non-substantive, conforming technical changes
The Commission is also proposing to replace in Commission § 23.161(a), where applicable, “shall not count a swap or a security-based swap that is exempt pursuant to § 23.150(b)” with “shall not count a swap that is exempt pursuant to § 23.150(b).” This proposed change will remove the term “security-based swap” from certain parts of Commission § 23.161(a). This change is necessary because, due to a transcription error, the current rule text incorrectly indicates that Commission § 23.150(b) exempts security-based swaps from the CFTC Margin Rule. Section 23.150(b) applies only to swaps. Notwithstanding this technical change that eliminates the reference to Commission § 23.150(b) with respect to security-based swaps, Commission § 23.161(a) will continue to exclude any security-based swap, for purposes of the calculation of the various thresholds set forth in Commission § 23.161(a), that is exempt pursuant to section 15F(e) of the Securities Exchange Act, of 1934, as is the case, prior to this Proposal, under the current rule text.
• Is the proposed rule text relating to the one-year extension of the final implementation timeline clear in its intent and direction to market participants? Is any further Commission guidance necessary to avoid any potential confusion or market disruption? Please explain.
The Paperwork Reduction Act of 1995 (“PRA”)
The Regulatory Flexibility Act (“RFA”) requires that agencies consider whether the regulations they propose will have a significant economic impact on a substantial number of small entities.
Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that this Proposal will not have a significant economic impact on a substantial number of small entities. The Commission invites comment on the impact of this Proposal on small entities.
Section 15(a) of the CEA requires the Commission to consider the costs and benefits of its actions before promulgating a regulation under the CEA. Section 15(a) further specifies that the costs and benefits shall be evaluated in light of the following five broad areas of market and public concern: (1) Protection of market participants and the public; (2) efficiency, competitiveness, and financial integrity of futures markets; (3) price discovery; (4) sound risk management practices; and (5) other public interest considerations. The Commission considers the costs and benefits resulting from its discretionary determinations with respect to the section 15(a) considerations. Further, the Commission reflected upon the extraterritorial reach of this Proposal and notes where this reach may be especially relevant.
This Proposal extends the compliance schedule for the CFTC Margin Rule and introduces an additional compliance date for smaller counterparties.
As discussed above, the Commission believes that as a result of the large number of counterparties that would be required to comply with the IM requirements for the first time at the end of the current compliance schedule, market disruption may arise. The markets may be strained given counterparties' demand for resources and services to meet the September 2020 deadline and operationalize the exchange of IM, involving, among other things, counterparty onboarding, approval and implementation of risk-based models for the calculation of IM, and documentation associated with the exchange of IM.
The baseline against which the benefits and costs associated with this Proposal are compared is the uncleared swaps markets as they exist today, including the impact of the current compliance schedule and the implementation of phase 5 on September 1, 2020. With this as the baseline for this Proposal, the following are the benefits and costs of this Proposal.
As described above, this Proposal will extend the compliance schedule for the IM requirements for certain smaller entities to September 1, 2021. The Proposal is intended to alleviate the potential congestion and market disruption resulting from the large number of counterparties that would come into scope under the current compliance schedule and the strain on the uncleared swaps markets resulting from the increased demand for limited resources and services to set up operations to comply with the IM requirements, including counterparty onboarding, adoption and implementation of risk-based models to calculate IM, and documentation associated with the exchange of IM.
The Proposal would prioritize applicable IM compliance deadlines in order to focus on certain financial end users, SDs, and MSPs that engage in greater swap trading activity and that may significantly contribute to systemic risk in the financial markets, while providing a 12-month delay for smaller counterparties, whose swap trading may not pose the same level of risk, to prepare for their eventual compliance with the IM requirements. The Proposal therefore would promote the smooth and orderly transition into IM compliance.
The Proposal would amend the CFTC Margin Rule consistent with the revised BCBS/IOSCO margin framework. The Proposal therefore promotes harmonization with international margin regulatory requirements, reducing the potential for regulatory arbitrage.
The Proposal would extend the time frame for compliance with the IM requirements for the smallest, in terms of notional amount, CSEs and covered counterparties, including SDs and MSPs and financial end users that exceed an MSE of $8 billion, by an additional 12 months. Swaps entered into during this period with the smallest CSEs have the potential to be treated as legacy swaps and thus would not be subject to the IM requirements. The contagion risk associated with these potentially uncollateralized legacy swaps is a lesser concern because these legacy swap portfolios would be entered into with counterparties that engage in lower levels of notional trading.
The Proposal would also delay the implementation of IM by smaller CSEs. There may not be as much IM posted to protect the financial system as would otherwise be the case. As such, the probability and severity of financial contagion may increase.
In light of the foregoing, the CFTC has evaluated the costs and benefits of this Proposal pursuant to the five considerations identified in section 15(a) of the CEA as follows:
This Proposal would protect market participants and the public against the potential disruption that may be caused by the large number of counterparties that would come into scope of the IM requirements at the end of the current compliance schedule.
Under the proposed compliance schedule, fewer counterparties would come into scope in phase 5 and many smaller counterparties would be able to defer compliance until the sixth and last compliance date on September 1, 2021. As such, the demand for resources and services to achieve operational readiness would be reduced, mitigating the potential strain on the uncleared swaps markets.
Also, the Proposal would appropriately prioritize IM compliance requirements for those counterparties and CSEs that have greater swap trading activity and potentially pose greater systemic risk, while giving more time to smaller counterparties to come into compliance with the IM requirements.
Inasmuch as this Proposal delays the implementation of IM for the smallest CSEs, there may not be as much IM posted to protect the financial system as would otherwise be the case. Consequently, the probability and severity of financial contagion may be increased, especially among the smallest CSEs.
The Proposal would make the uncleared swaps markets more streamlined by facilitating counterparties' transition into compliance with the IM requirements. Counterparties would have additional time to document their swap relationships and set up adequate processes to operationalize the exchange of IM. As such, the Proposal would promote fairer competition among counterparties in the uncleared swaps markets, as it would remove the potential incentive of CSEs to prioritize arrangements with larger counterparties to the detriment of smaller counterparties and would help maintain the current state of market efficiency.
By preventing the market disruption that would result from the large number of counterparties that would come into scope at the end of the current compliance schedule, the Proposal promotes the financial integrity of the markets, reducing the probability of congestion resulting from the heightened demand for limited financial infrastructure resources. On the other hand, there would be less IM posted overall, making uncleared swaps markets more susceptible to financial contagion where the default of one counterparty could lead to subsequent defaults of other counterparties potentially harming market integrity.
This Proposal would not harm price discovery and might help preserve it. Without the Proposal, counterparties, in particular smaller counterparties, may be discouraged from entering or may even be foreclosed from entering the uncleared swaps markets because they may not be able to secure resources and services in a timely manner to operationalize the exchange of IM. These counterparties may thus be shut out from the uncleared swaps markets, potentially reducing liquidity and harming price discovery.
The Proposal would stave off the potential market disruption that could result from the large number of counterparties that would come into the scope of the IM requirements at the end of the current compliance schedule. The extended compliance schedule would alleviate the potential congestion in establishing the financial infrastructure to post IM between in scope entities and would give counterparties time to prepare for the exchange of IM and to establish operational processes tailored to their uncleared swaps and associated risks. The additional compliance time may also improve risk management practices because there might be some parties who may prefer to enter into cleared swaps rather than install otherwise required financial infrastructure in a short time frame, choosing to enter into swaps that are more standardized but that do not match their risk management needs as well.
The Proposal would amend the CFTC Margin Rule consistent with the revised BCBS/IOSCO margin framework in order to promote harmonization with international margin regulatory requirements and reduce the potential for regulatory arbitrage.
The Commission invites public comment on its cost-benefit considerations, including the section 15(a) factors described above. Commenters are also invited to submit any data or other information that they may have quantifying or qualifying the costs and benefits of the proposed amendments with their comment letters. In particular, the Commission seeks specific comment on the following:
(a) Has the Commission accurately identified all the benefits of this Proposal? Are there other benefits to the Commission, market participants, and/or the public that may result from the adoption of this Proposal that the Commission should consider? Please provide specific examples and explanations of any such benefits.
(b) Has the Commission accurately identified all the costs of this Proposal? Are there additional costs to the Commission, market participants, and/or the public that may result from the adoption of this Proposal that the Commission should consider? Please provide specific examples and explanations of any such costs. For example, is there a potential for increased counterparty credit risk in trades or contagion involving firms that will get the benefit of the margin deadline extension that we have proposed,
(c) Does this Proposal impact the section 15(a) factors in any way that is not described above? Please provide specific examples and explanations of any such impact.
Section 15(b) of the CEA requires the Commission to take into consideration the public interest to be protected by the antitrust laws and endeavor to take the least anticompetitive means of achieving the purposes of the CEA, in issuing any order or adopting any Commission rule or regulation (including any exemption under section 4(c) or 4c(b) of the CEA), or in requiring or approving any bylaw, rule, or regulation of a contract market or registered futures association established pursuant to section 17 of the CEA.
The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. Further, the Commission preliminarily believes that allowing parties more time to come into compliance with the CFTC Margin Rule by splitting the last compliance phase into two phases will preserve competition by encouraging more participation in the uncleared swaps markets. The Commission requests comment on whether this Proposal implicates any other specific public interest to be protected by the antitrust laws.
The Commission has considered this Proposal to determine whether it is anticompetitive and has preliminarily identified no anticompetitive effects. The Commission requests comment on whether this Proposal is anticompetitive and, if it is, what the anticompetitive effects are.
Because the Commission has preliminarily determined that this Proposal is not anticompetitive and has no anticompetitive effects, the Commission has not identified any less anticompetitive means of achieving the purposes of the CEA. The Commission requests comment on whether there are less anticompetitive means of achieving the relevant purposes of the CEA that would otherwise be served by adopting this Proposal.
Capital and margin requirements, Major swap participants, Swap dealers, Swaps.
For the reasons stated in the preamble, the Commodity Futures Trading Commission proposes to amend 17 CFR part 23 as follows:
7 U.S.C. 1a, 2, 6, 6a, 6b, 6b-1,6c, 6p, 6r, 6s, 6t, 9, 9a, 12, 12a, 13b, 13c, 16a, 18, 19, 21.
Section 23.160 also issued under 7 U.S.C. 2(i); Sec. 721(b), Pub. L. 111-203, 124 Stat. 1641 (2010).
(a) * * *
(1) * * *
(iii) In calculating the amounts in paragraphs (a)(1)(i) and (ii) of this section, an entity shall count the average daily notional amount of an uncleared swap, an uncleared security-based swap, a foreign-exchange forward, or a foreign exchange swap between the entity and a margin affiliate only one time and shall not count a swap that is exempt pursuant to § 23.150(b) or a security-based swap that is exempt pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(e)).
(3) * * *
(iii) In calculating the amounts in paragraphs (a)(3)(i) and (ii) of this section, an entity shall count the average daily notional amount of an uncleared swap, an uncleared security-based swap, a foreign-exchange forward, or a foreign exchange swap between the entity and a margin affiliate only one time and shall not count a swap that is exempt pursuant to § 23.150(b) or a security-based swap that is exempt pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(e)).
(4) * * *
(iii) In calculating the amounts in paragraphs (a)(4)(i) and (ii) of this section, an entity shall count the
(5) * * *
(iii) In calculating the amounts in paragraphs (a)(5)(i) and (ii) of this section, an entity shall count the average daily notional amount of an uncleared swap, an uncleared security-based swap, a foreign-exchange forward, or a foreign exchange swap between the entity and a margin affiliate only one time and shall not count a swap that is exempt pursuant to § 23.150(b) or a security-based swap that is exempt pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78o-10(e)).
(6) September 1, 2020 for the requirements in § 23.152 for initial margin for any uncleared swaps where both—
(i) The covered swap entity combined with all its margin affiliates; and
(ii) Its counterparty combined with all its margin affiliates have an average daily aggregate notional amount of uncleared swaps, uncleared security-based swaps, foreign exchange forwards, and foreign exchange swaps in March, April, and May 2020 that exceeds $50 billion, where such amounts are calculated only for business days; and where
(iii) In calculating the amounts in paragraphs (a)(6)(i) and (ii) of this section, an entity shall count the average daily notional amount of an uncleared swap, an uncleared security-based swap, a foreign exchange forward, or a foreign exchange swap between the entity and a margin affiliate only one time and shall not count a swap that is exempt pursuant to § 23.150(b) or a security-based swap that is exempt pursuant to section 15F(e) of the Securities Exchange Act of 1934 (15 U.S.C. 78o.10(e)).
(7) September 1, 2021 for the requirements in § 23.152 for initial margin for any other covered swap entity with respect to uncleared swaps entered into with any other counterparty.
The following appendices will not appear in the Code of Federal Regulations.
On this matter, Chairman Tarbert and Commissioners Quintenz, Behnam, Stump, and Berkovitz voted in the affirmative. No Commissioner voted in the negative.
I am pleased to support the Commission's proposal to extend the compliance schedule for uncleared margin to September 1, 2021 for entities with smaller average daily aggregate notional amounts of activity. As our own Office of the Chief Economist noted, phase five would have brought approximately 700 entities into our margin regime, implicating around 7,000 relationships that would have to be negotiated to manage initial margin arrangements.
However, much more needs to be done. First, it is critical that the CFTC, US banking regulators, the SEC, and our international counterparts adopt a coordinated approach with respect to uncleared margin. The derivatives market is a global market and any differences in our respective approaches will result in increased burdens and operational complexities for firms. This point was emphasized most recently at the Global Markets Advisory Committee (GMAC) meeting. Participants highlighted the numerous ways in which derivatives regulators across the globe have implemented conflicting timing, scope, calculation, and other requirements for uncleared margin implementation. I believe we must work with our regulatory counterparts to eliminate these cross-border discrepancies. This rulemaking represents a first step of many more in that international harmonization effort and I will continue to support the work of Commissioner Stump through the GMAC to further align and rationalize uncleared margin frameworks globally.
I concur with issuing for public comment the proposed rulemaking (“Proposal”) to extend the swaps margining compliance deadline for certain financial entities that have smaller swap portfolios.
In general, I am not in favor of extending compliance deadlines when there has been a substantial lead-in period for compliance. The compliance date being extended in the Proposal was set more than four years earlier. However, in this instance, there are several factors that lead me to conclude that the Proposal will benefit hundreds of entities with smaller swap portfolios while having only a small impact on the systemic risk mitigation benefits of the initial margin requirements.
Variation and initial margin requirements for uncleared swaps reduce contagion and liquidity concerns by ensuring that collateral is available to cover swap losses if a party defaults.
A CFTC Office of the Chief Economist (“OCE”) analysis indicated that approximately 40 large financial enterprises are already required to exchange initial margin for uncleared swaps under regulations adopted by the CFTC and other regulators.
The existing implementation schedule is consistent with the original Basel Committee on Banking Supervision (“BCBS”) and the Board of the International Organization of Securities Commissions (“IOSCO”) international framework for margin requirements. In July 2019, BCBS and IOSCO revised the framework to effectively recommend an extension of the phase 5
The Proposal follows the revisions recommended by BCBS and IOSCO. Other United States and foreign regulators have indicated they also intend to adopt extensions. Consistency with other regulators, particularly with requirements like swap margining, helps reduce the likelihood of regulatory arbitrage.
I am concurring with the Proposal because the impact on systemic risk mitigation resulting from the partial one year delay is muted while the potential impacts on the hundreds of financial end users with smaller swap portfolios might be significant if they are not able to have margining documentation in place by the original deadline. This is a data driven conclusion. While about 40 entities have had to comply through phase 4, the OCE analysis estimates that around 700 entities with 7,000 swap arrangements would be included in phase 5. Providing more time to hundreds of smaller users of swaps should help maintain the hedging capabilities of these market participants while they negotiate and establish the necessary margining arrangements.
The OCE analysis also provides critical data on the muted impact of the proposed change on systemic risk mitigation. The estimated average AANA for phase 5 entities is $54 billion compared to an average $12.71 trillion AANA for entities in phases 1, 2 and 3, and $1 trillion for entities in phase 4. The total estimated AANA for entities that would be subject to the one year extension is approximately three percent of the total AANA of entities subject to the margin rules. In my view, this data is critical to supporting a one year extension as it indicates that the likely affect in providing the extension on systemic risk mitigation will be quite limited.
For these reasons, I concur in the issuance of the Proposal.
Securities and Exchange Commission.
Commission statement.
This Securities and Exchange Commission (“Commission”) statement (“Statement”) is intended to facilitate the development of proposals that will improve secondary market trading for equity securities that trade in lower volume (“thinly traded securities”). The Commission's interest in considering proposals for improvement in this segment of the secondary market extends to proposals that could include the suspension or termination of unlisted trading privileges (“UTP”) and/or exemptive relief from Regulation NMS and other rules under the Securities Exchange Act of 1934 (“Exchange Act”).
The Commission's statement was effective October 17, 2019.
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.
Cristie March, Senior Special Counsel; Deborah Flynn, Special Counsel; Christopher Chow, Special Counsel; or Liliana Burnett, Attorney-Adviser, at 202-551-5550, in the Division of Trading and Markets, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
The Commission is issuing this Statement to facilitate the ability of market participants to develop innovative proposals for changes in equity market structure that are designed to improve trading in thinly traded securities. Although the Commission believes that the current equity market structure generally works well for securities that trade in higher volume, the Commission has concerns that the current “one-size-fits-all” equity market structure, as largely governed under Regulation NMS,
The secondary market for thinly traded securities faces liquidity challenges that can have a negative effect on both investors and issuers. In particular, thinly traded securities, which are often also smaller-capitalization securities, tend to have wider spreads and less displayed size relative to securities that trade in greater volume, often resulting in higher transaction costs for investors.
The Commission recognizes there are various factors that affect the liquidity of a security and that market structure changes can address only part of the overall listing and trading environment for thinly traded securities. However, the Commission believes that there are a number of market structure changes
The Commission believes that certain market structure innovations that may provide benefits to thinly traded securities, when applied on one given exchange, may be less likely to succeed if the securities are subject to concurrent trading on multiple exchanges with different trading models. Accordingly, to be effective, these innovations may require the suspension or termination of UTP.
A number of suggested market structure approaches to improve liquidity for thinly traded securities were raised at the Roundtable and elsewhere. One approach that has been suggested is that an exchange could provide market makers with incentives to assume heightened market making obligations for thinly traded securities.
Others have suggested that an exchange could implement periodic intraday auctions as a means of concentrating liquidity in thinly traded securities at times other than solely at the market open and market close.
Another market structure change that has been suggested to help improve liquidity is the introduction of non-automated markets for thinly traded securities.
The Commission notes that these potential market structure changes are merely a few examples of the types of innovations that exchanges and other market participants could consider developing that might facilitate improved trading in thinly traded securities. This list is not intended to be exhaustive or to limit the possibilities market participants could consider. The Commission encourages exchanges and other market participants, including issuers, to explore various types of market structure innovations to address the liquidity challenges in trading these securities.
To better facilitate secondary market trading in thinly traded securities, one possible approach is for a national securities exchange that lists thinly traded securities to consider submitting a proposal focused on enhancing the market structure for these securities. To the extent a listing exchange would like to submit a proposal for an innovation that incorporates or depends on the suspension or termination of UTP, such an exchange could apply for the suspension or termination of UTP pursuant to Section 12(f) of the Exchange Act so that these securities that an exchange lists would no longer trade on other national securities exchanges.
To facilitate the Commission's evaluation, it would be helpful for a proposal to address certain considerations. For example, a proposal should define what “thinly traded security” means, whether based on average daily trading volume, number of trades, share volume, or dollar volume, potentially combined with additional factors such as market capitalization, number of shareholders, or public float. Such proposals should also include an explanation of how the thresholds were set, including any relevant data and analysis.
The proposal should address whether all securities that meet a chosen threshold test are included in the tier, or whether listed companies may opt in or out. If listed companies may opt in or out, the proposal should also address how the benefit of this mechanism justifies the potential additional operational complexity this may impose on NMS market participants.
To the extent relevant, the Commission encourages exchange proposals that involve the suspension or termination of UTP to address: (1) Steps that might be taken to enhance the technological resilience of its new trading tier in light of the greater dependence of market participants on a single exchange; and (2) business continuity plan(s) in the event of the failure of an exchange's systems that would affect trading in, and required quote and trade information dissemination regarding, the thinly traded securities.
The Commission encourages all proposals to address: (1) How and when a security would begin trading in the thinly traded security tier, and how it would transition out of the tier if that security no longer qualifies for trading in the tier; (2) how the exchange would address NMS Plan market data revenue allocation for any thinly traded securities not subject to UTP; and (3) the data the exchange would collect and make available and the data analysis it would conduct to enable an assessment of the success of the proposal.
The Commission looks forward to engaging with exchanges that list and trade thinly traded securities, market participants involved in this segment of the equities market, including issuers, investors, and others to facilitate market structure innovations that can meaningfully improve secondary market trading for these securities.
By the Commission.
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing a limited approval and limited disapproval of a revision to the Placer County Air Pollution Control District (PCAPCD or “District”) portion of the California State Implementation Plan (SIP). This revision concerns the District's New Source Review (NSR) permitting program for new and modified sources of air pollution under the Clean Air Act (CAA or “Act”). This action updates the PCAPCD's applicable SIP with current administrative requirements for the issuance of permits. We are taking comments on this proposal and plan to follow with a final action.
Any comments must arrive by November 25, 2019.
Submit your comments, identified by Docket ID No. EPA-R09-OAR-2019-0381 at
Laura Yannayon, EPA Region IX, Air-3-1, 75 Hawthorne St., San Francisco, CA 94105, (415) 972-3534,
Throughout this document, “we,” “us” and “our” refer to the EPA.
Table 1 lists the rule addressed by this proposal, including the date it was adopted by the PCAPCD and submitted by the California Air Resources Board (CARB).
On January 13, 2011, the EPA determined that this SIP submittal met the completeness criteria in 40 CFR part 51, appendix V, which must be met before formal EPA review.
There is no previous version of Rule 501 approved in the SIP. Rule 501 will replace the current SIP-approved rules listed in Table 2, which are applicable to specific air basins in Placer County, as noted.
If the EPA finalizes the action proposed herein, these rules will be removed from the SIP.
The submitted rule is intended to satisfy the “general” or “minor” NSR requirements of section 110(a)(2)(C) and related EPA regulations. General NSR requirements are applicable to all permits issued by the PCAPCD. Rule 501 consolidates the requirements from several existing rules and codified these requirements into a single administrative rule.
The submitted rule must meet the CAA's general requirements for SIPs and SIP revisions in CAA sections 110(a), 110(l), and 193, as well as contain the applicable regulatory provisions required by 40 CFR 51.160-51.164.
Section 110(a)(2)(A) of the Act requires that regulations submitted to the EPA for SIP approval must be legally enforceable. Section 110(l) of the Act prohibits the EPA from approving any SIP revisions that would interfere with any applicable requirement concerning attainment and reasonable further progress (RFP) or any other applicable requirement of the Act. Section 193 of the Act prohibits the modification of a SIP-approved control requirement in effect before November 15, 1990 in a nonattainment area, unless the modification ensures equivalent or greater emission reductions of the relevant pollutant(s). With respect to procedures, CAA sections 110(a) and 110(l) require that a state conduct reasonable notice and hearing before adopting a SIP revision.
Section 110(a)(2)(C) of the Act requires each SIP to include a program to regulate the modification and construction of any stationary source within the areas covered by the SIP as necessary to assure attainment and maintenance of the National Ambient Air Quality Standards (NAAQS). The EPA's regulations at 40 CFR 51.160-51.164 provide general programmatic requirements to implement this statutory mandate. These requirements, commonly referred to as the “minor NSR” or “general NSR” program, apply generally to both major and non-major stationary sources and modifications and in both attainment and nonattainment areas, in contrast to the specific statutory and regulatory requirements for permitting programs under parts C and D of title I of the Act that apply to major sources in attainment and nonattainment areas, respectively.
The EPA has reviewed the submitted rule in accordance with the rule evaluation criteria described above. With respect to the procedural requirements, based on our review of the public process documentation included with the submitted rule, we find that that the PCAPCD has provided sufficient evidence of public notice and opportunity for comment and public hearings prior to adoption and submittal of this rule, in accordance with the requirements of CAA sections 110(a) and 110(l).
With respect to the substantive requirements of CAA sections 110(l) and 193, we find that our approval of this SIP submittal would not interfere with any applicable requirement concerning attainment and RFP or any other applicable requirement of the Act, and that the submitted rule is not subject to section 193 of the Act because it does not contain any control requirements.
With respect to the substantive statutory and regulatory requirements for a general NSR permit program as contained in CAA section 110(a)(2)(C) and 40 CFR 51.160-51.164, we find the submitted rule satisfies these requirements, except as discussed below.
Submitted Rule 501 contains the following deficiencies. The technical support document (TSD) included in the docket for this proposed rulemaking contains a more detailed analysis.
1. Rule 501, Section 303.1 is deficient because it does not specifically require the Air Pollution Control Officer (APCO) to determine and deny a permit if a proposed project will (1) cause a violation of the SIP or (2) interfere with attainment or maintenance of a NAAQS. It is also deficient because it only requires the APCO to evaluate whether an emission unit will be operated in compliance with all applicable requirements as of the application completeness date, rather than as of the date of permit issuance. (See TSD Section 5.2.1, Item
2. The District's minor NSR program is deficient because it does not contain any public notice requirements for new or modified emission units located in the Lake Tahoe Air Basin portion of Placer County. (See TSD Section 5.2.1, Item
3. Rule 501 is deficient because it does not contain any provisions that address stack height procedures as required by 40 CFR 51.164. (See TSD Section 5.2.1, Item 5.)
4. Rule 501, Section 200—
The submitted rules are otherwise consistent with criteria for the EPA's approval of regulations submitted for inclusion in the SIP, including the requirement at CAA section 110(c)(2)(A) that submitted regulations be legally enforceable.
For the reasons stated above and explained further in our TSD, we find that the submitted NSR rules generally satisfy the applicable CAA and regulatory requirements for a general NSR permit program, subject to the four deficiencies noted above.
As authorized by CAA section 110(k)(3) and 301(a), we are proposing limited approval and limited disapproval of Rule 501 “General Permit Requirements” into the PCAPCD portion of the California SIP. If finalized, this action will incorporate the submitted rule into the SIP, including those provisions identified as deficient. The approval of Rule 501 is limited because EPA is simultaneously proposing a limited disapproval of Rule 501 under section 110(k)(3).
If we finalize this action as proposed, our action will be codified through revisions to 40 CFR 52.220 (Identification of plan—in part).
We will accept comments from the public on this proposal until November 25, 2019.
In this rule, the EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the PCAPCD rule described in Table 1 of this preamble. The EPA has made, and will continue to make, these materials available through
Under the CAA, the EPA 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 Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Is not an Executive Order 13771 (82 FR 9339, February 2, 2017) regulatory action because SIP approvals are exempted under Executive Order 12866;
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, 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).
Administrative practice and procedure, Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide, Volatile organic compounds.
42 U.S.C. 7401
Environmental Protection Agency (EPA).
Proposed rule.
The Environmental Protection Agency (EPA) is proposing to approve revisions to the Santa Barbara County Air Pollution Control District's (SBAPCD or “the District”) portion of the California State Implementation Plan (SIP). These revisions concern the District's New Source Review (NSR) permitting program for new and modified sources of air pollution under the Clean Air Act (CAA). This action updates the SBAPCD's applicable SIP with current permitting rules. We are taking comments on this proposal and plan to follow with a final action.
Any comments must arrive by November 25, 2019.
Submit your comments, identified by Docket ID No. EPA-R09-OAR-2019-0432 at
Eugene Chen, EPA Region IX, 75 Hawthorne Street (AIR 3-2), San Francisco, CA 94105, (415) 947-4304,
Throughout this document, “we,” “us” and “our” refer to the EPA.
Table 1 lists the rules addressed by this proposal with the dates they were adopted by the SBAPCD and submitted by the California Air Resources Board (CARB). These rules represent portions of the SBAPCD's current program for preconstruction review and permitting of new or modified stationary sources under its jurisdiction. The rule revisions that are the subject of this action are intended to satisfy the general preconstruction review requirements under section 110(a)(2)(C) of the Act (minor NSR) and the NSR program requirements contained in 40 CFR 51.160 through 164. The rules also include revisions to the SBAPCD's current preconstruction review and permitting program. The SBAPCD is not required to implement a nonattainment NSR program because Santa Barbara County is classified as attainment or unclassifiable for all national ambient air quality standards (NAAQS). The SBAPCD implements a SIP-approved prevention of significant deterioration (PSD) permitting program that was approved into the SIP on November 12, 2015.
These submitted rules must be determined to meet the completeness criteria in 40 CFR part 51 Appendix V before commencement of formal EPA review. The EPA deemed these rules to be complete by operation of law to meet the completeness criteria on October 18, 2016 (for Rules 102, 105, 202, 204, and 809) and on March 10, 1998 (for Rule 205).
The EPA last approved significant revisions or updates to the SBAPCD's SIP-approved NSR program on February 9, 2016, and November 12, 2015. The existing SIP-approved NSR minor source program for new or modified stationary sources under the SBAPCD's jurisdiction generally consists of the versions of the rules identified below in Table 2.
Collectively, these regulations establish the NSR requirements currently in place for minor stationary sources under the SBAPCD's jurisdiction in California. If the EPA finalizes the action proposed herein, the submitted versions of the rules listed in Table 1 will replace their respective rule versions listed in Table 2.
As noted above and described in further detail below, the submitted rules are intended to satisfy the minor NSR requirements of section 110(a)(2)(C), as well as to implement certain other updates to the NSR program, such as reorganization and renumbering of certain rule references, revisions to certain rule text to improve clarity, and other such revisions. Minor NSR requirements are generally applicable for SIPs in all areas, regardless of attainment status, and California is required to adopt and implement these requirements as part of a SIP-approved NSR permitting program.
The EPA has evaluated the submitted rules for compliance with applicable requirements of section 110(a)(2)(C) and associated regulations at 40 CFR 51.160-164. We have also reviewed the rules for consistency with other CAA general requirements for SIP submittals, including requirements at section 110(a)(2) regarding rule enforceability, and requirements at sections 110(l) and 193 for SIP revisions.
Section 110(a)(2)(C) of the Act requires each SIP to include a program
Section 110(a)(2)(A) of the Act requires that regulations submitted to the EPA for SIP approval must be clear and legally enforceable. Section 110(l) of the Act prohibits the EPA from approving any SIP revisions that would interfere with any applicable requirement concerning attainment and reasonable further progress (RFP) or any other applicable requirement of the CAA. Section 193 of the Act prohibits the modification of a SIP-approved control requirement in effect before November 15, 1990, in a nonattainment area, unless the modification ensures equivalent or greater emission reductions of the relevant pollutant(s). With respect to procedures, CAA sections 110(a) and 110(l) require that a state conduct reasonable notice and hearing before adopting a SIP revision.
The EPA finds that the submitted rules satisfy the applicable CAA and regulatory requirements. Accordingly, we are proposing to fully approve them under CAA section 110(k)(3). Below, we discuss generally our evaluation of the submitted rules. The technical support document (TSD) included in the docket for this proposed rulemaking contains a more detailed analysis of each submitted rule.
We find that the submitted rules satisfy the minor NSR requirements. The rules clearly identify the kinds of projects subject to review under the District's program, include legally enforceable procedures to ensure that construction will not violate the state's control strategy or interfere with attainment or maintenance of the NAAQS, provide for public availability of relevant information, and meet other requirements of the minor NSR regulations at 40 CFR 51.160-164.
The submitted rules comply with the substantive and procedural requirements of CAA section 110(l). With respect to the procedural requirements, based on our review of the public process documentation included with the submitted rules, we find that the SBAPCD has provided sufficient evidence of public notice and opportunity for comment and public hearings prior to submittal of this SIP revision and has satisfied these procedural requirements under CAA section 110(l). With respect to the substantive requirements of CAA section 110(l), we have determined that our approval of the submitted rules would either strengthen the applicable SIP, or at a minimum make it no less stringent. As a whole, we have determined that our approval of this SIP submittal would not interfere with any applicable requirement concerning attainment and RFP or any other applicable requirement of the Act.
CAA section 193 includes a savings clause, pertaining to nonattainment areas, that precludes modifications to certain control requirements unless equivalent or greater emission reductions are achieved. The provisions of section 193 do not apply to this SIP revision because Santa Barbara County is currently classified attainment or unclassifiable for all NAAQS.
The submitted rules are otherwise consistent with criteria for the EPA's approval of regulations submitted for inclusion in the SIP, including the requirement at CAA section 110(a)(2)(A) that submitted regulations be clear and legally enforceable. For the reasons stated above and explained further in our TSD, we find that the submitted NSR rules satisfy the applicable CAA and regulatory requirements for minor NSR programs under CAA section 110(a)(2)(C).
As authorized in section 110(k)(3) of the Act, the EPA may approve a plan revision in whole or in part if it meets all applicable requirements. Based on our evaluation of the submitted rules, the EPA is proposing to fully approve the SBAPCD's October 18, 2016 submittal (consisting of Rules 102, 105, 202, 204, and 809) and March 10, 1998 submittal (consisting of Rule 205).
The intended effect of our proposed approval action is to update the applicable SIP with the SBAPCD rules described above. If we finalize this action as proposed, our action would be codified through revisions to 40 CFR 52.220 (Identification of plan—in part).
We will accept comments from the public on this proposal until November 25, 2019.
In this rule, the EPA is proposing to include in a final EPA rule regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is proposing to incorporate by reference the SBAPCD rules described in Table 1 of this preamble. The EPA has made, and will continue to make, these materials available through
Under the CAA, the EPA 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 Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and
• Does not provide the EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).
In addition, 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).
Administrative practice and procedure, Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur dioxide, Volatile organic compounds.
42 U.S.C. 7401
Pipeline and Hazardous Materials Safety Administration (PHMSA), Department of Transportation (DOT).
Notice of proposed rulemaking (NPRM).
PHMSA, in coordination with the Federal Railroad Administration (FRA), is proposing changes to the Hazardous Materials Regulations to allow for the bulk transport of Methane, refrigerated liquid, commonly known as liquefied natural gas (LNG), in rail tank cars. This rulemaking proposes to authorize the transportation of Methane, refrigerated liquid by rail in the DOT-113C120W specification rail tank car.
Comments must be received by December 23, 2019. To the extent possible, PHMSA will consider late-filed comments.
You may submit comments identified by the Docket Number PHMSA-2018-0025 (HM-264) via any of the following methods:
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•
•
•
Michael Ciccarone, Standards and Rulemaking Division, (202) 366-8553, Pipeline and Hazardous Materials Safety Administration, or Mark Maday, Federal Railroad Administration, (202) 366-2535, U.S. Department of Transportation, 1200 New Jersey Avenue SE, Washington, DC 20590-0001.
PHMSA, in coordination with FRA, is issuing this NPRM to solicit public comment on potential changes to the Hazardous Materials Regulations (HMR; 49 CFR parts 171-180) that permit the bulk transport of Methane, refrigerated liquid, commonly known as liquefied natural gas (LNG), in rail tank cars. Specifically, this NPRM proposes to authorize the transportation of Methane, refrigerated liquid by rail in certain DOT specification 113 (DOT-113) rail tank cars.
LNG has been transported safely by highway and vessel for over 50 years within the United States and is now a critical energy resource for the 21st century; however, the HMR do not authorize the bulk transport of LNG in rail tank cars. Historically, this limitation has not created a major impediment in the transportation of natural gas (either in gas or liquid form), but the expansion in United States energy production has led to significant challenges in the transportation system.
Between 2010 and 2018, the number of LNG facilities in the U.S. increased by 28.7 percent, and total storage and vaporization capacities increased by 21 and 23 percent, respectively.
Federal hazardous materials law authorizes the Secretary of Transportation to “prescribe regulations for the safe transportation, including security, of hazardous materials in intrastate, interstate, and foreign commerce.” 49 U.S.C. 5103(b)(1). The Secretary has delegated this authority to PHMSA in 49 CFR 1.97(b). The HMR are designed to achieve three primary goals: (1) Help ensure that hazardous materials are packaged and handled safely and securely during transportation; (2) provide effective communication to transportation workers and emergency responders of the hazards of the materials being transported; and (3) minimize the consequences of an accident or incident should one occur. The hazardous material regulatory system is a risk management system that is prevention-oriented and focused on identifying safety or security hazards and reducing the probability and consequences of a hazardous material release.
The Administrative Procedure Act (APA), 5 U.S.C. 551,
PHMSA and FRA share responsibility for regulating the transportation of hazardous materials by rail and take a system-wide, comprehensive approach that focuses on prevention, mitigation, and response to manage and reduce the risk posed to people and the environment. In this rulemaking, PHMSA is seeking public comment on proposed changes to address the safe transportation of LNG by rail.
The proper classification of any hazardous material is required prior to it being offered into transportation. In accordance with § 173.115(g), a “cryogenic liquid” means a refrigerated liquefied gas having a boiling point colder than −90 °C (−130 °F) at an absolute pressure of 101.3 kPa (14.7 psia). Natural gas (methane) has a boiling point of −162 °C (−260 °F), which means it must be refrigerated to be liquid—hence, liquefied natural gas. Therefore, LNG meets the definition of Division 2.1, cryogenic liquid and is described by the entry “UN1972, Methane, refrigerated liquid (
LNG is natural gas that has been liquefied through condensation at ambient pressure—a process referred to as liquefaction. The resulting LNG takes up about 1/600th of the volume of natural gas in its vapor state. Thus, LNG can be readily and economically stored and transported in specially designed storage tanks, highway cargo tanks, or International Organization for Standardization (ISO) containers. LNG is odorless, colorless, non-corrosive, and non-toxic. It will float on water, causing the water to look like its boiling as the liquid transitions back to vapor. To be consumed, LNG must be vaporized by warming to return it to its gaseous form; this warming and vaporization process is called regasification. The vaporized natural gas is then injected back into a pipeline system, or used to fuel natural gas operated equipment.
There is an international market for LNG, whereas natural gas tends to be a
The current HMR do not authorize the bulk transport of LNG in rail tank cars.
The HMR include design, manufacturing, and maintenance standards for packaging (see parts 178-180). Additionally, the regulations specify which packaging types may be used for specific materials and provide requirements for filling and loading of packages (see part 173). Column (8C) of the HMT provides bulk packaging authorizations for LNG in accordance with § 173.318, Cryogenic liquids in cargo tanks, only, and does not include authorization of LNG for rail tank cars. Additionally, Column (7) contains portable tank instruction T75 (see § 172.102(c)(7)), which allows for the transportation of refrigerated liquefied gases in certain United Nations (UN) portable tanks, which can then be moved by rail in accordance with § 174.63. Currently, to transport LNG by rail in a method not authorized, a person must apply for a special permit from the Associate Administrator for Hazardous Materials Safety, PHMSA (see 49 CFR 107.105).
On January 17, 2017, AAR submitted a petition for rulemaking to PHMSA titled, “Petition for Rulemaking to Allow Methane, Refrigerated Liquid to be Transported in Rail Tank Cars” [PHMSA-2017-0020 (P-1697)] requesting revisions to § 173.319 of the HMR that would permit the transportation of LNG by rail in DOT-113 tank cars.
In its petition, AAR proposed that PHMSA amend the entry for “UN1972, Methane, refrigerated liquid” in the HMT (see § 172.101) to add a reference to § 173.319 in Column (8C), thereby authorizing transport of UN 1972 in rail tank cars. Additionally, AAR proposed that PHMSA amend § 173.319 to include specific requirements for DOT-113 cars used for the transportation of LNG. AAR suggested that the authorized tank car specifications be DOT-113C120W and DOT-113C140W,
AAR noted that the current HMR allow for transport of LNG by highway and expressed the opinion that rail transport of LNG is a safer mode of transportation by comparison. AAR stated that LNG is similar in all relevant properties to other flammable cryogenic liquids, such as ethylene, that are currently authorized for transportation by rail tank car. AAR further stated that they believe the DOT-113 tank car was not previously authorized because of a lack of demand in the market. However, AAR noted that there is commercial interest in transporting LNG by rail tank car domestically, and internationally from the United States to Mexico, and that some railroads are actively exploring LNG as a locomotive fuel, thereby requiring supply of LNG along their networks.
AAR's petition—P-1697—requests a regulatory change that has the potential to reduce regulatory burdens and enhance domestic energy production without having a negative impact on safety; therefore, PHMSA accepted it as having merit for consideration in a rulemaking. PHMSA requests public comment on all relevant aspects of this NPRM, including its potential to reduce regulatory burdens, enhance domestic energy production, and impact safety.
On May 15, 2017, the Center for Biological Diversity (the Center) submitted a response to P-1697, recommending that PHMSA deny AAR's petition for rulemaking because of potential environmental impacts of LNG. The Center commented that PHMSA should not proceed in evaluating the petition request until the Agency has conducted a National Environmental Policy Act (NEPA) evaluation, prepared an Environmental Impact Statement (EIS) or Environmental Assessment (EA), and provided opportunity for public review and comment in accordance with the Hazardous Materials Transportation Act (HMTA), as applicable.
PHMSA is issuing this NPRM in accordance with the APA and all related Executive Orders and laws, including NEPA. This NPRM provides opportunity for public notice and comment. See section “V. J. Environmental Assessment” of this rulemaking for further discussion of the EA.
On October 2, 2017, DOT published a notice
The Interested Parties for Hazardous Materials Transportation (Interested Parties) submitted a comment
PHMSA has reviewed the Interested Parties' comment and is proposing to authorize the transport of LNG by rail because it may support Department-wide safety investments and promote cost saving actions. The PHMSA proposal would amend the HMR to authorize transportation of LNG by rail in a DOT-113 specification tank car. PHMSA requests public comment on the potential regulatory impact of this proposal.
The Transport of Dangerous Goods Directorate within TC develops safety standards and regulations, provides oversight, and gives expert advice on dangerous goods incidents to promote public safety in the transportation of dangerous goods by all modes of transport in Canada. TC recently published a new standard on the bulk transport of LNG. TC authorizes LNG for transportation by rail in DOT-113 equivalent rail tank cars (TC-113C120W). PHMSA is not currently aware of LNG being transported via TC-113C120W; however, should that change, PHMSA expects incident and commodity flow data within Canada to be shared with PHMSA and FRA.
In Mexico, the Railway Transport Regulatory Agency's (Agencia Reguladora del Transporte Ferroviario), under the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes or SCT), mission is to promote, regulate, and monitor the railroad industry, and is responsible for regulating all types of cargo movement on trains. Currently, SCT does not provide explicit authorization for the bulk transportation of LNG in rail tank cars.
LNG's role as an energy resource continues to expand with ongoing innovation and economic development. Historically, the United States transported LNG by highway and exported LNG via ports only. As a result, there was no need for a regulation that authorized transportation via rail tank car. With a growing supply and demand,
The DOT-113 specification cryogenic liquid tank car is built to comply with specifications contained in 49 CFR part 179, subpart F and TC regulation TC14877E, Section 8.6, as well as certain requirements of the rail industry as identified in the AAR Manual of Standards and Recommended Practices, Specifications for Tank Cars (M-1002). These rail tank cars are vacuum-insulated and consist of an inner alloy (stainless) steel tank enclosed with an outer carbon steel jacket shell specifically designed for the transportation of refrigerated liquefied gases, such as liquid hydrogen, oxygen, ethylene, nitrogen, and argon. Additionally, the design and use of the DOT-113 specification tank car includes added safety features—such as protection systems for piping between the inner and outer tanks, multiple pressure relief devices (pressure relief valves and vents), thermal integrity tests, and in-transit reporting requirements—that contribute to an excellent safety record throughout its 50 years of service.
In this NPRM, PHMSA is proposing to authorize DOT-113C120W tank cars for use in the transportation of LNG by rail. The HMR currently authorize the DOT-113C120W specification tank car for another flammable cryogenic liquid which shares similar chemical and operating characteristics with LNG (
DOT-113 specification rail tank cars are constructed in accordance with the requirements of 49 CFR, part 179, subpart F, “Specification for Cryogenic Liquid Tank Car Tanks and Seamless Steel Tanks.” These cars are built to a double pressure vessel design with the commodity tank (inner vessel) constructed of ASTM A 240/A 240M, Type 304 or 304L stainless steel, and the outer jacket shell (outer vessel) typically is constructed of carbon steel. This design provides an increased crashworthiness when compared to a single vessel design rail tank car. The rail tank car is manufactured with an insulated annular space holding a vacuum between the two pressure vessels. This vacuum area and the insulation significantly reduce the rate of heat leak from the atmosphere to the liquid inside the tank car thus minimizing the heating of the cryogenic (
In addition to requesting a rule change to allow DOT-113C120W tank cars to transport LNG, AAR requested that PHMSA add a new tank car specification, the DOT-113C140W, for transportation of bulk quantities of LNG. AAR stated that the advantage to the DOT-113C140W tank car is that it is similar in design and construction to the DOT-113C120W specification, but would allow for an additional transportation timeframe of 5 days for cryogenic materials. This claim assumes that the new specification would use a thicker inner tank material that would allow for a higher inner tank test pressure (140 psig) and higher pressure relief device settings. These design changes could have the potential to increase the time in transportation by 5 days.
Currently, the HMR does not authorize the DOT-113C140W specification for cryogenic hazardous materials transportation and thus, this
Moreover, the petitioner did not include design specifications for the DOT-113C140W tank car. PHMSA may consider it for future rulemaking after design specifications, engineering details, and data demonstrating an equivalent level of safety are submitted to PHMSA in support of this regulatory change.
PHMSA is proposing to amend the Pressure Control Valve Setting or Relief Valve Setting Table in § 173.319(d)(2) by adding a column for methane as follows:
The proposed changes to the table would authorize methane in DOT-113C120W specification tank cars with a start-to-discharge pressure valve setting of 75 psig; a design service temperature of −260 °F; a maximum pressure when offered for transportation of 15 psig; and a filling density of 32.5 percent by weight. The maximum offering pressure of 15 psig is consistent with the 20-day transportation requirement for cryogenic materials and the estimated 3 psig per day pressure increase during transportation. The filling density is similar to the filling density requirements for cryogenic materials transported in a cargo tank motor vehicle. These requirements will provide a 15 percent vapor volume outage (at the start-to-discharge-pressure of the pressure relief valve) for the rail tank car during transportation.
AAR's Circular OT-55 is a detailed protocol establishing recommended railroad operating practices for the transportation of hazardous materials that was developed by the rail industry through the AAR.
• One tank car load of Poison or Toxic Inhalation Hazard (PIH or TIH) (Hazard Zone A, B, C, or D), anhydrous ammonia (UN1005), or ammonia solutions (UN3318), or;
• 20 car loads or intermodal portable tank loads of any combination of hazardous material, or;
• One or more car loads of Spent Nuclear Fuel (SNF), High Level Radioactive Waste (HLRW).
While PHMSA is not proposing to incorporate by reference Circular OT-55 or to adopt the requirements for “Key Trains” in the HMR in this rulemaking, the railroad industry's voluntary adoption of the circular is an important consideration for PHMSA in assessing what operational controls are necessary. In accordance with the “Key Train” definition and the changes being considered in this NPRM, Circular OT-55's operational controls would apply to the bulk transport of LNG by rail in a train consist that is composed of 20 car loads or intermodal portable tank loads in which LNG is present along with any combination of other hazardous materials. Therefore, bulk transport of LNG would be subject to the industry standard even if only one rail tank car of the 20-car consist contained LNG, regardless of the classes of hazardous materials contained in the remaining 19 rail cars. Due to the operational controls introduced for “Key Trains,” Circular OT-55 provides an additional level of safety regardless of what combination of hazardous materials the train consist is transporting. As such, PHMSA and FRA believe this industry standard helps ensure the safe transportation of all hazardous materials, including LNG.
PHMSA and FRA considered other options for operational controls such as mirroring the operational controls adopted for high-hazard flammable trains (HHFT)
PHMSA recognizes that there may be other operational controls or combinations of controls to consider and encourages comments on such controls. However, for this rulemaking, PHMSA and FRA decided not to propose additional operational controls because there is not sufficient data about the potential movements of LNG by tank car. While PHMSA expects LNG will initially move in smaller quantities (
Finally, PHMSA notes that there is an existing special permit application to transport LNG by tank car. PHMSA is seeking comment on the draft special permit and environmental assessment,
The following is a section-by-section review of the amendments considered in this NPRM.
Section 172.101 provides the HMT and instructions for its use. PHMSA proposes amending the entry for “UN1972, Methane, refrigerated liquid” in the HMT to add reference to the cryogenic liquids in (rail) tank cars packaging section—§ 173.319 in Column (8C).
Section 173.319 prescribes requirements for cryogenic liquids transported in rail tank cars. Paragraph (d) provides which cryogenic liquids may be transported in a DOT-113 tank car when directed to this section by Column (8C) of the § 172.101 HMT. PHMSA proposes to amend paragraph (d)(2) to authorize the transport of Methane, refrigerated liquid (LNG). Additionally, PHMSA is proposing to amend the Pressure Control Valve Setting or Relief Valve Setting Table in § 173.319(d)(2) to specify settings for methane in DOT-113C120W tank cars, specifically, a start-to-discharge pressure valve setting of 75 psig; a design service temperature of −260 °F; a maximum pressure when offered for transportation of 15 psig; and a filling density of 32.5 percent by weight.
This rulemaking is published under the authority of Federal Hazardous Materials Transportation Law (Federal hazmat law; 49 U.S.C. 5101
This rulemaking is considered a significant regulatory action under section 3(f) of Executive Order 12866 (“Regulatory Planning and Review”) and was reviewed by the Office of Management and Budget (OMB). This rulemaking is also considered a significant rulemaking under the DOT Regulatory Policies and Procedures of February 26, 1979 [44 FR 11034].
Executive Order 12866 (“Regulatory Planning and Review”)
Additionally, Executive Order 12866 requires agencies to provide a meaningful opportunity for public participation, which also reinforces requirements for notice and comment
This proposed rule is expected to be an Executive Order 13771 deregulatory action. Details on the estimated cost savings of this proposed rule can be found in the rule's economic analysis.
This rulemaking was analyzed in accordance with the principles and criteria contained in Executive Order 13132 (“Federalism”). This rulemaking may preempt State, local, and Tribal requirements but does not propose any regulation that has substantial direct effects on the States, the relationship between the national government and the States, or the distribution of power and responsibilities among the various levels of government. Therefore, the consultation and funding requirements of Executive Order 13132 do not apply.
The Federal hazmat law, 49 U.S.C. 5101-5128, contains an express preemption provision [49 U.S.C. 5125(b)] that preempts State, local, and Indian tribal requirements on the following subjects:
(1) The designation, description, and classification of hazardous materials;
(2) The packing, repacking, handling, labeling, marking, and placarding of hazardous materials;
(3) The preparation, execution, and use of shipping documents related to hazardous materials and requirements related to the number, contents, and placement of those documents;
(4) The written notification, recording, and reporting of the unintentional release in transportation of hazardous material; and
(5) The design, manufacture, fabrication, marking, maintenance, recondition, repair, or testing of a packaging or container represented, marked, certified, or sold as qualified for use in transporting hazardous material.
This proposed rule addresses covered subject item (2) above and preempts State, local, and Indian tribe requirements not meeting the “substantively the same” standard.
Federal preemption also may exist pursuant to section 20106 of the former Federal Railroad Safety Act of 1970 (FRSA), repealed, revised, reenacted, and recodified at 49 U.S.C. 20106. Section 20106 of the former FRSA provides that States may not adopt or continue in effect any law, regulation, or order related to railroad safety or security that covers the subject matter of a regulation prescribed or order issued by the Secretary of Transportation (with respect to railroad safety matters) or the Secretary of Homeland Security (with respect to railroad security matters), except when the State law, regulation, or order qualifies under the section's “essentially local safety or security hazard.”
PHMSA invites State and local governments with an interest in this rulemaking to comment on any effect that revisions to the HMR relative to LNG transportation may cause.
This rulemaking was analyzed in accordance with the principles and criteria contained in Executive Order 13175 (“Consultation and Coordination with Indian Tribal Governments”). PHMSA does not anticipate that this rulemaking will have substantial direct tribal implications. Therefore, the funding and consultation requirements of Executive Order 13175 are not expected to apply. However, PHMSA invites Indian tribal governments to comment on any effect that revisions to the HMR relative to LNG transportation may cause.
The Regulatory Flexibility Act (5 U.S.C. 601
The impact of this proposed rulemaking on small businesses is not expected to be significant. The proposed changes are generally intended to provide regulatory flexibility and cost savings to industry members. However, PHMSA seeks comment on the potential impacts on small entities.
Section 1320.8(d), Title 5, Code of Federal Regulations requires that PHMSA provide interested members of the public and affected agencies an opportunity to comment on information collection and recordkeeping requests. This NPRM does not impose new information collection and recordkeeping burdens.
A regulation identifier number (RIN) is assigned to each regulatory action listed in the Unified Agenda of Federal Regulations. The Regulatory Information Service Center publishes the Unified Agenda in April and October of each year. The RIN contained in the heading of this document can be used to cross-reference this action with the Unified Agenda.
This rulemaking does not impose unfunded mandates under the Unfunded Mandates Reform Act of 1995. It does not result in costs of $100 million or more, adjusted for inflation, to either State, local, or Tribal governments, in the aggregate, or to the private sector and is the least burdensome alternative that achieves the objective of the rulemaking. PHMSA will evaluate any regulatory action that might be proposed in subsequent stages of the proceeding to assess the effects on State, local, and Tribal governments and the private sector.
The National Environmental Policy Act of 1969 (NEPA) requires Federal agencies to consider the consequences of major Federal actions and prepare a
The purpose of this NPRM is to propose amendments that authorize the transportation of Methane, refrigerated liquid, commonly known as liquefied natural gas (LNG), by rail in a DOT-113C120W tank car. This proposed rulemaking would facilitate the transportation of LNG by rail in a packaging other than a portable tank. This action would facilitate the transportation of natural gas to markets where pipeline transportation is limited or unavailable.
Transportation of hazardous materials in commerce is subject to requirements in the HMR, issued under authority of Federal hazmat law, codified at 49 U.S.C. 5101
In proposing this rulemaking, PHMSA is considering the following alternatives:
The No Action Alternative would not adopt the regulatory changes proposed in this NPRM. If PHMSA were to select this alternative, it would not proceed with any rulemaking on this subject and the current regulatory standards would remain in effect. If the current regulatory standards remain in effect, LNG would not be authorized for transportation by tank car. The No Action Alternative would not address AAR's petition for rulemaking or stakeholder comments to the October 2, 2017, notification of regulatory review. LNG transportation by highway and by rail—via a PHMSA special permit
This alternative would adopt the AAR petition in its entirety, including the authorization of the DOT-113C140W specification tank car into the HMR for the transportation of LNG. As discussed earlier, in the section “III. A.
The Proposed Alternative is the current proposal as it appears in this NPRM, applying to transportation of hazardous materials by rail. The Proposed Alternative would authorize the transportation of LNG by rail in a DOT-113C120W specification tank car. See sections “III. Changes Being Considered” and “IV. Section-by-Section Review” of this rulemaking for further discussion on the proposed amendments encompassed in this alternative.
If PHMSA were to select the No Action Alternative, current regulations would remain in place and no new enabling provisions would be added. This alternative would not amend the HMR to allow shippers to transport bulk quantities of LNG by rail tank car. As such, the current regulatory requirements would require that LNG continue to be transported by highway, or for rail transportation, be limited to certain PHMSA special permit holders or LNG in portable tanks pursuant to the conditions of an FRA approval. This alternative would prevent the use of a tank car that was designed to address the hazards presented by cryogenic liquids, and has a demonstrated safety record. Authorizing the transport of LNG by tank car via rulemaking has the potential to allow shippers to move a greater quantity of LNG more efficiently, as highway transportation requires the use of more vehicles to move the same amount of material as rail transportation, thereby increasing air pollutants, including greenhouse gases. In 2017, U.S. railroads moved a ton of freight an average of 479 miles per gallon of fuel. On average, railroads are four times more fuel efficient than trucks. Because greenhouse gas emissions are directly related to fuel consumption, moving freight by rail instead of truck reduces greenhouse gas emissions by an average of 75 percent. In addition, emissions of particulate matter and nitrogen oxides are significantly lower for railroads than for trucks.
Furthermore, highway transportation may present a greater risk of accident and release of LNG for each movement, which creates a danger for both humans and the environment. From 2005 to 2017, there were eight incidents involving Methane, refrigerated liquid
PHMSA proposes to amend the HMR to allow the transportation of LNG in DOT-113C120W rail cars. PHMSA understands that authorizing the rail transportation of LNG would reduce greenhouse gas emissions by requiring fewer trips to transport the same amount of material currently being transported by highway. Furthermore, fewer trips are anticipated to result in fewer accidents and spills of LNG during transportation.
PHMSA has collected data on the safety history of the DOT-113 tank car from its own incident database and from AAR, which compiles data provided by FRA. PHMSA has analyzed data regarding DOT-113 damage history. From 1980 to 2017 (a 37-year period), there were 14 instances of damage to DOT-113 tank cars during transportation. Of the 14 instances, there were three instances where a DOT-113 tank car lost lading from breach of both the outer and inner tanks. This is the most serious type of damage. Additionally, there were three instances in which a DOT-113 tank car lost lading from damage or other failure to the valves/fittings. The vast majority of incidents causing damage to the DOT-113 tank cars did not result in a loss of hazardous materials.
The first derailment that resulted in breach of an inner tank of a DOT-113 tank car took place in May 2011 in Moran, Kansas. Three DOT-113C120 specification tank cars containing refrigerated liquid ethylene sustained damage. Two of the cars were breached in the derailment and initially caught fire. One of the fires consumed the entire contents of the DOT-113 tank car. The two remaining cars, that is, the one that had been breached in the derailment and the other that had been damaged but not breached, were mechanically breached to expedite the burning and consumption of the contents to expedite removal from the site of the derailment. The total quantity of refrigerated ethylene lost was approximately 45,000 gallons and the total damage estimate was calculated at approximately $231,000 in 2017. The other derailment that caused tank failure of a DOT-113 tank car occurred in October 2014 in Mer Rouge, Louisiana. The rail tank cars were filled with refrigerated liquid argon. One car was a DOT-113A90W specification tank car authorized by Special Permit and the other was an AAR204W tank car. The total quantity of refrigerated liquid argon spilled was 47,233 gallons and the total damage estimate is calculated at approximately $228,000 (in 2017 dollars). No injuries or fatalities were reported as a result of the release of hazardous materials from either incident. Depending on demand, the numbers of DOT-113 tank cars in operation under the proposed regulatory change could increase well beyond the numbers of DOT-113 tank cars currently in operation.
Though rare, derailments involving DOT-113 tank cars can result in large quantities of hazardous materials released, which can result from venting or breach of the inner tank shell. These releases can be considerably larger than releases from a CTMV that travels by highway. Nonetheless, considering that the DOT-113 tank car has a 50-year service history and with the understanding it is possible there are unreported incidents from years past, the safety history is noteworthy. It is difficult to estimate the failure rate of the DOT-113 tank car in derailments because railroads are not required to report incidents to PHMSA or FRA unless they meet a baseline threshold. 49 CFR 171.16 and 225.19. Incident data suggests that incidents involving rail tank cars can lead to higher consequence incidents; however, PHMSA believes that rail transportation is advantageous considering the quantity transported compared to miles traveled.
With regard to how LNG could respond under accident conditions, when a large amount of LNG is spilled and its vapors come into contact with an ignition source, the vapors will ignite if the vapor concentration in a vapor-air mixture is between 5 and 15 percent and cause the spill to develop into a pool fire (if ignited immediately) or flash vapor fire if the vapor cloud is ignited at some distance from the spill location. Both types of fires present a radiant heat hazard. If there is no ignition source in the immediate vicinity of the release, the spilled LNG will vaporize rapidly forming a cold gas cloud that is heavier than air, which then mixes with ambient air, spreads and is carried downwind. The dispersion of the cloud due to the wind results in its temperature increase of the vapor due to mixing with air that gets entrained into the cloud; but the cloud temperature always remains lower than that of ambient air, because of exchange of heat between the air that is mixing and the virgin cold vapor. Also, the density of the cloud decreases due to continuous mixing with air; however, the cloud density is never lower than that of the ambient air. The result is that the cloud is always heavier than air and disperses hugging the ground (with highest vapor concentrations at ground level). The only way the vapor cloud can become either neutrally buoyant or buoyant is if external heat (such as from solar heating or heating from the ground) is added to the cloud. These heat transfer mechanisms provide insufficient heat to the cloud in normal dispersion before the vapor cloud dilutes to concentration below lower flammability limit, LFL, of 5 percent by volume.
The dispersing cloud is visible as a white cloud due to the condensation of water vapor from the atmosphere and because in the initial stages the dispersing cloud is cold (starting from −260 degrees Fahrenheit). However, as the overall cloud temperature increases due to mixing with ambient air, and as the cloud temperature increases to above the “wet bulb” temperature corresponding to the relative humidity of the atmospheric air, the condensed water re-evaporates and the cloud becomes non-visible. The flammable region of the vapor cloud is enclosed within the visible vapor cloud if the ambient relative humidity is greater than or equal to 55 percent. For regions with relative humidity less than this value, the flammable cloud is outside
If an LNG vapor cloud is ignited before the cloud has been dispersed or diluted to below its lower flammability limit, a flash fire will occur. Unlike other flammable liquids and gases, a LNG vapor cloud will not ignite entirely at once. If ignited, the flash fire that forms has a temperature of about 1,330 °C (2,426 °F). The resulting ignition leads to a relatively slow (subsonic) burning vapor fire which travels back to the release point producing either a pool fire or a jet fire. The radiant heat effects from such a flash fire does not extend to distances significantly larger than the width of the flammable cloud. The slow burning vapor fire will not generate damaging overpressures (
Methane in vapor state can be an asphyxiant when it displaces oxygen in a confined space. When LNG is spilled on the ground, into a confined area, such as bound by a dike, the LNG will initially boil-off rapidly forming a vapor cloud, but the boil-off will slow down as the ground cools due to heat being extracted from it to provide for the evaporation of LNG. If LNG is spilled on water, LNG will float on top of the water, spread in an unconfined manner, and vaporize very rapidly. This rapid vaporization will occur even at water temperatures near freezing since freezing water is significantly warmer than the spilled LNG.
LNG is stored and transported at −260 °F (−160 °C). Due to this extremely low temperature, contact with a cryogenic liquid can cause severe injury to human skin and eyes. It will also make ordinary metals, including carbon steel, subject to embrittlement and fracture when exposed to these temperatures. Transportation of cryogenic materials require specialized double walled (tank within a tank) containers for transportation.
The DOT-113 specification tank car is a specially designed rail tank car for the transport of cryogenic liquids. This tank car design has been in use for over 50 years. As noted above, there are only six documented derailments involving the transportation of the DOT-113 specification tank car that resulted in loss of tank contents.
DOT-113 specification rail tank cars are built to a double pressure-vessel design with the commodity tank (inner vessel) constructed to withstand a burst pressure of 300 psig and fabricated of ASTM A 240/A 240M, Type 304 or 304L stainless steel; the outer jacket shell (outer vessel) is typically constructed of carbon steel and is designed to withstand an external pressure (critical collapsing pressure) of 37.5 psig. See §§ 179.400-8(d) and 179.401-1, respectively. The inner vessel is designed with a minimum thickness of 3/16 inch and the outer shell thickness is greater than 7/16 inch. The rail tank car is manufactured with an insulated annular space holding a vacuum between the two pressure vessels. This vacuum area and the insulation on the outer wall of the inner tank significantly reduce the rate of heat transfer from the atmosphere to the liquid inside the tank car, thus minimizing the heating of the cryogenic (
• Several inches of aluminized Mylar super-insulation surrounding the inner tank.
• A vacuum environment/annular space between the inner and outer tanks for enhanced product pressure and temperature control.
• Specifically, designed loading and unloading equipment (piping, valves, gages, etc.) for use in cryogenic service.
• Safety equipment (pressure relief valves, safety vents, safety shut off valves, and remote monitoring systems) to prevent or limit overpressure issues or non-accident releases.
• Mandated in-transit tracking (time sensitive shipment) and car handling instructions.
Regulations controlling the movement of LNG in the DOT-113C120W packaging would be the same as those that apply to the transportation of other cryogenic liquids, including ethylene. Regulatory requirements governing these operational practices appear in 49 CFR part 174 and 49 CFR 173.319, which is administered by the FRA. In addition, the AAR has issued Circular OT-55, which sets forth Recommended Railroad Operating Practices for Transportation of Hazardous Materials for key trains. Rail carriers require compliance with the standard through AAR Interchange Rules. AAR Circular OT-55 (currently designated as version Q) calls for operational controls for trains carrying certain quantities of hazardous materials, such as LNG unit trains, which are sufficient to address the risks associated with moving LNG in DOT-113 tank cars. The operational controls recommended in OT-55 for the transport of hazardous materials regulate, among other things:
• “Key Trains” are 20 carloads or intermodal portable tank loads of any combination of hazardous materials.
• “Key Trains,” including LNG-carrying unit trains, are subject to a maximum speed restriction of 50 mph;
• “Key Routes,” which are lengths of track on which either (i) 10,000 car loads or more of hazardous materials or (ii) 4,000 car loadings of flammable gas (such as LNG, which is refrigerated (cryogenic) liquid methane, a Division 2.1 flammable gas) will travel over a one-year period and are subject to additional inspection and equipment requirements;
• Separation distance requirements relating to the spacing of loading and operations, loaded tank cars, and other storage tanks at rail facilities; and
• Community awareness and preparations for emergency planning/incident response actions.
Due to its unique design requirements, the DOT-113 specification tank car is inherently more robust than other tank cars transporting other flammable liquids or liquefied gases. In the event of a DOT-113 specification tank car derailment causing only breach of the outer shell, the breach would cause the loss of the insulating vacuum between the inner and outer tank, allowing the inner tank and material to warm and build pressure. The resulting pressure build would lead to the activation of the pressure relief systems on the car and the controlled venting of LNG vapor. While this scenario is concerning, the controlled venting of LNG vapor involves less risk than the uncontrolled release of an entire LNG lading. Additionally, it is highly unlikely that
Based on the review incident reporting and the 50 year history of transporting cryogenic liquids in DOT-113 specification tank cars, there are three (3) possible release scenarios that could occur during the transport of LNG by rail tank car. Ranked in order of probability, they are:
1. Non-accident release (NAR) from service equipment. Probability—Low; Consequence—Low
2. Outer tank damage resulting vapor release from Pressure Relief Device (PRD). Probability—Low; Consequence—Low to High (in the event that ignition of vented vapors led to failure/explosion of the tank car)
3. Inner tank damage resulting in large release. Probability—Low; Consequence—High
Although Scenario 3 has a low probability, a breached inner tank during a transportation accident could have a high consequence because of the higher probability of a fire due to the formation of a flammable gas vapor/air mixture in the immediate vicinity of the spilled LNG. This probability is based on the likelihood of ignition sources (sparks, hot surfaces, etc.) being generated by other equipment, rail cars, or vehicles involved in a transportation accident that could ignite a flammable vapor cloud.
As with any incident involving a hazardous material in transportation, the actual hazard distance created by a material that is spilled or burning will be influenced by many factors. These factors include, but are not limited to the following:
As stated previously, hazard distance of a vapor cloud dispersion of LNG is difficult to predict. Local weather conditions, terrain, surface cover (
Similarly, the actual hazard distance that radiant heat from a pool fire of LNG would impact is dependent on the same factors that influence a vapor cloud. Additionally, the impact of radiant heat from a fire on occupied structures will be influenced by local building codes that govern building setback requirements from railroad right-of-way. Depending on the jurisdiction, setbacks for occupied structures could be within fifty (50) feet of either side of a railroad track.
Regardless of the scenario, the recommended protective action distances
As stated previously, DOT-113 specification tank cars are inherently more robust when compared to other specification tank cars, due to their unique design, materials of construction, and their specific purpose to transport cryogenic liquids. The special design of the DOT-113 tank car reduces the probability of cascading failures of other undamaged DOT-113 specification tank cars being transported in a block or unit train configuration.
In the scenario where multiple DOT-113 specification tank cars are transported in a block or unit train configuration, fire/radiant heat exposure or cryogenic temperature exposure could potentially lead to the release of material or failure of otherwise undamaged tank cars.
In a scenario involving fire/radiant heat exposure, an undamaged DOT-113 specification tank car exposed to a radiant heat source could eventually build pressure that would trigger the activation of the tank car's PRD.
As stated previously, this scenario would result in the controlled venting of LNG vapor to the environment. Ignition of these vapors could occur if an ignition source is present, but would be contained to the proximity of the release point of the vapors from the tank car. Additionally, as stated previously, it is highly unlikely that an undamaged DOT-113 tank car involved in a derailment would result in explosion due to a BLEVE. This event is highly unlikely due to the design of the tank car, the loading pressure requirements for cryogenic materials, the mandated requirements for redundant pressure relief systems (valves and safety vents) and insulation systems that are built into each car. It is not possible to state with certainty whether a BLEVE
In a scenario involving cryogenic temperature exposure, the risk to an undamaged DOT-113 specification tank car is the embrittlement of the car's steel due to exposure to the extremely cold temperatures of the material. This type of exposure could lead to the failure of the tank car's outer carbon steel tank, but not the inner stainless steel tank. As stated previously, if a DOT-113 specification tank car has its outer tank compromised, the car would lose its insulating vacuum and would eventually start to build pressure within the product tank. This pressure build would eventually lead to the activation of the tank car's PRDs and the controlled venting of LNG vapors.
The rulemaking could result in the manufacture of additional DOT-113C120W tank cars. Depending on demand, this manufacture process could result in minor increases in the emission of air pollution and increased emission of greenhouse gases (GHGs), due to the steel and insulating materials that the tank car is comprised of. Also, the transportation of rail tank cars filled with LNG would result in air pollution and GHG emissions associated with increased use of diesel-powered trains. However, transportation of LNG via rail instead of via highway would reduce the emission of air pollution and the emission of GHGs. In general, highway transportation requires proportionally more fuel and results in proportionally more emissions than rail transportation. According to AAR, moving freight by rail instead of truck lowers GHG emissions by 75%. Railroads move approximately one-third of U.S. exports and intercity freight volume in the United States. Despite the large volume of freight moved, U.S. Environmental Protection Agency data show freight railroads account for only 0.5% of total U.S. greenhouse gas emissions and just 2% of emissions from transportation-related sources.
The failure of one or more DOT-113C120W tank cars filled with LNG would release a large amount of either burned methane or unburned methane hydrocarbons into the atmosphere. Unburned methane hydrocarbons are a potent GHG and a pollutant. However, as described above, the likelihood of such a failure is very low, given the safety record of DOT-113C120W tank cars. Nonetheless, unburned methane enters the atmosphere in the production and transportation of methane on a more frequent basis.
While the authorization of the DOT-113 specification tank car for LNG service will facilitate the transportation of LNG, natural gas and LNG is currently transported via pipeline, vessel, highway, and rail. Increased transport of LNG by rail may result in fewer GHG emissions when compared to transport by highway or construction of new pipeline infrastructure. Also, facilitating LNG transport by rail may discourage the polluting and wasteful practice of natural gas flaring during the production of oil by allowing the natural gas to reach a viable market. This rulemaking may further decrease GHG emissions by facilitating the utilization of natural gas over more polluting sources of energy. Nonetheless, any action that facilitates the use of a fossil fuel arguably could contribute to the emission of GHGs, which are the principle cause of global climate change. As a regulator of hazardous materials packaging safety, PHMSA lacks the expertise to perform a quantitative prediction of how this rulemaking could affect GHG emissions. The selection of either the no action alternative or the proposed action alternative could both increase and decrease GHGs directly and indirectly depending on various economic variables.
PHMSA has coordinated with the Federal Motor Carrier Safety Administration and FRA in the development of this proposed rulemaking. PHMSA will consider the views expressed in comments to the NPRM submitted by members of the public, State and local governments, and industry.
PHMSA believes that the amendments proposed in this NPRM will ultimately reduce the environmental impact of the transportation of LNG. PHMSA proposes to make a finding that the proposed amendments would not result in a significant environmental impact. PHMSA welcomes any views, data, or information related to safety or environmental impacts that may result if the proposed requirements are adopted, as well as additional information on possible alternatives and their environmental impacts. PHMSA proposes to find that the proposed regulations allowing the transport of LNG via DOT-113C120W tank car will not result in a significant environmental impact.
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
Under Executive Order 13609 (“Promoting International Regulatory Cooperation”), agencies must consider whether the impacts associated with significant variations between domestic and international regulatory approaches are unnecessary or may impair the ability of American business to export and compete internationally.
Similarly, the Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. For purposes of these requirements, Federal agencies may participate in the establishment of international standards, so long as the standards have a legitimate domestic objective, such as providing for safety, and do not operate to exclude imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards.
PHMSA participates in the establishment of international standards in order to protect the safety of the American public, and we have assessed the effects of the proposed rule to ensure that it does not cause unnecessary obstacles to foreign trade. Accordingly, this rulemaking is consistent with Executive Order 13609 and PHMSA's obligations under the Trade Agreement Act, as amended. This
The National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) directs Federal agencies to use voluntary consensus standards in their regulatory activities unless doing so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (
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 a Statement of Energy Effects for any “significant energy action.” Under the executive order, a “significant energy action” is defined as any action by an agency (normally published in the
This NPRM is a significant action under Executive Order 12866, but it is not expected to have an annual effect on the economy of at least $100 million. Further, this action is not likely to have a significant adverse effect on the supply, distribution or use of energy in the U.S. For additional discussion of the anticipated economic impact of this rulemaking, please review the preliminary RIA. PHMSA welcomes any data or information related to energy impacts that may result from this NPRM, as well as possible alternatives and their energy impacts. Please describe the impacts and the basis for the comment.
Hazardous materials table, Hazardous materials transportation, Labeling, Markings, Packaging and containers.
Hazardous materials transportation, Incorporation by reference, Packaging and containers, Cryogenic liquids, Reporting and recordkeeping requirements.
In consideration of the foregoing, PHMSA proposes to amend 49 CFR chapter I as follows:
49 U.S.C. 5101-5128, 44701; 49 CFR 1.81, 1.96 and 1.97.
49 U.S.C. 5101-5128, 44701; 49 CFR 1.81, 1.96 and 1.97.
(d) * * *
(2)
Fish and Wildlife Service, Interior.
Proposed rule.
We, the U.S. Fish and Wildlife Service (Service), propose to remove the inland population of the least tern (Interior least tern) (
We will accept comments received or postmarked on or before December 23, 2019. Comments submitted electronically using the Federal eRulemaking Portal (see
(1)
(2)
We request that you send comments only by the methods described above. We will post all comments on
Stephen Ricks, Field Supervisor, U.S. Fish and Wildlife Service, Mississippi Ecological Services Field Office, 6578 Dogwood View Parkway, Jackson, MS 39213; telephone (601) 321-1122. Individuals who use a telecommunications device for the deaf (TDD), may call the Federal Relay Service at (800) 877-8339.
(1) The species is extinct;
(2) The species has recovered and is no longer endangered or threatened; or
(3) The original data used at the time the species was classified were in error. Here, we have determined that the Interior least tern may be considered for delisting based on recovery. Our review of the status of and listing factors for the Interior least tern indicated (1) a range extension; (2) an increase in abundance and number of breeding sites; (3) resiliency to existing and potential threats; (4) the implementation of beneficial management practices; and (5) changes in existing regulatory mechanisms that are more protective of migratory birds such as the Interior least tern. Accordingly, the Interior least tern no longer meets the definition of an endangered or threatened species under the Act.
We want any final rule resulting from this proposal to be as accurate and effective as possible. Therefore, we invite tribal and governmental agencies, the scientific community, industry, and other interested parties to submit data, comments, and new information concerning this proposed rule. The comments that will be most useful and likely to influence our decision are those that are supported by data or peer-reviewed studies and those that include citations to, and analyses of, applicable laws and regulations. Please make your comments as specific as possible and explain the basis for them. In addition, please include sufficient information with your comments to allow us to authenticate any scientific or commercial data you reference or provide. In particular, we are seeking comments on:
(1) Biological data regarding the Interior least tern, including the locations of any additional populations, survey data, or other relevant information;
(2) Relevant data concerning any threats (or lack thereof) to the Interior least tern;
(3) Additional information regarding the range, distribution, life history, ecology, and habitat use of the Interior least tern;
(4) Current or planned activities within the geographic range of the Interior least tern that may negatively impact or benefit the Interior least tern; and
(5) The draft PDM plan and the methods and approach detailed in it, including, but not limited to: (a) The duration of the monitoring period; (b) the survey and monitoring approach; (c) the triggers identified to detect change; and (d) the length of time to extend PDM if change is detected.
Please note that submissions merely stating support for or opposition to the action under consideration without providing supporting information, although noted, will not be considered in making a determination, as section 4(b)(1)(A) of the Act (16 U.S.C. 1531
In developing a final determination on this proposed action, we will take into consideration all comments and any additional information we receive. Such information may lead to a final rule that differs from this proposal. All comments and recommendations, including names and addresses, will become part of the administrative record.
You may submit your comments and materials concerning the proposed rule by one of the methods listed in
We will post your entire comment—including your personal identifying information—on
Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection on
Section 4(b)(5)(E) of the Act provides for a public hearing on this proposal, if requested. We must receive requests for a public hearing, in writing, at the address shown in
In accordance with our policy published in the
On May 28, 1985, we published a final rule in the
We completed another 5-year review for the Interior least tern on October 24, 2013, and posted it on the Service's website. This 5-year review summarized all new information accumulated on the Interior least tern since 1991, and recommended delisting due to recovery.
For additional details on previous Federal actions, including recovery actions, see discussion under Recovery, below.
A thorough review of the taxonomy, life history, ecology, and overall viability of the Interior least tern was presented in the 5-year review (Service 2013). Below, we present a summary of the biological and distributional information discussed in the 5-year review and new information published or obtained since.
Least terns within the Interior Basin of North America were described as
Since that time, genetic analyses of North American populations of least tern found no evidence of differentiation warranting subspecies recognition (
Least terns are the smallest members of the family Laridae, measuring 21 to 23 centimeters (cm) (8 to 9 inches (in)) long with a 56-cm (22-in) wingspan (Thompson
Interior least terns are potentially long-lived, with records of recapture more than 20 years following banding (Thompson
Least terns begin breeding and nesting in their second or third year and breed annually throughout their lives (Thompson
Interior least terns generally nest on the ground, in open areas, and near appropriate feeding habitat (Lott and Wiley 2012, pp. 9-11). Nests are simple scrapes in the sand, and nesting sites are characterized by coarser and larger substrate materials, more debris, and shorter and less vegetation compared to surrounding areas (Smith and Renken 1993, p. 501; Stucker 2012, p. 49). Typical least tern clutch size is reported as two to three eggs (Thompson
Natural nesting habitat features are maintained and influenced by magnitude and timing of riverine flood events (Sidle
Lott and Wiley (2012, pp. 9-11) described five physical and biological conditions that are necessary for Interior least tern nest initiation and successful reproduction:
(1) Nest sites that are not inundated (flooded) during egg laying and incubation;
(2) Nesting sites that are not inundated until chicks can fly;
(3) Nesting sites with less than 30 percent ground vegetation;
(4) Nesting sites that are more than 76 meters (m) (250 feet (ft)) from large trees; and
(5) Availability of prey fishes to support chick growth until fledging.
Interior least terns are colonial nesters. Colony size may vary from a few breeding birds to more than 1,200 (Jones 2012, p. 3). Populations in some river drainages may be limited by annual availability of nesting habitat (
Interior least terns are primarily piscivores (fish-eaters), and feed opportunistically on small fish species or the young of larger fish species. Prey species include native species such as shad (
In the Missouri River drainage, Interior least terns forage for fish in shallow water habitats and within 12 kilometers (km) (7 miles (mi)) from colony sites (Stucker 2012, p. 24). In the Lower Mississippi River, foraging terns have been observed feeding in a variety of habitats within 3 km (2 mi) of colony sites (Jones 2012, pp. 5-6).
Interior least tern fall migrations generally follow major river basins to their confluence with the Mississippi River and then south to the Gulf of Mexico; however, late summer observations of least terns more than 150 km (93 mi) from major river drainages indicate that some birds migrate over land (Thompson
Breeding-site fidelity for least terns varies in different populations and breeding areas. Return rates of banded adults to the sites where they were banded was 36 to 86 percent in California colonies; 42 percent on the Mississippi River; 28 percent on the central Platte River, Nebraska; and 81 percent at Quivira National Wildlife Refuge in Kansas and on the Cimarron River in Oklahoma (Thompson
Site fidelity in least terns may be affected by physical habitat variables or the extent and type of predation (Atwood and Massey 1988, p. 394). As noted above, least terns are strong fliers and can relocate if conditions on natal or previous-year nesting grounds become unfavorable. A study of eastern least terns found an average 22 percent turnover rate in nesting colony sites, primarily due to changes in habitat condition or disturbance (Burger 1984, p. 66).
Lott
Interior least tern eggs, chicks, and adults are prey for a variety of mammal and bird predators. Reported predators include birds (
Location and size of nesting colonies also has a significant influence on degree of predation. Interior least tern reproductive success is higher on island colonies as compared to connected sandbar colonies, and when water levels maintain isolation of islands and nesting bars from mammalian predators (Smith and Renken 1993, p. 42; Szell and Woodrey 2003, p. 41). Additionally, significantly higher rates of predation were documented in larger colonies compared to smaller colonies (Burger 1984, p. 65).
The Service defined the historical breeding range of the Interior least tern to include the Colorado (in Texas), Red, Rio Grande, Arkansas, Missouri, Ohio, and Mississippi Rivers systems from Montana south to Texas, and from New Mexico east to Indiana (50 FR 21784; May 28, 1985). However, in order to avoid confusion with eastern least tern, the Service excluded the Mississippi River south of Baton Rouge, Louisiana, the Texas Coast, and a 50-mile zone inland from the coast of Texas from the protected range of Interior least tern (50 FR 21784, May 28, 1985, see p. 50 FR 21789).
The historical distribution and abundance of the Interior least tern within this range is poorly documented. Hardy (1957, entire) provided the first information on least tern distribution on large interior rivers, documenting records of occurrence and nesting in the Mississippi, Ohio, Missouri, Arkansas, and Red river drainages. Downing (1980, entire) published results from a rapid aerial/ground survey of a subset of these rivers, identifying additional nesting populations within the range noted above, and estimated the Interior least tern population at approximately 1,250 adult birds. Ducey (1981, pp. 10-50) doubled the number of known nesting sites, including areas between the scattered observations reported in Hardy (1957). Ducey also extended the northern distribution of the Interior least tern to include the Missouri River below Garrison Dam in North Dakota and Fort Peck Dam in Montana. These three publications (Hardy 1957; Downing 1980; Ducey 1981) provide the primary historical sources of information about the Interior least tern's geographic range, and were used to reach the estimate of 1,400 to 1,800 adults rangewide in the listing rule (50 FR 21784; May 28, 1985).
The current east to west distribution of summer nesting Interior least terns encompasses more than 18 degrees of longitude, or 1,440 km (900 mi), from the Ohio River, Indiana and Kentucky, west to the Upper Missouri River, Montana. The north to south distribution encompasses over 21 degrees of latitude (more than 2,300 km
Rangewide surveys in 2005 estimated an approximate minimum adult population size of 17,500, with nesting occurring in more than 480 colonies spread across 18 States, which is likely an underestimate given imperfect detection of adults and survey coverage of potential habitat (Lott 2006, pp. 10-21, 50). Lott (2006, pp. 13-15) also provided counts for 21 populations or population segments that were unknown at the time of listing, which collectively support more than 2,000 terns.
The Interior least tern has demonstrated a positive population trend, increasing by almost an order of magnitude (or 10 times what it was prior) since it was listed in 1985. After it was listed, researchers increased survey effort and the geographical extent of the area surveyed, producing sufficient Interior least tern count data to analyze population trends for several river reaches that support persistent breeding colonies. Kirsch and Sidle (1999, p. 473) reported a rangewide population increase to over 8,800 adults in 1995, and found that 29 of 31 Interior least tern locations with multi-year monitoring data were either increasing or stable. Lott (2006, p. 50) reported an increase to over 17,500 adult birds in 2005, forming 489 colonies in 68 distinct geographic sites.
Lott (2006, p. 92) conceptualized the Interior least tern functioning as a large metapopulation (a regional group of connected populations of a species), which might also include least terns on the Gulf Coast. Using available information on dispersal of least terns, Lott
Section 4(f) of the Act directs us to develop and implement recovery plans for the conservation and survival of endangered and threatened species unless we determine that such a plan will not promote the conservation of the species. Recovery plans are not regulatory documents and are instead intended to: (1) Establish goals for long-term conservation of a listed species; (2) define criteria that are designed to indicate when the threats facing a species have been removed or reduced to such an extent that the species may no longer need the protections of the Act; and (3) provide guidance to our Federal, State, and other governmental and nongovernmental partners on methods to minimize threats to listed species. There are many paths to accomplishing recovery of a species, and recovery may be achieved without all criteria being fully met. For example, one or more criteria may have been exceeded while other criteria may not have been accomplished, yet the Service may judge that, overall, the threats have been minimized sufficiently, and the species is robust enough, to reclassify the species from endangered to threatened (
Likewise, information on the species may be learned that was not known at the time the recovery plan was finalized. The new information may change the extent that criteria need to be met for recognizing recovery of the species. In short, recovery of a species is a dynamic process requiring adaptive management that may, or may not, fully follow the guidance provided in a recovery plan.
The Service approved the Interior Least Tern Recovery Plan on September 19, 1990 (Service 1990, entire). The objective of the recovery plan is to meet the standard of recovery that leads to delisting the Interior least tern. Recovery plans provide a road map for the public with site-specific management actions for private, Tribal, federal, and state cooperation in conserving listed species and their ecosystems. A recovery plan provides guidance on how best to help listed species achieve recovery. Recovery criteria are the values by which it is determined that a recovery plan objective has been reached. Recovery criteria identified in the recovery plan were designed to assure the protection of essential habitat by removal of threats at that time and habitat enhancement, establish agreed-upon management plans, and attain a rangewide population of 7,000 birds at the levels listed below (for five major river drainages throughout the Interior least tern's range):
(1) Adult birds in the Missouri River system will increase to 2,100, and remain stable for 10 years.
(2) Current numbers of adult birds (2,200-2,500) on the Lower Mississippi River will remain stable for 10 years.
(3) Adult birds in the Arkansas River system will increase to 1,600, and remain stable for 10 years.
(4) Adult birds in the Red River system will increase to 300, and remain stable for 10 years.
(5) Current numbers of adult birds (500) in the Rio Grande River system will remain stable for 10 years.
Primary recovery tasks conducted to achieve the recovery objective and drainage population targets included:
(1) Determining the distribution and population trends of the Interior least tern;
(2) Determining habitat requirements and status;
(3) Protecting, enhancing, and increasing Interior least tern populations; and
(4) Preserving and enhancing the tern's habitats.
These are summarized within the 5-year review and briefly reviewed below.
The Interior least tern rangewide numerical recovery criterion (7,000 birds) has been met and has been exceeded since 1994 (see Service 2013). Using rangewide seasonal count data from 1984 (722 terns) through 1995 (8,859 terns), Kirsch and Sidle (1999, pp. 473-477) demonstrated achievement of the numerical recovery criterion and a positive population growth trend. They noted that most of the Interior least tern increase had occurred on the Lower Mississippi River, observed that population increases were not supported by fledgling success estimates available at that time, and hypothesized
Lott (2006, entire) organized, compiled, and reported a synchronized rangewide count for Interior least tern in 2005, finding tern numbers had doubled since 1995 (17,591 birds rangewide; 62 percent occurring along the Lower Mississippi River), equaling or exceeding least tern population estimates along the U.S. Gulf Coast (Lott 2006, p. 50). Since 2006, the majority of Interior least terns continue to be reported from the Lower Mississippi River (Service 2013, p. 11). As did Kirsch and Sidle (1999, p. 478), Lott (2006, p. 52) also hypothesized a wider least tern metapopulation, which included Gulf Coast and interior subpopulations, and the possibility of a shift of birds from the Gulf Coast to inland habitats due to the presence of better nesting conditions, particularly on the Lower Mississippi River. However, there are few data directly supporting the Kirsch and Sidle (1999, pp. 473-477) or the Lott (2006, p. 52) immigration hypotheses as a factor in the 20-year increase in Interior least tern counts. There has not been a complete or organized rangewide count since 2005; however, some geographic segments continue to be annually monitored, including portions of the Missouri (USACE
In addition to the numerical population targets identified in the recovery plan for five major river drainages throughout the tern's range (see above), sub-drainage targets were also identified for the Missouri and Arkansas River drainages (Service 1990, pp. 28-29). Drainage and sub-drainage numerical targets were based upon the opinions of technical experts and State and Federal resource agencies of the potential for population increase at the time (Service 1990, p. 28). The drainage system population size targets have been exceeded in three of the five targeted drainages (Lower Mississippi (more than 25 years), Red (more than 15 years), and Arkansas rivers (more than 10 years)) (see Service 2013, pp. 22-26). As to the Rio Grande drainage, it is now recognized that the subpopulations found within the drainage represent recent exploitation of anthropogenic habitats and are not historical habitats; thus, these areas were inappropriately designated as “essential” segments of the tern's ecosystem in the recovery plan (Service 2013, pp. 26-27). Therefore, numerical targets originally set for the Rio Grande drainage are no longer considered necessary for this species' recovery.
As to the Missouri River drainage, the Interior least tern population size has remained relatively stable (approximately 1,600 birds) over the 29 years since recovery criteria were identified (Service 2013, p. 11), and neither the drainage population target (2,100) nor many of the targets identified for Missouri River drainage segments have been consistently met (Service 2013, pp. 14-21). However, since the tern was listed, the Missouri River system has received a significant commitment of conservation attention and resources (USACE 2019a), particularly in comparison to other drainages that have experienced increases in tern populations. Based on the lack of increase, in light of the substantial commitment of resources, we conclude that that the Missouri River drainage is likely at the carrying capacity of the available habitat (Service 2013, pp. 14-21), and the recovery goal of 2,100 birds is not achievable. Monitoring data show that periodic downward trends observed in a few Missouri drainage subpopulations have been reversed by habitat improvement following major floods (Pavelka 2012, p. 2), or offset by upward trends in other subpopulations (Pavelka 2012, pp. 7-8; Lott and Sheppard 2017a, pp. 49-53) indicating that the Missouri River drainage Interior least tern population is sustainable and recovered.
In short, some drainage population targets identified in the 1990 recovery plan have not been fully met, as the Rio Grande was inappropriately considered “essential” (see above) and the Missouri River drainage appears to be at carrying capacity and incapable of reaching the 2,100 target identified in the recovery plan. However, the inability to meet these drainage and sub-drainage targets have been offset by large increases in the Interior least tern populations within the Arkansas, Red, and Lower Mississippi rivers, and by the discovery of numerous subpopulation segments throughout the Interior Basin that were either unrecognized or not occupied at the time of listing and recovery plan development, increasing the number of known breeding colonies from a few dozen at listing to more than 480 (Lott 2006, p. 10; also see Service 2013, pp. 31-33).
Recovery plan delisting criteria required the protection, enhancement, and restoration of essential Interior least tern breeding habitats (Service 1990, pp. 28-29). Beyond the identification of specific river reaches as “essential,” habitat parameters were not defined, nor were specific objective and measurable criteria for their protection identified. The recovery plan outlined several tasks to protect and enhance Interior least tern habitats, including managing water flows, modifying construction activities, and protecting all areas identified as “essential” across the species' range through acquisition, easements, or agreements (Service 1990, pp. 29-50).
Recovery tasks identified for managing water flows are primarily relevant to portions of the Missouri, Red, and Arkansas River drainages, which cumulatively encompass about 20 percent of the Interior least tern breeding population. The majority of the remainder of species' range occurs along unimpounded sections of the Mississippi river not subject to flow management. Over the past two decades, protective flow management actions have been identified and incorporated by USACE Northwest Division into their Missouri River Bank Stabilization and Navigation Project and operations of the Kansas River Reservoir System, including seasonal reservoir flow management to reduce nesting mortalities, and for sandbar augmentation and modification, vegetation management, predation control, human restriction measures, and water-level management for reservoir nesting areas (USACE 2017, pp. 139-143). In the Southern Plains, USACE Southwest Division civil works projects in the Arkansas, Canadian, and Red River systems within Arkansas, Oklahoma, and Texas use reservoir storage and operation to reduce flooding, minimize land bridging, predation, and human disturbance during Interior least tern nesting season, and to enhance nesting habitats at other times of the year (USACE 2002, pp. 3-4; 2016 pp. 18-20). These water management practices have been adopted by the respective USACE Divisions and Districts as Best Management Practices and with commitments to continue into the future regardless of the future status of the Interior least tern under the Act (USACE 2016, pp. 2, 24; 2018, pp. 4-13-4-17).
Recovery tasks for modifying construction activities within river channels have been successfully
New information developed over the past three decades relative to the ecology of Interior least tern and its habitats indicate that recovery tasks to protect “essential” habitats across the species' range through acquisition or easements are neither cost-effective nor necessary. Riverine habitat for Interior least terns is not static, and clearly experiences dramatic local or regional annual (at times, daily) variation in location, quantity, and quality. Describing and quantifying habitat quality is difficult, given the wide variety of conditions the bird is known to exploit (
The Interior least tern adjusts to habitat variation and change over its range through metapopulation dynamics (Hanski and Gilpin 1991, entire; Lott
Based upon this understanding of Interior least tern population dynamics and habitat use, the recovery task of protecting all areas identified in 1990 as “essential” across the species' range through acquisition or easements is not necessary for the conservation of the species. This conclusion is supported by the increase in the species' range and abundance over the past 29 years without protections achieved through such acquisition or easements. Although some Interior least tern nesting colonies occur on protected public lands such as wildlife refuges, they represent only a small portion (less than 2 percent) of the range-wide population. Additionally, as noted above, existing management agreements, strategies, and programs within jurisdictional waters are protective of the habitats that support about 80 percent of the Interior least tern population (USACE 2013, 2016, 2017).
While the majority (80 percent) of Interior least tern nesting colonies are known from jurisdictional waters with a strong Federal connection with navigation systems or reservoirs, the remaining nesting colonies occur along rivers with a more limited Federal nexus, or on mining and industrial sites adjacent to or near rivers and reservoirs. On about 10 percent of these, Federal, State, and/or private conservation partnerships have developed and implemented conservation agreements and management programs beneficial to Interior least tern as well as other at risk or endangered species. These programs generally post or restrict access, control predators, and conduct monitoring during nesting season, as well as conduct vegetation control and public education as opportunities present.
In the Platte River drainage, the Tern and Plover Conservation Partnership was initiated in 1999, at the University of Nebraska, School of Natural Resources. This partnership consists of a group of State, industrial, Federal and other cooperators having an interest in tern and plover conservation and management on and along the Platte, Loup, and Elkhorn Rivers, with emphasis on nesting areas associated with sand and gravel mines, lake shore housing developments and dredging operations (University of Nebraska-Lincoln, 2019)). Long-term management of Interior least tern habitats in the Platte River drainage is also assured by an Adaptive Management Plan developed and implemented by a partnership of State and industrial water users in Nebraska, Colorado, and Wyoming under the Platte River Recovery Implementation Program (Platte River Recovery Implementation Program, 2019). This program, initiated in 1997, also targets management needs of endangered pallid sturgeon and whooping crane, and the threatened piping plover. Since both programs target other listed species with similar habitat requirements, and the Interior least tern is State listed as endangered, these conservation programs and efforts are expected to continue regardless of a change in the Federal status of this species.
Interior least tern management in the Wabash River drainage began with the 1986 discovery of a single nesting pair on Gibson Generating Station property, Gibson County, Indiana (Hayes and Pike 2011, entire; Mills 2018, pp. 2-5). This colonization led to site monitoring, predator control and other protective measures, as well as vegetation control, water management, and habitat management and creation, resulting in increasing numbers of terns and expansion of nesting colonies to multiple sites on public and private properties in the vicinity (Hayes and Pike 2011, entire). In 1999, management was formalized by development of a Habitat Conservation Plan, which was renewed and revised in 2004 and 2011, by Duke Energy Corporation (Hayes and Pike 2011, entire). The Indiana
To various degrees, a number of additional small, localized, and often temporary breeding colonies of Interior least tern and their habitats have been managed, protected, and monitored at industrial, municipal, and reservoir sites under the conservation (sections 6, 7(a)(1), and 10) or consultation (section 7(a)(2)) requirements of the Act. Managed sites have included coal mines (
In summary, the expansion of the numbers and distribution of the Interior least tern, and its adaptation to, and exploitation of anthropogenic habitats over the past several decades indicate that the species is no longer conservation reliant and is recovered. Potential threats identified at the time of listing have been removed or ameliorated by conservation actions of multiple conservation partners, most principally the USACE, for more than 20 years. These actions have assisted in recovery of the species as reflected in the large number of individuals range-wide, stable to increasing drainage populations since listing, and a high number of self-sustaining colonies in 18 states. Furthermore, our partners in USACE Divisions and districts within the range of the Interior least tern have cooperatively modified their programs to provide for the long-term management of nesting and foraging habitats for about 80 percent of the rangewide population of the species (USACE (2013, 2016, 2017). Another 10 percent of the population is managed by State and private partnerships, which are expected to continue based upon State status and regulations. Regarding the remaining 10 percent of the population that nest in habitats with minimal or no management, while these areas contribute to redundancy and representation for the species, their success or failure within these sites is not essential to the continued existence of the Interior least tern. Therefore, we believe the recovery of the Interior least tern has been fully achieved.
Section 4 of the Act and its implementing regulations (50 CFR part 424) set forth the procedures for listing species, reclassifying species, or removing species from listed status. We may determine that a species is an endangered or threatened species due to one or more of the five factors described in section 4(a)(1) of the Act: (A) The present or threatened destruction, modification, or curtailment of its habitat or range; (B) overutilization for commercial, recreational, scientific, or educational purposes; (C) disease or predation; (D) the inadequacy of existing regulatory mechanisms; or (E) other natural or manmade factors affecting its continued existence.
A recovered species is one that no longer meets the Act's definition of endangered species or threatened species. Determining whether the status of a species has improved to the point that it can be delisted or downlisted requires consideration of the same five factors identified above. When the Interior least tern was listed as endangered in 1985, the identified threats (factors) influencing its status were the modification and loss of habitat and curtailment of range (Factor A), predation and disturbance of local colonies (Factor C), and the inadequacy of State or Federal mechanisms to protect its habitat at that time (Factor D). We may delist a species according to 50 CFR 424.11(d) if the best available scientific and commercial data indicate that the species is neither endangered nor threatened for the following reasons: (1) The species is extinct; (2) the species has recovered and is no longer endangered or threatened; and/or (3) the original scientific data used at the time the species was classified were in error. The following analysis, based on an assessment of the Interior least tern, evaluates these previously identified threats, any other threats currently facing the species, and any other threats that are reasonably likely to affect the Interior least tern in the foreseeable future following the delisting and the removal of the Act's protections.
The primary threats identified for the Interior least tern in the May 28, 1985, listing rule (50 FR 21784) were associated with the destruction and modification of habitat due to channel engineering practices on large rivers of the Interior Basin (
New information on the species' response to the threats identified at the time of listing indicate that anthropogenic changes in some river channels supporting the Interior least tern have also benefited the Interior least tern in ways that may have compensated for historical impacts to its habitat. For example, in the Lower Mississippi River (where tern numbers have increased by an order of magnitude, and which currently supports more than 60 percent of the Interior least tern nesting population), channel engineering, including the construction of channel training dikes, resulted in higher sandbars as well as earlier and shorter spring and summer high water events in this portion of the range (Schramm 2004, pp. 306, 322; USACE 2013, p. 60). Such changes have reduced egg and chick flood-related mortality events, extended the nesting season, and increased re-nesting opportunities, all of which may explain the Interior least tern population increase in the Lower Mississippi River over the past four decades.
Anthropogenic habitats are also now known to provide significant opportunities for Interior least tern nesting and recruitment. High flows in the Platte River have historically peaked after most nesting has been initiated within the river channel, flooding nests and hatchlings, and limiting re-nesting opportunities (Farnsworth
Although river channel engineering, including reservoirs, channelization, channel training structures, and bank stabilization, continues to alter the Interior least tern's habitats, as outlined above these habitat modifications have also created addition habitat opportunities for this species. The Interior least tern's known range has increased significantly: The reported numbers of nesting Interior least terns have expanded by almost an order of magnitude from fewer than 2,000 in 1985, to approximately 18,000 in 2005 (Lott 2006, p. 10), and currently more than 480 Interior least tern colonies are known to occur in four major drainages with 16 primary subpopulations (Lott
Loss of some historical Interior least tern summer nesting habitat likely occurred on a local or regional scale prior to listing; however, we have found no evidence that nesting habitat loss is currently limiting the Interior least tern on a rangewide scale. The Interior least tern continues to nest in all habitat types and drainages identified in 1985, and there is no evidence of significant regional decline or extirpation from any drainage since listing (Service 2013, p. 10). As previously noted, the Interior least tern uses a variety of anthropogenic habitats such as navigation systems, reservoirs, sand mines, and so forth, allowing the Interior least tern to not only survive, but also to thrive in some drainages, and even expand its range into areas without historical records.
While future conditions within some portion of the Interior least tern's range may deteriorate due to natural or anthropogenic changes (for example, climate change may increase the likelihood of heavy rainfall events) or human demands (
Interior least tern eggs, chicks, and adult individuals are susceptible to a wide variety of avian and terrestrial predators. During the 25-year monitoring period on the Missouri River, the greatest cause of egg loss has been predation (3 percent) (Aron
Interior least terns are adapted to avoid predation because: (1) Their eggs and chicks are cryptically colored to avoid detection; (2) chicks exhibit “freeze” behavior when threatened; and (3) adults cooperate in alarm calls and attack flights on potential predators to the colonies (Thompson
The level and effect of predation can be locally high and significant in some colonies and in some years; however, the Interior least tern's adaptation to high levels of predation is demonstrated by the exponential growth of rangewide breeding numbers since listing in 1985. Interior least tern are long-lived, and current population trends indicate that sporadic local breeding failure due to predation or other causes is natural, and unlikely to be significant to the long-term stability of the rangewide population.
The distributions of many terrestrial organisms, including birds, are shifting in latitude or elevation in response to climate warming (Chen
The ability of migratory birds to cope with rapid climate change effects depends upon the rate of their adaptive response to the changes (Knudson
Most climate change models predict increased extreme weather events (
Hof
Invasive salt cedar and willow growth, decreases in annual rainfall, and overuse and depletion of aquifers, coupled with increased human water demands, are occurring in the Southern and Northern Plains rivers, possibly to the future detriment of Interior least tern habitat and forage availability in those drainages. However, increases in impervious surfaces (
Starvation of California least tern chicks has been reported due to the detrimental effects of El Niño on fish abundance (Massey and Fancher 1989, p. 354; Massey
Thompson
Sampling for contaminants in Interior least terns has been concentrated in the Missouri River drainage, where sub-lethal amounts of arsenic, mercury, chlorinated hydrocarbon, selenium, and polychlorinated biphenyl (PCBs) have been documented in individuals (Fannin and Esmoil 1993, pp. 153-157; Ruelle 1993, pp. 162-170; Allen
Interior least tern mortality occurs locally throughout the range due to a variety of natural or manmade factors. However, the wide distribution of the species, its current high numbers, its long life span, and its ability to relocate and re-nest make the Interior least tern resilient to occasional or periodic local sources of mortality, as well as potential effects of climate change. The increase in range and population size since 1985 indicates that sources of mortality to localized colonies are compensated by these traits of resiliency, as well as by the potential of high recruitment rates in other Interior least tern colonies or populations.
Our analysis has identified no rangewide threats or stressors with significant effects to all breeding colonies or subpopulations. Monitoring data show some breeding colonies or subpopulation segments may decline or relocate due to localized stressors (
Species viability, or its ability to survive long term, is related to its ability
Redundancy of populations is needed to provide a margin of safety for a species to withstand catastrophic events. Current information and observed trends since the species was listed in 1985 indicate that redundancy of the Interior least tern is currently ensured by the existence of hundreds of breeding colonies in multiple drainages across a wide latitudinal and longitudinal range (see
Adequate representation ensures that the species' adaptive capabilities are conserved, specifically through its representation across all historical ecological settings, and through preservation of the genetic diversity of the species. The Interior least tern was historically known from, and continues to occur in, two main natural habitat types: Large river sandbars and salt plains. While the salt plains populations were and continue to be historically localized in small portions of the Southern Plains, the sandbar populations occurred across a large latitudinal and longitudinal gradient, encompassing multiple river and stream orders, and a wide variety of climatic conditions. Little evidence of genetic structure has been found within the Interior least tern population (Draheim
Resiliency allows a species to recover from periodic or occasional disturbance. Resilience of individual and mated terns is demonstrated by their ability to relocate and re-nest when habitat conditions deteriorate, or when disturbance by humans or predators becomes severe. Interior least tern metapopulation dynamics allow subpopulations and colonies to respond to changing habitat conditions, including their ability to exploit a variety of anthropogenic habitats that were not historically available (Lott
In addition to this review of redundancy, representation, and resiliency, which indicates a high likelihood of future viability for the Interior least tern, the Service worked with multiple partners to develop a habitat-driven, rangewide population model for the tern in order to consider status and population dynamics with and without continued management at local, regional, and rangewide scales (Iglay
Based upon the analysis presented above, the Interior least tern cannot be considered to be conservation reliant because it has shown to be able to adapt to and exploit substantial habitat changes throughout its range. Although some (10 percent) local colonies and peripheral population segments of the Interior least tern may require management for long-term persistence their success or failure within individual sites is not essential to the continued existence of the Interior least tern. Viability of the Interior least tern is assured by its resilience, representation, and redundancy throughout the remainder of its range. The tern will continue to be conserved by habitat management programs over more than 80 percent of its range (see
The Interior least tern is covered by the Migratory Bird Treaty Act (MBTA; 16 U.S.C. 703
When the Interior least tern was listed in 1985, the listing rule (50 FR 21784) noted that while the MBTA protected migratory birds from harm or harassment, it did not provide a mechanism to address habitat threats. It concluded, therefore, in the absence of protection under the Endangered Species Act, the MBTA and other existing regulatory mechanisms were inadequate to prevent deterioration to habitats of the Interior least tern due to channel engineering. As noted above, however, the effects of channel engineering on the species may have been more beneficial than detrimental, at least in portions of the range (
The protection, restoration, conservation, and management of ecological resources within the Interior least tern's range have been broadly enhanced through Executive Orders and Federal regulations since the species was listed. These include provisions emphasizing the protection and restoration of ecosystem function and quality in compliance with existing Federal environmental statutes and regulations (
Executive Order (E.O.) 13186 (Responsibilities of Federal Agencies to Protect Migratory Birds; 66 FR 3853), enacted in 2001, requires all Federal agencies to use their authorities and conduct their actions to promote the conservation of migratory bird populations. Actions authorized by E.O. 13186 include: (1) Avoiding and minimizing adverse impacts to migratory birds; (2) habitat restoration and enhancement, and preventing pollution or detrimental alteration of migratory bird environments; (3) designing habitat and population conservation principles, measures, and practices into agency plans and planning processes; (4) promoting research and information exchange, including inventorying and monitoring; and (5) ensuring full consideration under NEPA of migratory birds such as the Interior least tern. These concepts have been incorporated by the USACE into its Environmental Operating Principles (USACE 2019b and 2019c), and are being implemented within the jurisdictional waters inhabited by the Interior least tern. In the absence of the Act's protections, E.O. 13186 and USACE operating principles and programs will continue to provide for protection and management of the Interior least tern and its habitats (see
The Civil Works Ecosystem Restoration Policy of 1999 (CWERP) (USACE ER 1165-2-501) identifies ecosystem restoration as one of the primary missions of the USACE Civil Works program. This policy requires a comprehensive examination of the problems contributing to ecosystem degradation, and the development of alternative means for their solution, with the intent of partially or fully reestablishing the attributes of a naturalistic, functioning, and self-regulating system.
Implementation of actions authorized under E.O. 13186 and CWERP are discretionary, and contingent upon opportunity and annual appropriations and other budgetary constraints. However, many Federal action agencies now have an extensive history of managing and restoring Interior least tern habitats (some more than two decades) in compliance with non-discretionary requirements of section 7(a)(2) of the Act (in the Missouri, Red, Arkansas, middle Mississippi Rivers), as well as discretionary components of section 7(a)(1) of the Act, E.O. 13186, and CWERP (in the Lower Mississippi River). As a result, many conservation measures have become standard operating practices (see
Interior least terns are listed as endangered in the following 16 of the 18 States where they occur: South Dakota, Nebraska, Colorado, Iowa, Illinois, Missouri, Kansas, Mississippi, Arkansas, Louisiana, Kentucky, Tennessee, Indiana, New Mexico, Montana, and Texas. Many of the States noted above actively manage Interior least terns, including seasonal posting to prevent disturbance of nesting areas (
Interior least tern protection under State laws may continue following Federal delisting. This proposed rule, if made final, might prompt some to several States to follow the final federal delisting determination and remove the Interior least tern from their endangered species lists, but in other States, the tern may continue to meet the definition of State endangered. Regardless of Federal laws, most State laws protect native wildlife (including the Interior least tern) from take, and require State permits, in addition to Federal permits, to collect, harm, or harass migratory bird species such as the Interior least tern.
Activities that may adversely affect the Interior least tern and its habitats will also continue to be subject to numerous regulatory mechanisms, including the MBTA, CWA, Fish and Wildlife Coordination Act (FWCA; 16 U.S.C. 661
Since its 1985 listing under the Act, the Interior least tern has shown an ability to adapt to changing environmental conditions caused by both human and natural disturbances. The Interior least tern nesting population encompasses hundreds of colonies in 18 States throughout the Interior Basin, from Montana southward through North Dakota, South Dakota, Nebraska, Colorado, Iowa, Kansas, Missouri, Illinois, Indiana, and Kentucky to eastern New Mexico, Oklahoma, Arkansas, Tennessee, Texas, Louisiana, and Mississippi (see supplemental documents at
We have carefully assessed the best scientific and commercial information available regarding the threats faced by the Interior least tern in developing this proposed rule. Our analysis found an increase in the abundance, number of breeding sites, and range of the Interior least tern, resiliency to existing and potential threats, active habitat management and the implementation of beneficial management practices, and changes in existing regulatory mechanisms that are protective of migratory bird habitats. Known threats at the time of listing—habitat loss and curtailment of range (Factor A) and predation (Factor C)—have been reduced or adequately managed, and we have analyzed possible new threats (Factor E) and determined that they are not significant threats to the Interior least tern. Existing State and Federal regulatory mechanisms (Factor D) are adequate to protect the tern from the reduced threats. The net effect of current and predictable future stressors to the species, after considering applicable conservation measures and the existing regulatory mechanisms, are not sufficient to cause the Interior least tern to meet the definition of an endangered or threatened species. We find that the Interior least tern has recovered so that it no longer meets the definition of an endangered species or a threatened species under the Act throughout its range.
Under the Act and our implementing regulations, a species may warrant listing if it is in danger of extinction or likely to become so in the foreseeable future throughout all or a significant portion of its range (SPR). Where the best available information allows the Services to determine a status for the species rangewide, that determination should be given conclusive weight because a rangewide determination of status more accurately reflects the species' degree of imperilment and better promotes the purposes of the Act. Under this reading, we should first consider whether the species warrants listing “throughout all” of its range and proceed to conduct a “significant portion of its range” analysis if, and only if, a species does not qualify for listing as either an endangered or a threatened species according to the “throughout all” language.
Having determined that the Interior least tern is not in danger of extinction or likely to become so in the foreseeable future throughout all of its range, we now consider whether it may be in danger of extinction or likely to become so in the foreseeable future in an SPR. The range of a species can theoretically be divided into portions in an infinite number of ways, so we first screen the potential portions of the species' range to determine if there are any portions that warrant further consideration. To do the “screening” analysis, we ask whether there are portions of the species' range for which there is substantial information indicating that: (1) The portion may be significant; and, (2) the species may be, in that portion, either in danger of extinction or likely to become so in the foreseeable future. For a particular portion, if we cannot answer both questions in the affirmative, then that portion does not warrant further consideration and the species does not warrant listing because of its status in that portion of its range. We emphasize that answering these questions in the affirmative is not a determination that the species is in danger of extinction or likely to become so in the foreseeable future throughout a significant portion of its range—rather, it is a step in determining whether a more detailed analysis of the issue is required.
If we answer these questions in the affirmative, we then conduct a more thorough analysis to determine whether the portion does indeed meet both of the SPR prongs: (1) The portion is significant and (2) the species is, in that portion, either in danger of extinction or likely to become so in the foreseeable future. Confirmation that a portion does indeed meet one of these prongs does not create a presumption, prejudgment, or other determination as to whether the species is an endangered species or threatened species. Rather, we must then undertake a more detailed analysis of the other prong to make that determination. Only if the portion does indeed meet both SPR prongs would the species warrant listing because of its status in a significant portion of its range.
At both stages in this process—the stage of screening potential portions to identify any portions that warrant further consideration and the stage of undertaking the more detailed analysis of any portions that do warrant further consideration—it might be more efficient for us to address the “significance” question or the “status” question first. Our selection of which question to address first for a particular portion depends on the biology of the species, its range, and the threats it faces. Regardless of which question we address first, if we reach a negative answer with respect to the first question that we address, we do not need to evaluate the second question for that portion of the species' range.
For the Interior least tern, we chose to evaluate the status question (
We examined the following threats: Habitat loss, curtailment of range, predation, and inadequacy of regulatory mechanisms, including cumulative effects. We found no concentration of threats in any portion of the Interior least terns range at a biologically meaningful scale. Since we found no portions of the species' range where threats are significantly concentrated or substantially greater than in other portions of its range, we did not identify any portions where the species may be in danger of extinction or likely to become so in the foreseeable future. Therefore, no portions warrant further consideration through a more detailed analysis, and the species is not in danger of extinction or likely to become so in the foreseeable future in any significant portion of its range. Our approach to analyzing SPR in this determination is consistent with the court's holding in
Our review of the best available scientific and commercial information indicates that the Interior least tern is not in danger of extinction nor likely to become an endangered species within the foreseeable future throughout all or a significant portion of its range. Therefore, we find that the Interior least tern does not meet the definition of an endangered species or a threatened species under the Act.
We have determined that none of the existing or potential threats, either alone or in combination with others, is likely to cause the Interior least tern to be in danger of extinction throughout all or a significant portion of its range, nor is any likely to cause the species to become an endangered species within the foreseeable future throughout all or a significant portion of its range. On the basis of our evaluation, we conclude that, due to recovery, the Interior least tern is not an endangered or a threatened species. We therefore propose to remove the Interior least tern from the Federal List of Endangered and Threatened Wildlife at 50 CFR 17.11(h).
If we adopt this rule as proposed, the prohibitions and conservation measures provided by the Act would no longer apply to the Interior least tern. Federal agencies would no longer be required to consult with us under section 7 of the Act to ensure that any action authorized, funded, or carried out by them is not likely to jeopardize the Interior least tern's continued existence. The provisions of the MBTA will remain in place. The MBTA protects the bird and its parts, nests, and eggs from taking and trade; and Federal permits are required for certain actions like scientific collecting and relocation (see
If adopted, this rule would not affect the Interior least tern's status as an endangered or threatened species under State laws or suspend any other legal protections provided by State law. States may have more restrictive laws protecting wildlife, and these will not be affected by this Federal action. However, this proposed rule, if made final, may prompt some States to remove protection for the Interior least tern under their State endangered species laws.
Section 4(g)(1) of the Act requires us to monitor for not less than 5 years, the status of all species that are delisted due to recovery. Post-delisting monitoring (PDM) refers to activities undertaken to verify that a species delisted due to recovery remains secure from the risk of extinction after the protections of the Act no longer apply. The primary goal of PDM is to monitor the species to ensure that its status does not deteriorate, and if a decline is detected, to take measures to halt the decline so that proposing it as endangered or threatened is not again needed. If at any time during the monitoring period, data indicate that protective status under the Act should be reinstated, we can initiate listing procedures, including, if appropriate, emergency listing. At the conclusion of the monitoring period, we will review all available information to determine if relisting, the continuation of monitoring, or the termination of monitoring is appropriate.
Section 4(g) of the Act explicitly requires that we cooperate with the States in development and implementation of PDM programs. However, we remain ultimately responsible for compliance with section 4(g) and, therefore, must remain actively engaged in all phases of PDM. We also seek active participation of other entities that are expected to assume responsibilities for the species' conservation after delisting.
We have prepared a draft PDM plan for the Interior least tern (Service 2017). The draft plan:
(1) Summarizes the Interior least tern's status at the time of delisting;
(2) Defines thresholds or triggers for potential monitoring outcomes and conclusions;
(3) Lays out frequency and duration of monitoring;
(4) Articulates monitoring methods, including sampling considerations;
(5) Outlines data compilation and reporting procedures and responsibilities; and
(6) Proposes a PDM implementation schedule, including timing and responsible parties.
The draft PDM plan is availability for public review at
We are required by Executive Orders 12866 and 12988 and by the Presidential Memorandum of June 1, 1998, to write all rules in plain language. This means that each rule we publish must:
(a) Be logically organized;
(b) Use the active voice to address readers directly;
(c) Use clear language rather than jargon;
(d) Be divided into short sections and sentences; and
(e) Use lists and tables wherever possible.
If you feel that we have not met these requirements, send us comments by one of the methods listed in
We have determined that we do not need to prepare an environmental assessment or environmental impact statement, as defined in the National Environmental Policy Act (42 U.S.C. 4321
In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and the Department of the Interior's manual at 512 DM 2, we readily acknowledge our responsibility to communicate meaningfully with recognized Federal Tribes on a government-to-government basis. We have determined that there are lands of 20 different tribes within the range of the listed Interior least tern that may be affected by this proposal. We intend to contact each of these Tribes during the open comment period for this proposed rule so they may fully evaluate any potential impact of this proposed rule and the draft PDM plan.
A complete list of references cited is available on
The primary author of this document is Paul Hartfield of the Mississippi Ecological Services Field Office (see
Endangered and threatened species, Exports, Imports, Reporting and recordkeeping requirements, Transportation.
Accordingly, we propose to amend part 17, subchapter B of chapter I, title 50 of the Code of Federal Regulations, as set forth below:
16 U.S.C. 1361-1407; 1531-1544; 4201-4245, unless otherwise noted.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; request for comments.
NMFS proposes regulations to modify the medical and beneficiary transfer provisions of the Individual Fishing Quota (IFQ) Program for the fixed-gear commercial Pacific halibut and sablefish fisheries. This proposed rule is intended to simplify administration of the medical and beneficiary transfer provisions while promoting the long-standing objective of maintaining an owner-operated IFQ fishery. This proposed rule would also make minor technical corrections to regulations for improved accuracy and clarity. This proposed rule is intended to promote the goals and objectives of the IFQ Program, the Magnuson-Stevens Fishery Conservation and Management Act, the Northern Pacific Halibut Act of 1982, and other applicable laws.
Submit comments on or before November 25, 2019.
You may submit comments, identified by docket number NOAA-NMFS-2019-0069, either of the following methods:
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Electronic copies of the Regulatory Impact Review (referred to as the “Analysis”) and the Categorical Exclusion prepared for this proposed rule are available from
Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this proposed rule may be submitted by mail to NMFS at the above address; by email to
Stephanie Warpinski, 907-586-7228.
NMFS manages the groundfish fisheries in the exclusive economic zone off Alaska under the Fishery Management Plan (FMP) for Groundfish of the Gulf of Alaska (GOA) and under the FMP for Groundfish of the Bering Sea and Aleutian Islands Management Area (BSAI). The North Pacific Fishery Management Council (Council) prepared the FMPs under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act), 16 U.S.C. 1801
The International Pacific Halibut Commission (IPHC) and NMFS manage fishing for Pacific halibut through regulations established under the authority of the Northern Pacific Halibut Act of 1982 (Halibut Act). The IPHC promulgates regulations governing the halibut fishery under the Convention between the United States and Canada for the Preservation of the Halibut Fishery of the Northern Pacific Ocean and Bering Sea (Convention). The IPHC's regulations are subject to
The Halibut Act, at sections 773c(a) and (b), provides the Secretary with general responsibility to carry out the Convention and the Halibut Act. In adopting regulations that may be necessary to carry out the purposes and objectives of the Convention and the Halibut Act, the Secretary is directed to consult with the Secretary of the department in which the U.S. Coast Guard is operating, currently the Department of Homeland Security.
The Halibut Act, at section 773c(c), also provides the Council with authority to develop regulations, including limited access regulations, that are in addition to, and not in conflict with, approved IPHC regulations. Regulations developed by the Council may be implemented by NMFS only after approval by the Secretary. The Council has exercised this authority in the development of subsistence halibut fishery management measures, codified at 50 CFR 300.65, and the limited access program for charter operators in the charter fishery, codified at 50 CFR 300.67. The Council also developed the IFQ Program for the commercial halibut and sablefish fisheries, codified at 50 CFR part 679, under the authority of section 773c of the Halibut Act and section 303(b) of the Magnuson-Stevens Act (16 U.S.C. 1801
The following background sections describe (1) the IFQ Program, (2) the IFQ medical transfer provision, (3) the IFQ beneficiary transfer provision, and (4) the appeals process.
The commercial halibut and sablefish fisheries in the GOA and the BSAI management areas are managed under the IFQ Program that was implemented in 1995 (58 FR 59375, November 9, 1993). The Council and NMFS developed the IFQ Program to resolve the conservation and management problems commonly associated with open access fisheries. The preamble to the proposed rule published on December 3, 1992 (57 FR 57130), describes the background issues leading to the Council's initial action recommending the adoption of the IFQ Program.
The IFQ Program limits access to the halibut and sablefish fisheries to those persons holding quota share (QS) in specific management areas. The IFQ Program allocates QS annually, and each year that QS yields an exclusive harvest privilege, an annual IFQ permit, among participants in the fixed gear commercial fishery. An IFQ permit is expressed in pounds and is based on the amount of QS held in relation to the total QS pool. Each year, NMFS issues IFQ to each QS holder to harvest a specific percentage of either the total allowable catch (TAC) in the sablefish fishery or the annual commercial catch limit in the halibut fishery. In addition to being specific to sablefish or halibut, QS and IFQ are designated for specific geographic areas of harvest (commonly known as regulatory areas), a specific vessel operation type (catcher vessel or catcher/processor), and for a specific range of vessel sizes that may be used to harvest the sablefish or halibut (vessel category). Section 2.2 of the Analysis (see
The Council and NMFS designed the IFQ Program to provide economic stability to the commercial halibut and sablefish fisheries and retain the character and distribution of the fishing fleets as much as possible. The IFQ Program includes several provisions, such as ownership caps and vessel use caps, to protect rural coastal community participants, part-time participants, and entry-level participants that could be adversely affected by excessive consolidation. The IFQ Program also includes other restrictions intended to slow consolidation of QS and prevent the fishery from being dominated by large vessels or by any particular vessel class.
The Council and NMFS created the provisions of the IFQ Program to support the conservation and management objectives of the Magnuson-Stevens Act and the Halibut Act while retaining the “owner-operator” character of the fishing fleets as much as possible. The three main exceptions to the owner-operator requirement are for initial issuees of QS to be able to use hired masters to fish the IFQ resulting from their QS; a medical transfer provision that allows QS holders with approved medical conditions to use hired masters for the IFQ derived from their QS if they are not able to harvest their own IFQ; and a beneficiary transfer provision that provides for temporary annual transfers of IFQ to a hired master for up to three years after a QS holder's death. Since implementation of the IFQ Program, the Council has recommended and NMFS has implemented many amendments to revise the IFQ Program to maintain the owner-operator character of the IFQ fishery. This proposed rule would not modify existing regulations that apply to initial issuances of QS, but would modify the medical and beneficiary transfer provisions.
The IFQ Program currently includes a medical transfer provision that allows QS holders of catcher vessel QS (referred to as class B, C, and D QS shares) who are not otherwise eligible to use a hired master (
Prior to implementation of this provision in 2007, a QS holder with a medical condition was required to divest of his or her QS or allow his or her IFQ to go unfished during years he or she could not be on board the vessel. Medical transfers were not intended to be a mechanism for persons unable or unwilling to participate in the fishery as an owner onboard to continue to receive economic benefits from their QS holdings, but were intended to address legitimate medical conditions that precluded participation (72 FR 44795, August 9, 2007).
To limit potential for repeated, long-term, or illegitimate use of the medical transfer provision, the current provision's application is limited (1) to individuals who are not otherwise eligible to use hired masters; (2) to IFQ derived from catcher vessel QS held by the applicant; (3) to include a requirement for certification by specific types of medical providers who must describe the condition (and the care required if caring for a immediate family member); (4) to require verification of the inability of the QS holder to participate in IFQ fisheries; and (5) a use cap of 2 years in a 5-year period.
An applicant for a temporary medical transfer must document the QS holder's, or immediate family member's, medical condition by submitting an affidavit to NMFS from a licensed medical doctor, an advanced nurse practitioner, or a primary community health aide, that describes the medical condition affecting the applicant (or applicant's immediate family member) that prevents participation in the fishery for the calendar year. In the case of an immediate family member's medical emergency, the affidavit must describe the necessity for the QS holder to care for an immediate family member who suffers from the medical condition. The QS holder must resubmit the application on an annual basis if his or her medical condition, or that of an immediate family member, continues.
The beneficiary transfer provision allows for temporary annual transfers of catcher vessel IFQ to be approved for up to three years after the QS holder's death. In 1996, NMFS amended the IFQ Program regulations to allow for a temporary transfer of QS to surviving spouses of deceased QS holders (61 FR 41523, August 9, 1996). In 2000, a final rule (65 FR 78126, December 14, 2000) expanded the existing survivorship transfer provisions in 50 CFR 679.41(k) to include an immediate family member designated as beneficiary to whom the survivorship transfer privileges would extend in the absence of a surviving spouse. This transfer is intended to benefit the surviving spouse, or an immediate family member designated by the QS holder, for a limited period of time.
To transfer QS under this beneficiary provision, the surviving spouse, or the designated beneficiary named on the QS/IFQ Beneficiary Designation Form by the QS holder, submits an Application for Transfer of QS/IFQ. These forms are processed by NMFS Restricted Access Management (RAM) Program.
NMFS may approve an application to transfer QS to the surviving spouse or designated beneficiary, unless a contrary intent is expressed by the decedent in a will and if sufficient evidence has been provided to verify the death of the individual. Typically, NMFS requires a copy of the death certificate and the decedent's will to accompany a QS transfer. Legally, for purposes of transferring QS, a beneficiary identified in a will overrides any beneficiary designated on the form submitted to NMFS. NMFS allows the transfer of IFQ resulting from the QS transferred to the beneficiary by right of survivorship for a period of three years following the death of the QS holder. After the 3-year period expires, the spouse or designated beneficiary must either qualify to hold the QS or transfer the QS. Currently, the program allows the QS holder to designate a beneficiary that can either be the surviving spouse, or in the absence of a surviving spouse, an immediate family member.
If NMFS denies a transfer under the existing medical and beneficiary transfer provisions, a QS holder may appeal this denial through the National Appeals Office (NAO). If a claim is submitted that is inconsistent with the information required in regulations or if the transfer requested is beyond the number of years allowed, the QS holder would have the burden of proving that the submitted claim is correct. NMFS would not accept claims that are inconsistent with the official record, unless they are supported by clear, written documentation.
NMFS issues an initial administrative determination (IAD) on behalf of the Regional Administrator to deny a medical or beneficiary transfer. If this happens, a QS holder may file an appeal. Prior to 2014, the procedure for appealing an IAD was to submit the appeal directly to the NMFS's Alaska Office of Administrative Appeals and was described at § 679.43. However, NMFS centralized the appeals process to be located in the National Appeals Office (NAO), which operates out of NMFS's headquarters in Silver Spring, Maryland as described at 15 CFR part 906 (79 FR 7056, February 6, 2014).
As part of the 20-year review of the IFQ Program conducted in 2016, NMFS identified several problems administering the medical and beneficiary transfer provisions discussed in Section 1.3 of the Analysis. Challenges with administering the medical transfer provision include: (1) The current definition of a “certified medical professional” does not include commonly used medical care providers such as chiropractors or providers located outside of the United States, and (2) difficulties enforcing the limitation on the use of the medical transfer provisions to two years of the previous five years for the same medical condition.
Section 2.4.1 of the Analysis indicates that NMFS regularly receives medical transfer applications that include attestations from health care providers such as chiropractors or from health care providers located outside of the United States. Because these persons may not meet the current definition of a “certified medical professional” as defined in regulation, NMFS has to review these claims and make evaluations of the credentials of the professional qualifications. This review increases administrative costs and uncertainty for medical transfer applicants.
As noted earlier in this preamble, the medical transfer provisions were intended for limited medical conditions and not to address long-term chronic conditions. Section 2.4.1 of the Analysis indicates that some QS holders have used the medical transfer provision for the majority or all of the years during which medical leasing has been allowed. The repetitive use of the provision may indicate that a select group of shareholders is using it as a means of bypassing the owner-on-board provision altogether. Furthermore, some QS holders may be using the medical lease provision for chronic conditions, from which recovery is unlikely, although the provision was intended to provide relief from fishing for IFQ participants in emergency hardship situations. Challenges with the beneficiary transfer provision include the lack of a regulatory definition of an “immediate family member” and the fact that an estate is not listed in regulations as a representative that is eligible to receive IFQ held by the decedent.
Section 2.5.1 of the Analysis states that NMFS has received beneficiary transfer applications from persons who do not meet a commonly used definition of an immediate family member, which generally includes a person's parents, spouse, siblings, and children. This traditional definition for making determinations regarding transfer eligibility under the designated beneficiary transfer provision is narrower than many State and Federal beneficiary definitions currently applied in a variety of government programs. Since the current surviving heir regulations were implemented, the definition of immediate family has changed in many State and Federal jurisdictions, and now includes other persons connected to a QS holder by birth, adoption, marriage, civil partnership, or cohabitation. NMFS and IFQ Program participants would benefit from clarification for this provision's administration. NMFS has received requests from QS holders and their beneficiaries to clearly define immediate family member.
Section 2.5.1 of the Analysis states that NMFS regularly receives QS transfer requests from a decedent's
This proposed rule would clarify the administration of the medical transfer and beneficiary transfer provisions. The proposed changes would benefit both IFQ Program participants, their beneficiaries, and NMFS by providing clear standards, reducing potential inconsistencies with other definitions used for other state or Federal programs, and reducing administrative costs and burdens associated with existing regulatory provisions.
This section describes this proposed rule, its anticipated effects on fishery participants and the environment, and the proposed changes to current regulations at 50 CFR part 679. The Council recommended and NMFS proposes the following changes to the medical and beneficiary transfer provisions of the IFQ Program.
This proposed rule would make several changes to the medical transfer provision that include changes to: (1) Remove the definitions for “Advanced nurse practitioner,” “Licensed medical doctor,” and “Primary community health aide;” and add the definition for “Health care provider,” and (2) modify § 679.42(d)(2) to allow medical transfers for any medical condition and to allow the transfers to be used for 3 of 7 most recent years.
The first proposed change would broaden the definition of who may attest to a medical condition of the QS holder, or his or her immediate family member, that precludes a QS holder from participating in the IFQ fisheries to include a broad range of health care providers. This would increase flexibility for a QS holder when selecting a health care provider for treatment and verifying the condition on the medical transfer application. Defining a certified medical professional is important because it sets the boundaries for who is allowed to attest that a QS holder is not physically able to fish his or her IFQ. This proposed rule would broaden the current definition while limiting the persons to those who are licensed or certified by the state or country in which they practice. The current definition prohibits commonly used licensed medical providers, such as chiropractors, from attesting to medical conditions they treat. This creates an additional administrative burden for NMFS and the person seeking the medical transfer as credentials have to be evaluated and reviewed. This proposed rule also would allow health care providers outside the United States to sign the medical transfer form. NMFS expects that any expansion of the definition over the status quo would be beneficial to QS holders, or their immediate family member, who need medical care and would lead to less rejections of applications based solely on the specialty of the health care provider.
The second proposed change would remove the administrative step for NMFS staff to differentiate medical conditions and reduce the information required to be submitted to process a medical transfer application. This provision would apply the medical transfer limits such that a QS holder could only use the medical transfer provision during 3 of the 7 most recent years. This provision would not require NMFS staff to verify the nature of a specific medical condition and whether it is materially different from other medical claims, but only to verify that a medical condition exists and to apply the transfer provisions for a specific period of time. NMFS would apply this provision to applications of medical transfers that are received after the effective date of this rule, if approved.
The Council recommended, and NMFS proposes, extending the number of years a medical transfer could be used from 2 of the 5 most recent years to 3 of the 7 most recent years, which would increase flexibility for those who need it. A year is defined as a calendar year, which is how IFQ permits are currently issued. Under the proposed revision, NMFS would begin to measure a 7-year period that would begin during the first calendar year that a medical transfer of IFQ is approved. After the third year a medical transfer is approved under the medical transfer provision, QS holders would not be able to transfer their IFQ for any medical condition for the remainder of the 7-year period that began the first calendar year the medical transfer of IFQ was approved. Section 2.4.4 of the Analysis provides additional detail on the range of years during which a medical transfer could apply and additional rationale for the provisions selected in this proposed rule.
Any time the medical transfer is used by a QS holder during a year it counts as one year of usage, regardless of the portion of the QS holdings the person transferred. NMFS would implement this provision in this manner because the intent of the medical transfer provision is to provide a benefit for a person based on that person's medical condition and is not intended to apply to specific QS units. In most cases, NMFS anticipates that a person seeking a medical transfer will seek to transfer all of the QS that they hold after a medical condition requires transfer. However, if a person does not transfer all of his or her QS during a year, NMFS would still count the first year that any medical transfer of any QS occurs as the first year of the transfer. For example, if a QS holder held QS in two regulatory areas (
This proposed rule would remove the current regulatory requirements at § 679.42(d)(2)(iii)(F) that require that the application describe the medical condition affecting the applicant or applicant's immediate family member. This proposed change would reduce the requirement that medical information would need to be reviewed by NMFS staff because it would no longer be required to review a medical transfer. Instead, the applicant would be only required to submit a statement of the condition affecting the applicant or the applicant's immediate family member. NMFS staff would still review all applications to ensure they are filled out entirely with the correct documentation.
This proposed rule would also remove requirements at § 679.42(d)(2)(iii) that an applicant provide his or her social security number because such information is no longer required to process transfer applications.
This proposed rule would also update associated cross references at § 679.42 to “Advanced nurse practitioner,” “Licensed medical doctor,” and “Primary community health aide;” to “Health care provider.”
When considering this issue, the Council recommended, and NMFS proposes, that it would be appropriate to only count transfers that are approved after the effective date of these proposed regulations. This would treat all QS
This proposed rule would make two changes to the beneficiary transfer provision to: (1) Define “immediate family member” at § 679.2; and (2) modify § 679.41 to add estate representative to the list of people to receive IFQ held by the decedent for up to three years. These changes would improve and simplify the process of approving beneficiary transfers without causing undue negative impacts on a QS holder's estate planning.
This proposed rule would define “immediate family member” using a current definition established by the U.S. Office of Personnel Management (OPM) that includes a more current definition of the range of relationship that comprise an immediate family member and provides greater flexibility to QS holders and their beneficiaries. The OPM definition is commonly used in Federal programs that provide benefits to immediate family members and would include persons connected to the QS holder by birth, adoption, marriage, civil partnership, or cohabitation, such as grandparents, great-grandparents, grandchildren, great-grandchildren, aunts, uncles, siblings-in-law, half-siblings, cousins, adopted children, step-parents/step-children, and cohabiting partners. Section 2.5.4 of the Analysis describes the range of definitions considered by the Council and NMFS and additional information on the rationale for the specific definition proposed in this rule.
This proposed rule would also modify all references to surviving spouse and immediate family member in regulation by adding the term “estate.” Without this change, the QS holder's estate would not be eligible to hold QS under the beneficiary transfer provision.
This proposed rule would clarify that an estate could receive QS, and the court-appointed estate representative for the QS holder's estate would be authorized to use (if they are eligible to hold QS) or transfer the IFQ derived from the estate's QS for the benefit of the estate for a period of three years following the QS holder's death. NMFS would allow the estate representative to manage the use of the decedent's QS holdings by allowing the representative to transfer IFQ annually on behalf of the estate. If after three years the estate is not settled, the estate representative could determine whether the QS held by the estate should be sold and the proceeds retained by the estate, or the estate should continue to hold the QS; however, the estate would no longer be eligible to use the beneficiary transfer provisions to lease the annual IFQ. Including the estate representative in the list of successive beneficiaries (spouse, immediate family member) would not impact the existing order of priority. In the instance where the decedent has not explicitly appointed an estate representative in his or her will, for example, most states have an order of priority for appointment of the representative of the estate. An estate representative would be required to submit court-issued documents to demonstrate his or her eligibility to NMFS that they are legally representing the estate before they could use, permanently transfer, or temporarily transfer (lease) the IFQ. This addition would provide clear and consistent eligibility criteria for NMFS to determine if a person is eligible to transfer QS held by the estate of the deceased QS holder as well as use or lease the IFQ derived from those QS holdings. Allowing the estate to receive the QS for the purpose of this regulation supersedes the requirement that a QS holder must have designated an immediate family member with NMFS.
Adding the QS holder's estate representative to the list of current beneficiaries eligible to receive IFQ after a QS holder's death would have minimal impact on existing wills and would have a positive impact on future beneficiary transfers of IFQ and QS. The 3-year transfer period of IFQ would extend to the estate representative.
As part of this proposed rule, the Council and NMFS conducted an analysis that assessed the potential impacts on persons currently using, and who could potentially use, medical and beneficiary transfer provisions (see
This proposed rule is unlikely to negatively impact existing or future QS holders and their beneficiaries. QS holders and their future beneficiaries could benefit from improved clarity of the regulations implementing this administrative provision. Upon implementation, NMFS would conduct outreach to QS holders to increase awareness of the beneficiary process (Section 2.5.4 of the Analysis).
In addition to modifications to the medical and beneficiary transfer provisions, this proposed rule would make several minor regulatory clarifications. First, this proposed rule would modify regulations at § 679.42 to update the NOAA website URL and make minor technical corrections to remove unnecessary information collected such as Social Security numbers, number of IFQ units, and notary requirements. This proposed rule would add an additional way to describe “other methods of compensation” to provide flexibility to industry who may use a percentage of the total revenue as compensation instead of price per pound when they transfer under this provision.
Second, this proposed rule would update regulations at § 679.43 to correctly cite the current process required to submit an appeal. This would accurately reflect the current process for submission of appeals to the National Appeals Office. The previous regulatory procedure for appealing an IAD to the NMFS's Alaska Office of Administrative Appeals was described at § 679.43. Since 2014, all appeals are processed in the National Appeals Office, which operates out of NMFS's headquarters in Silver Spring, MD and is described at 15 CFR part 906 (79 FR 7056, February 6, 2014). This proposed revision would not materially change the process that is currently used to submit appeals.
Pursuant to section 304(b)(1)(A) and 305(d) of the Magnuson-Stevens Act, the NMFS Assistant Administrator has determined that this proposed rule is consistent with the BSAI and GOA FMPs, other provisions of the Magnuson-Stevens Act, the Halibut Act, and other applicable law, subject to further consideration after public comment.
Regulations governing the U.S. fisheries for Pacific halibut are developed by the IPHC, the Pacific Fishery Management Council, the North
The Halibut Act, at sections 773c(a) and (b), provides the Secretary of Commerce with the general responsibility to carry out the Convention with the authority to, in consultation with the Secretary of the department in which the U.S. Coast Guard is operating, adopt such regulations as may be necessary to carry out the purposes and objectives of the Convention and the Halibut Act. This proposed rule has been determined to be not significant for the purposes of Executive Order 12866.
An RIR was prepared to assess costs and benefits of available regulatory alternatives. A copy of this analysis is available from NMFS (see
This Initial Regulatory Flexibility Analysis (IRFA) was prepared for this action, as required by Section 603 of the Regulatory Flexibility Act (RFA) to describe the economic impact this proposed rule, if adopted, would have on small entities. The IRFA describes the action; the reasons why this action is proposed; the objectives and legal basis for this proposed rule; the number and description of directly regulated small entities to which this proposed rule would apply; the recordkeeping, reporting, and other compliance requirements of this proposed rule; and the relevant Federal rules that may duplicate, overlap, or conflict with this proposed rule. The IRFA also describes significant alternatives to this proposed rule that would accomplish the stated objectives of the Magnuson-Stevens Act, and any other applicable statutes, and that would minimize any significant economic impact of this proposed rule on small entities. The description of the proposed action, its purpose, and the legal basis are explained in the preamble and are not repeated here.
For RFA purposes only, NMFS has established a small business size standard for businesses, including their affiliates, whose primary industry is commercial fishing (see 50 CFR 200.2). A business primarily engaged in commercial fishing (NAICS code 11411) is classified as a small business if it is independently owned and operated, is not dominant in its field of operation (including its affiliates), and has combined annual receipts not in excess of $11 million for all its affiliated operations worldwide.
QS holders that fish catcher vessel QS (B, C, and D class QS) are assumed to be directly regulated by this action. Section 2.9 of the Analysis assumes that all halibut and sablefish QS operations are small for RFA purposes. The number of entities that held B, C, or D class QS in 2018 are all assumed to be small entities because this action impacts all QS holders, regardless of whether they own a vessel or not. There were 2,418 QS holders that held class B, C, or D QS in the halibut and sablefish IFQ fisheries who could be impacted by this action. All of those QS holders are considered to be small entities using the SBA small entity criteria for harvest on catcher vessels, regardless of whether they have a vessel or actively fish their QS.
Sections 2.4 and 2.5 of the Analysis describe the estimated impacts on these entities. The medical transfer provisions would in general benefit the majority of QS holders as would the proposed changes to the designated beneficiary provision. The proposed change that NMFS anticipates to have the greatest, potential negative impact on certain QS holders is the limit on the number of medical transfers. Section 2.4.1 of the Analysis notes that only a small number of QS holders have consistently used the medical transfer provisions and NMFS expects only a limited number of persons to be impacted by this proposed rule. This proposed rule would provide additional flexibility for the majority of small entities directly regulated by this proposed rule by increasing the number of years that the medical transfer can be used from 2 of 5 years to 3 of 7 years, and broadening the scope of health care professionals that can attest to a medical condition. In addition, NMFS would apply this provision only to medical transfer applications that are received after the effective date of this proposed rule. Therefore, this proposed rule would not be expected to impact those QS holders that are currently using medical transfer provisions, and would be expected to increase the number of years that a medical transfer provision may be used for all QS holders after the effective date of this rule. The proposed revisions to the beneficiary transfer provision would improve the process to transfer IFQ to beneficiaries, which should have a benefit for small entities.
There are no significant alternatives to this proposed rule that would accomplish the objectives to modify the medical and beneficiary transfers and minimize adverse economic impacts on small entities. The Council considered several alternatives not recommended for the medical and beneficiary provisions of the IFQ Program. These additional alternatives are not included in this proposed rule because they did not meet the Council's objectives and were not recommended (See sections 2.4.2.2 and 2.5.2.2 in the Analysis for more detail).
NMFS has not identified any duplication, overlap, or conflict between this proposed action and existing Federal rules.
This proposed rule modifies the recordkeeping, reporting, and other compliance requirements for QS holders who use the medical transfer provision and beneficiary designation form. NMFS does not anticipate that these requirements would increase.
Currently, a QS holder who submits an application for a temporary medical transfer must submit an affidavit to NMFS from a licensed medical doctor, an advanced nurse practitioner, or a primary community health aide that describes the medical condition affecting the applicant or the applicant's immediate family member that prevents the QS holder's participation in the fishery for the calendar year. This proposed rule would not require QS holders to disclose their confidential medical condition and would improve administration of the form by eliminating some information required on the previous form.
Currently, NMFS provides QS holders an optional Beneficiary Designation form to designate a beneficiary to transfer IFQ under this provision. NMFS may approve an application to transfer QS to the surviving spouse or designated beneficiary, unless a contrary intent is expressed by the decedent in a will and if sufficient evidence has been provided to verify the
This proposed rule contains collection-of-information requirements subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA). NMFS has submitted these requirements to OMB for approval under Control Number 0648-0272.
The public reporting burden per response is estimated to average 1.5 hours for the Application for Medical Transfer of IFQ and 30 minutes for the QS/IFQ Beneficiary Designation Form. The response time includes the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information.
Public comment is sought regarding whether these proposed collections of information are necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; the accuracy of the burden estimate; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the collections of information, including through the use of automated collection techniques or other forms of information technology. Send comments on these or any other aspects of the collections of information to NMFS (see
Notwithstanding any other provision of the law, no person is required to respond to, nor shall any person be subject to penalty for failure to comply with, a collection of information subject to the requirement of the PRA, unless that collection of information displays a currently valid OMB control number. All currently approved NOAA collections of information may be viewed at:
Alaska, Fisheries, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, 50 CFR part 679 is proposed to be amended as follows:
16 U.S.C. 773
The additions read as follows:
(1) Spouse, and parents thereof;
(2) Sons and daughters, and spouses thereof;
(3) Parents, and spouses thereof;
(4) Brothers and sisters, and spouses thereof;
(5) Grandparents and grandchildren, and spouses thereof;
(6) Domestic partner and parents thereof, including domestic partners of any individual in 1 through 5 of this definition; and
(7) Any individual related by blood or affinity whose close association with the QS holder is the equivalent of a family relationship.
(k) * * *
(1) On the death of an individual who holds QS or IFQ, the surviving spouse or, in the absence of a surviving spouse, a beneficiary designated pursuant to paragraph (k)(2) of this section or the estate representative, receives all QS and IFQ held by the decedent by right of survivorship, unless a contrary intent was expressed by the decedent in a will. The Regional Administrator will approve an Application for Transfer to the surviving spouse, designated beneficiary, or estate representative when sufficient evidence has been provided to verify the death of the individual.
(2) * * *
(3) The Regional Administrator will approve an Application for Transfer of IFQ for a period of 3 calendar years following the date of death of an individual to a designated beneficiary. NMFS will allow the transfer of IFQ only resulting from the QS transferred to the surviving spouse or, in the absence of a surviving spouse, from a beneficiary from the QS holder's immediate family designated pursuant to paragraph (k)(2) of this section or from an estate representative to a person eligible to receive IFQ under the provisions of this section, notwithstanding the limitations on transfers of IFQ in paragraph (h)(2) of this section.
The revisions read as follows:
(d) * * *
(2) * * *
(iii) * * *
(A) The applicant's (transferor's) identity including his or her full name, NMFS person ID, date of birth, permanent business mailing address, business telephone and fax numbers, and email address (if any). A temporary mailing address may be provided, if appropriate;
(B) The recipient's (transferee's) identity including his or her full name, NMFS person ID, date of birth, permanent business mailing address, business telephone and fax numbers, and email address (if any). A temporary mailing address may be provided, if appropriate;
(C) The identification characteristics of the IFQ including whether the transfer is for halibut or sablefish IFQ, IFQ regulatory area, actual number of
(D) The price per pound (including leases), or other method of compensation, and total amount paid for the IFQ in the requested transaction, including all fees;
(E) * * *
(F) A written declaration from a health care provider as defined in § 679.2. The declaration must include:
(
(
(
(G) The signatures and printed names of the transferor and transferee, and date.
(iv) * * *
(C) NMFS will not approve a medical transfer if the applicant has received a medical transfer in any 3 of the previous 7 calendar years for any medical condition.
(c)
The Department of Agriculture has submitted the following information collection requirement(s) to OMB for review and clearance under the Paperwork Reduction Act of 1995. Comments are requested regarding; whether the collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; the accuracy of the agency's estimate of burden including the validity of the methodology and assumptions used; ways to enhance the quality, utility and clarity of the information to be collected; and ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Comments regarding this information collection received by November 25, 2019 will be considered. Written comments should be addressed to: Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget (OMB), New Executive Office Building, 725 17th Street NW, Washington, DC 20502. Commenters are encouraged to submit their comments to OMB via email to:
An agency may not conduct or sponsor a collection of information unless the collection of information displays a currently valid OMB control number and the agency informs potential persons who are to respond to the collection of information that such persons are not required to respond to the collection of information unless it displays a currently valid OMB control number.
Animal and Plant Health Inspection Service, USDA.
Notice of a modified system of records.
Pursuant to the Privacy Act of 1974 and Office of Management and Budget Circular No. A-108, the U.S. Department of Agriculture (USDA) gives notice that a component agency, the Animal and Plant Health Inspection Service (APHIS), proposes to modify an existing system of records notice titled Veterinary Services—Animal Welfare, USDA/APHIS-8. Among other changes, the system will be renamed Animal Welfare Act and Horse Protection Act, USDA/APHIS-8.
In accordance with 5 U.S.C. 552a(e)(4) and (11), this notice is applicable upon publication, subject to a 30-day notice and comment period in which to comment on the routine uses described below. Please submit any comments by November 25, 2019.
You may submit comments by either of the following methods:
•
•
Supporting documents and any comments we receive on this docket may be viewed at
For general questions, please contact Mr. Tola Liv, Information Systems Security Manager, Animal Care, APHIS, 4700 River Road Unit 84, Riverdale, MD 20737; (301) 851-3741. For Privacy Act questions concerning this system of records notice, please contact Ms. Tonya Woods, Director, Freedom of Information Act/Privacy Act, 4700 River Road Unit 50, Riverdale, MD 20737; (301) 851-4076. For USDA Privacy Act questions, please contact the USDA Chief Privacy Officer, Information Security Center, Office of Chief Information Officer, USDA, Jamie L. Whitten Building, 1400 Independence Ave. SW, Washington, DC 20250; email:
The Privacy Act of 1974, as amended (5 U.S.C. 552a), embodies fair information principles in a statutory framework governing the means by which the United States Government collects, maintains, uses, and disseminates individuals' records. The Privacy Act applies to information that is maintained in a “system of records.” A “system of records” is a group of any records under the control of an agency for which information is retrieved by the name of an individual or by some identifying number, symbol, or other identifying particular assigned to the individual. In the Privacy Act, an individual is defined to encompass United States citizens and lawful permanent residents.
The Privacy Act requires each agency to publish in the
The U.S. Department of Agriculture (USDA) Animal and Plant Health Inspection Service (APHIS) is modifying an existing system of records notice for Veterinary Services-Animal Welfare, USDA/APHIS-8, which was last published on February 27, 1987, in its entirety in the
APHIS is making the following changes to the system of records notice:
• Updating the system location and system manager;
• Expanding the categories of individuals to include additional individuals who participate in activities related to the AWA as well as individuals who participate in activities related to the HPA or who are otherwise identified in HPA or AWA related records;
• Expanding the categories of records to include additional records relating to the AWA and HPA;
• Revising the record source categories to reflect records relating to the HPA;
• Updating the policies and practices for storage, retrievability, and retention and disposal of records in the system;
• Updating the system safeguards;
• Updating the notification, record access, and contesting record procedures;
• Revising, deleting, redesignating, and establishing routine uses as follows:
○ Deleting current routine use 1, which will be clarified and replaced by newly established routine uses;
○ Revising current routine use 2 and redesignating it as routine use 12. The changes are editorial and intended to more accurately describe the referral of records to appropriate law enforcement agencies, entities and persons;
○ Revising current routine use 3 and redesignating it as routine use 13. The changes are editorial and conforming changes;
○ Revising current routine use 4 and redesignating it as routine use 14. The changes are editorial and intended to more accurately describe the disclosure of records to a court or adjudicative body;
○ Revising current routine use 5 and redesignating it as routine use 19. The changes are editorial and conforming changes;
○ Establishing new routine use 1 for disclosure of licensee and registrant information to the public pursuant to 9 CFR 2.38(c) and 9 CFR 2.127;
○ Establishing new routine use 2 for disclosure of annual report information to the public pursuant to 9 CFR 2.7 and 9 CFR 2.36;
○ Establishing new routine use 3 for disclosure of information from inspection reports and regulatory correspondence to attending veterinarians in order to carry out duties under the AWA pursuant to 9 CFR 2.33 and 9 CFR 2.40;
○ Establishing new routine use 4 for disclosure of information to other public authority agencies or officials to carry out duties under the AWA or under laws on the same subject pursuant to 7 U.S.C. 2145(b);
○ Establishing new routine use 5 for disclosure of inspection reports and permit status to entities such as pet stores to the extent required to comply with a State, local, Tribal or other public authority's requirement to verify compliance with the AWA;
○ Establishing new routine use 6 for disclosure of information to a research institution to complete research or compile a report in furtherance of USDA's mission;
○ Establishing new routine use 7 for disclosure of final adjudicatory decisions and orders to any person;
○ Establishing new routine use 8 for disclosure to any person of information identifying Designated Qualified Persons and Horse Industry Organizations (HIOs) or associations;
○ Establishing new routine use 9 for disclosure of HPA inspection findings and correspondence to any regulated horse owner, HIO, and other entities responsible for licensure or required to verify compliance with the HPA;
○ Establishing new routine use 10 for disclosure to any person of information identifying a person or entity who has been disqualified, suspended, and/or otherwise prohibited from participating in certain activities under the HPA;
○ Establishing new routine use 11 for disclosure to any person of information identifying any regulated entity or individual whose AWA license or permit has been suspended, revoked, expired, terminated, or denied;
○ Establishing new routine use 15 for disclosure to appropriate agencies, entities and persons of information necessary to respond to a suspected or confirmed breach of the system of records in accordance with Office of Management and Budget (OMB) Memorandum M-17-12, Preparing for and Responding to a Breach of Personally Identifiable Information (January 3, 2017);
○ Establishing new routine use 16 for disclosure to another Federal agency or entity of information reasonably necessary to assist in responding to a suspected or confirmed breach or to prevent, minimize, or remedy harm, in
○ Establishing new routine use 17 for disclosure to USDA contractors and other parties assisting in administering the program, analyzing data, information management systems, Freedom of Information Act requests, and audits;
○ Establishing new routine use 18 for disclosure to USDA contractors and others employed to identify fraud, waste, or abuse;
○ Establishing new routine use 20 for disclosure to the National Archives and Records Administration or to the General Services Administration for records management activities; and
○ Establishing new routine use 21 for disclosure to the Treasury Department to carry out any and all functions within their jurisdiction, including but not limited to, processing payments, fees, collections, penalties, and offsets.
A report on the modified system of records, required by 5 U.S.C. 552a(r), as implemented by Office of Management and Budget Circular A-108 was sent to the Chairman, Committee on Homeland Security and Governmental Affairs, United States Senate; the Chairman, Committee on Oversight and Reform, House of Representatives; and the Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget.
Animal Welfare Act and Horse Protection Act, USDA/APHIS-8
Sensitive but unclassified.
Paper-based records are located in the APHIS offices at 4700 River Rd, Riverdale, MD; 920 Main Campus Drive Suite 200, Raleigh, NC; and 2150 Centre Avenue, Building B, Mailstop 3W11, Fort Collins, CO. The server for the electronic database is currently located in the United States Department of Agriculture's (USDA or Department) National Information Technology Center (NITC), 8930 Ward Parkway, Kansas City, MO 64114, but may be relocated to a similarly secure location, as needed. A backup site for the electronic data is located in the NITC Disaster Recovery, 4300 Goodfellow Blvd., St. Louis, MO 63120, but may be relocated to a similarly secure location, as needed.
Deputy Administrator, Animal Care, APHIS, 4700 River Road, Unit 84, Riverdale, MD 20737.
The Animal Welfare Act (AWA), 7 U.S.C. 2131
This system supports APHIS' administrative activities and enforcement of the AWA and HPA.
The AWA seeks to ensure the humane handling, care, treatment, and transportation of animals intended for use by dealers, exhibitors, carriers, research facilities, operators of auction sales, and intermediate handlers. The entities using certain animals for research purposes, exhibition, and transportation in commerce, or for resale use as a pet are required to obtain a license or registration from the USDA. In addition, entities importing dogs into the United States for resale purposes are required to obtain a permit. APHIS partners with Federal agencies, States, local and Tribal governments and non-governmental organizations to ensure the safety, health and well-being of vulnerable animals.
The HPA prohibits the showing, sale, auction, exhibition, and transportation of horses that have been subject to the practice of soring, which is a cruel and inhumane practice designed to enhance a horse's competitive advantage in shows and exhibitions. The HPA also holds the management of any horse show or other regulated event responsible for identifying sore horses and preventing their participation in the event. To be shielded from liability for the participation of a sore horse, management may appoint and retain persons qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA. After notice and an opportunity for a hearing in accordance with the applicable rules of practice, alleged violators of the HPA may be subject to penalties and sanctions for violations. APHIS partners with Federal agencies, States, local and Tribal governments and non-governmental organizations to ensure that horses are not subjected to the practice of soring.
This system provides a standard approach to collecting, recording, analyzing, maintaining, and reporting information.
Individuals covered by the system include persons operating or intending to operate as dealers, exhibitors, operators of auction sales, research facilities, intermediate handlers, and carriers under the AWA; individuals who import dogs into the United States for resale purposes; individuals associated with the management of Department-certified Horse Industry Organizations and Associations (HIOs); persons who are qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA; management of horse shows, exhibitions, sales, and auctions regulated under the HPA; alleged violators and adjudicated violators of the AWA and HPA and regulations issued thereunder; and other individuals who participate in inspection and enforcement activities relating to AWA and HPA, such as APHIS inspectors, APHIS Investigative and Enforcement Services investigators, licensee employees/representatives, attorneys, witnesses, complainants, etc.
The system includes paper and electronic records that include:
Licensing and registration records, including, but not limited to, name and business or home address, telephone number, and other contact information; tax identification number, customer number, license or registration certificate number; licensee and research facility annual reports related to persons who seek or hold an AWA license or registration, persons responsible to ensure humane care of the animals (
Compliance records, including, but not limited to, inspection reports, itineraries, enforcement actions, and other compliance records required to be maintained by the facility and supporting documents, compliance- and enforcement-related activities, and other records required for regulatory purposes under the AWA.
Regulatory correspondence, including, but not limited to, information related to the denial or termination of a license or permit, and notices or advisories regarding alleged
Complaint records, including, but not limited to, witness or person who has submitted information, and statements of alleged violations and violations by persons who are subject to the AWA.
Permit records, including, but not limited to, name, address, and other contact information for the permittee, permit application, health certificate, rabies vaccination certificate, etc.; and other records required for regulatory purposes under the AWA.
The system includes paper and electronic records that include:
Management records, including, but not limited to, name, business and/or home address, other contact information for managers or other management representatives, sponsoring organizations, persons designated to maintain management records, show judges, etc.; details of events and locations, including, but not limited to, dates and addresses; and other records required for regulatory purposes under the HPA.
Transporter records, including, but not limited to, name, address, and other contact information of the horse owner and the shipper, the trainer, the carrier transporting the horse, the driver of the means of conveyance used; the origin of the shipment and date thereof and the destination of shipment; and other records required for regulatory purposes under the HPA.
HIO records, including, but not limited to, the name, address, and other contact information of each certified HIO, and officers or persons charged with the management of the HIO; the HIO's formal request for certification and detailed outline for such program submitted for Departmental approval, rulebooks and industry-implemented disciplinary procedures, and associated correspondence; the name and address of any person qualified to detect and diagnose a horse that is sore or to otherwise inspect horses for purposes of enforcing the HPA or the management of any horse show, exhibition, sale, or auction; identity of all horses at each event that management disqualified or excused for any reason, including the registered name of each horse and the name and address of the owner, trainer, rider, exhibitor, or other person having custody of or responsibility for the care of each such horse; the exhibitor's number and class number, or the sale or auction tag number of the horse, the name and any applicable registered name and number (if the horse is registered), age, sex, color, and markings of the horse; disciplinary actions taken by the HIO against any exhibitor; photographs and videos depicting inspections conducted by HIO-licensed designated qualified persons; HIO performance evaluations and statistics; and other records required for regulatory purposes under the HPA.
Designated qualified persons records (persons qualified to detect and diagnose a horse that is sore or to otherwise inspect horses for purposes of enforcing the HPA) including, but not limited to, the name, address, other contact information, and license number of each person who applies and/or is licensed to inspect horses in accordance with the HPA and regulations, information related to the disqualification of a person from holding a license to detect soreness in horses, and correspondence, including notice of performance concerns or license cancellation; details of inspections and identity of all horses at each event that the person recommended to management be disqualified or excused for any reason, including the registered name of each horse and the name and address of the owner, trainer, rider, exhibitor, or other person having custody of or responsibility for the care of each such horse; the exhibitor's number and class number, or the sale or auction tag number of the horse, the name and any applicable registered name and number (if the horse is registered), age, sex, color, and markings of the horse; photographs and videos depicting inspections conducted by designated qualified persons; performance evaluations and statistics; and other records required for regulatory purposes under the HPA.
Compliance and regulatory correspondence records, including, but not limited to, inspection findings, compliance, regulatory and other correspondence, investigations, and enforcements under the HPA, as well as records related to administrative, civil, and criminal litigation; and other records required for regulatory purposes under the HPA.
Complaint records, including, but not limited to, the name and address of a witness or person who has submitted a complaint concerning potential alleged violations and violations by persons who are subject to the HPA and the nature of their complaint.
The AWA information is received from the applicant for a license, registration, or permit; the licensee, registrant, or permittee; the attending veterinarian; observations by APHIS inspectors; APHIS Investigative and Enforcement Services officials; or other person responsible for or who has information about the humane care of the animals. The HPA information is received from the HIO and other entities that issue licenses; the HIO records submitted to APHIS; the management of the horse show, exhibition, auction, or sale; the horse event management records submitted to APHIS; records submitted to APHIS by persons qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA; and the horse owner, trainer, custodian, rider, shipper, carrier, and transporter. Information may also be received from the witness or person who has submitted a complaint concerning potential alleged violations and violations by persons who are subject to the AWA or HPA.
In addition to those disclosures generally permitted under 5 U.S.C. 552a (b) of the Privacy Act, records maintained in the system may be disclosed outside USDA as follows:
(1) APHIS may disclose the name, city, State, license or registration type and/or status, or change of a license or registrant to any person pursuant to 9 CFR 2.38(c) and 2.127;
(2) APHIS may disclose annual reports submitted to APHIS by licensees and research facilities to any person pursuant to 9 CFR 2.7 and 2.36;
(3) APHIS may disclose inspection reports and other regulatory correspondence issued to licensees and registrants [from the agency] to any attending veterinarian in order to carry out duties under the AWA pursuant to 9 CFR 2.33 and 2.40;
(4) APHIS may disclose the name, telephone number and other contact information, location, inspection reports, and regulatory and other correspondence of licensees, registrants, permitees, and applicants for the same, to appropriate Federal, foreign, State, local, Tribal, or other public authority agencies or officials, in order to carry out duties under the AWA or State, local, Tribal or other public authority on the same subject pursuant to 7 U.S.C. 2145(b);
(5) APHIS may disclose inspection reports of licensees and registrants, and
(6) APHIS may disclose information to the National Academies of Sciences, Engineering, and Medicine, and any other research institution engaged or approved by the Department, to the extent APHIS deems the disclosure necessary to complete research and/or compile a report in furtherance of the Department's mission;
(7) APHIS may disclose final adjudicatory AWA and HPA decisions or orders by an appropriate authority to any person;
(8) APHIS may disclose to any person the name, city, and State or other information to the extent necessary for proper identification of persons (referred to as “Designated Qualified Persons” or “DQPs”) that are or have been qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA and of horse industry organizations or associations (referred to as “HIOs”) that have currently or have had in the past DQP programs certified by the USDA;
(9) APHIS may disclose to any regulated horse owner, HIO, and other entities responsible for licensure or required to verify compliance with the HPA, HPA inspection findings and regulatory and other correspondence issued to persons or entities regulated under the HPA;
(10) APHIS may disclose to any person the name, city, and State or other information to the extent necessary for proper identification of any person or entity who has been disqualified, suspended, and/or otherwise prohibited from showing or exhibiting any horse, or judging or managing any horse show, horse exhibition, horse sale, or horse auction under the HPA and the terms of such action;
(11) APHIS may disclose to any person the name, city, and State or other information to the extent necessary for proper identification of any regulated individual or entity whose license or permit has been suspended, revoked, expired, terminated, or denied under the AWA and the terms of such action;
(12) APHIS may disclose to appropriate law enforcement agencies, entities, and persons, whether Federal, foreign, State, local, or Tribal, or other public authority responsible for enforcing, investigating, or prosecuting an alleged violation or a violation of law or charged with enforcing, implementing, or complying with a statute, rule, regulation, or order issued pursuant thereto, when a record in this system on its face, or in conjunction with other records, indicates a violation or potential violation of law, whether civil, criminal, or regulatory in nature, and whether arising by general statute or particular program statute, or by regulation, rule, or court order issued pursuant thereto, if the information disclosed is relevant to any enforcement, regulatory, investigative, or prosecutive responsibility of the receiving entity;
(13) APHIS may disclose to the Department of Justice when the agency, or any component thereof, or any employee of the agency in his or her official capacity, or any employee of the agency in his or her individual capacity where the Department of Justice has agreed to represent the employee, or the United States, in litigation, where the agency determines that litigation is likely to affect the agency or any of its components, is a party to litigation or has an interest in such litigation, and the use of such records by the Department of Justice is deemed by the agency to be relevant and necessary to the litigation; provided, however, that in each case, the agency determines that disclosure of the records to the Department of Justice is a use of the information contained in the records that is compatible with the purpose for which the records were collected;
(14) APHIS may disclose information in this system of records to a court or adjudicative body in administrative, civil, or criminal proceedings when: (a) The agency or any component thereof; or (b) any employee of the agency in his or her official capacity; or (c) any employee of the agency in his or her individual capacity where the agency has agreed to represent the employee; or (d) the United States Government, is a party to litigation or has an interest in such litigation, and by careful review, the agency determines that the records are to be for a purpose that is compatible with the purpose for which the agency collected the records;
(15) APHIS may disclose information from this system of records to appropriate agencies, entities, and persons when: (a) USDA suspects or has confirmed that there has been a breach of the system of records; (b) USDA has determined that as a result of the suspected or confirmed breach there is a risk of harm to individuals, USDA (including its information systems, programs, and operations), the Federal Government, or national security; and (c) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with USDA's efforts to respond to the suspected or confirmed compromise and prevent, minimize, or remedy such harm;
(16) APHIS may disclose information from this system of records to another Federal agency or Federal entity, when the USDA determines that information from this system of records is reasonably necessary to assist the recipient agency or entity in (a) responding to a suspected or confirmed breach or (b) 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;
(17) APHIS may disclose information in this system of records to USDA contractors and other parties engaged to assist in administering the program, analyzing data, developing information management systems, processing Freedom of Information Act requests, and conducting audits. Such contractors and other parties will be bound by the nondisclosure provisions of the Privacy Act;
(18) APHIS may disclose information in this system of records to USDA contractors, partner agency employees or contractors, or private industry employed to identify patterns, trends, or anomalies indicative of fraud, waste, or abuse;
(19) APHIS may disclose information in this system of records to a Congressional office from the record of an individual in response to any inquiry from that Congressional office made at the written request of the individual to whom the record pertains;
(20) APHIS may disclose information in this system of records to the National Archives and Records Administration or to the General Services Administration for records management activities conducted under 44 U.S.C. 2904 and 2906; and
(21) APHIS may disclose information in this system of records to the Treasury Department as necessary to carry out any and all functions within their jurisdiction, including but not limited to, processing payments, fees, collections, penalties, and offsets.
None.
Paper-based records are maintained in USDA offices and buildings that are locked during non-business hours and that require presentation of employee
Records in this system maintained pursuant to the AWA and regulations may be retrieved by legal name; certificate/license/permit number, or customer identification number, and the complaint number; and the name of the witness or person who has submitted a complaint concerning potential alleged violations and violations by persons who are subject to the AWA.
Records maintained pursuant to the HPA and regulations may be retrieved by the name of the alleged violator or violator (owner, trainer, rider, custodian, exhibitor, transporter, horse carrier, shipper); the name of the judge, farrier, or the HIO; the name of the person qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA; the name and date of the horse show, exhibition, sale, or auction, address, horse name, the name of the stable; date and type of alleged violation or violation; HIO ticket or other similar number; and date and type of HIO disciplinary action; and the name of the witness or person who has submitted a complaint concerning potential alleged violations and violations by persons who are subject to the HPA.
Paper and electronic records will be retained in accordance with an established records retention schedule. Some records considered as permanent will be maintained in accordance with NARA requirements.
Access to the restricted portions of the database system requires certain levels of authorization through USDA eAuthentication, which is a system that enables individuals to obtain user-identification accounts with password-protected access to certain USDA Web-based applications and services through the internet. APHIS personnel who input data must have a high-level eAuthentication account. Persons who apply for a license, registration, or permit or are licensed, registered or permitted pursuant to the AWA have a lower level eAuthentication account and will only have access to their own records to input certain information. These individuals can also apply for, pay, or check the status of their applications, and their license, registration, or permit status. HIOs and persons qualified to detect and diagnose a horse that is sore or otherwise inspect horses for purposes of enforcing the HPA will only have access to input certain information in their own records, such as but not limited to information entered in the system by HIOs regarding disciplinary actions taken and information on sore horses that were disqualified or prohibited by management from participating in shows, exhibitions, sales, or auctions. The general public will have read-only access to system generated reports through APHIS' website and will require eAuthentication.
An individual who is the subject of a record in this system may seek access to those records that are not exempt from the access provisions. Exemptions apply only to the extent that the information in the system is subject to exemption pursuant to 5 U.S.C. 552a(k)(2), if applicable. A determination whether a record may be accessed will be made at the time a request is received. All inquiries should be addressed under “Notification procedures.”
Individuals seeking to contest or amend information maintained in the system should direct their requests to the address indicated in the “Notification procedures” section, below. Some information may be exempt from the amendment provisions, as described in the section entitled “Exemptions promulgated for the system.” An individual who is the subject of a record in this system may seek amendment of those records that are not exempt. A determination whether a record may be amended will be made at the time a request is received.
Individuals seeking notification of and access to any non-exempt general information contained in this system of records, or seeking to contest its content, may submit a request in writing to the APHIS Freedom of Information Act (FOIA) Officer, whose contact information can be found at
When seeking records about yourself from this system of records or any other Departmental system of records your request must conform with the Privacy Act regulations set forth in 7 CFR part 1, subpart G. In addition you should provide the following:
An explanation of why you believe the Department would have information on you;
• Identify which component(s) of the Department you believe may have the information about you;
• Specify when you believe the records would have been created;
• Provide any other information that will help the FOIA staff determine which USDA component agency may have responsive records; and
• If your request is seeking records pertaining to another living individual, you must include a statement from that individual certifying his or her agreement for you to access his or her records.
Without this bulleted information the component(s) will not be able to conduct an effective search, and our request may be denied due to lack of specificity or lack of compliance with applicable regulations.
None.
On February 27, 1987 (52 FR 6031), USDA/APHIS-8, “Veterinary Services—Animal Welfare” was published as a new system of records and effective on April 28, 1987.
Commodity Credit Corporation and Farm Service Agency, USDA.
Notice; request for comments.
In accordance with the Paperwork Reduction Act of 1995, the Commodity Credit Corporation (CCC)
We will consider comments that we receive by December 23, 2019.
We invite you to submit comments on this notice. In your comments, include date, volume, and page number of this issue of the
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You may also send comments to the Desk Officer for Agriculture, Office of Information and Regulatory Affairs, Office of Management and Budget, Washington, DC 20503. Copies of the information collection may be requested by contacting Joe Lewis Jr. at the above address.
Joe Lewis Jr, (202) 720-0795.
Information is obtained only when a person claims that they are due a payment that was earned, but not paid to a producer that has died, disappeared, or has been declared incompetent, and documentation is needed to determine if any individuals are entitled to receive such payments or disbursements.
The burden hours decreased by 2,000 hours since the last OMB approval. The reason for the decrease is due to the removal of travel times from the request. The respondents may submit applications by mail and many respondents go to the county offices to do regular and customary business with FSA for other FSA programs and can complete and submit the form FSA-325 during this time; this means no travel time is required specifically for the information collection and therefore, it is no longer included in the burden hour reporting.
For the following estimated total annual burden on respondents, the formula used to calculate the total burden hour is the estimated average time per responses multiplied by the estimated total annual responses.
We are requesting comments on all aspects of this information collection to help us to:
(1) Evaluate whether the collection of information is necessary for the proper performance of the functions of FSA, including whether the information will have practical utility;
(2) Evaluate the accuracy of FSA's estimate of burden 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.
All responses to this notice, including names and addresses when provided, will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (the Department) determines that countervailable subsidies are being provided to producers and exporters of refillable stainless steel kegs (kegs) from the People's Republic of China (China). For information on the estimated subsidy rates,
Applicable October 24, 2019.
Nicholas Czajkowski, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington DC 20230; telephone (202) 482-1395.
Commerce published the
The period of investigation is January 1, 2017 through December 31, 2017.
The products covered by this investigation are kegs from China. For a full description of the scope of the investigation,
The subsidy programs under investigation and the issues raised in the case and rebuttal briefs by parties in this investigation are discussed in the Issues and Decision Memorandum. A list of the issues raised by parties, and to which we responded in the Issues and Decision Memorandum, is attached to this notice at Appendix II.
As provided in section 782(i) of the Tariff Act of 1930, as amended (the Act), in April 2019, Commerce verified the subsidy information reported by Ningbo Master International Trade Co., Ltd. (Ningbo Master). We used standard verification procedures, including an examination of relevant accounting and production records, and original source documents provided by Ningbo Master.
In making this final determination, Commerce relied, in part, on facts available and, because the Government of China (GOC) and a respondent company did not act to the best of their abilities in responding to Commerce's requests for information, we drew an adverse inference where appropriate in selecting from among the facts otherwise available, pursuant to section 776(a) and (b) of the Act. For further information,
Based on our analysis of our findings at verification and the comments received, we have made certain changes to the subsidy rate calculations. For a discussion of these changes,
Commerce preliminarily determined that critical circumstances existed with respect to imports of kegs from China for the 19 companies to which we are applying Adverse Facts Available (AFA) because they did not act to the best of their ability to respond to Commerce's requests for information, but that critical circumstances did not exist for Ningbo Master or from all other producers/exporters of subject merchandise.
In accordance with section 705(c)(5)(A)(i) of the Act, for companies not individually examined, we apply an all-others rate, which is normally calculated by weighting the subsidy rates of the mandatory respondents by those companies' exports of the subject merchandise to the United States. Under section 705(c)(5)(A)(i) of the Act, the all-others rate should exclude zero and
In this investigation, Commerce is assigning rates based entirely on AFA for the second mandatory respondent Penglai Jinfu Stainless Steel Products (Penglai Jinfu) and 18 companies that failed to respond to our quantity and value (Q&V) questionnaire.
We determine the countervailable subsidy rates to be:
We intend to disclose the calculations performed to parties in this proceeding within five days after public announcement of the final determination or, if there is no public announcement, within five days of the date of publication of the notice of final determination in the
As a result of our
In accordance with section 735(d) of the Act, we will notify the ITC of our final affirmative CVD determination. Because the final determination in this proceeding is affirmative, in accordance with section 735(b)(2) of the Act, the ITC will make its final determination as to whether the domestic industry in the United States is materially injured, or threatened with material injury, by reason of imports of subject merchandise from China no later than 45 days after our final determination. If the ITC determines that such injury does not exist, this proceeding will be terminated, and all securities posted will be refunded or canceled. If the ITC determines that such injury does exist, Commerce will issue a countervailing duty order directing CBP to assess, upon further instruction by Commerce, countervailing duties on all imports of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the effective date of the suspension of liquidation.
This notice will serve as a reminder to the parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of 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 sanctionable violation.
This determination is issued and published in accordance with sections 735(d) and 777(i)(1) of the Act and 19 CFR 351.210(c).
The merchandise covered by this investigation are kegs, vessels, or containers with bodies that are approximately cylindrical in shape, made from stainless steel (
“Unassembled” or “unfinished” refillable stainless steel kegs include drawn stainless steel cylinders that have been welded to form the body of the keg and attached to an upper (top) chime and/or lower (bottom) chime. Unassembled refillable stainless steel kegs may or may not be welded to a neck, may or may not have a valve assembly attached, and may be otherwise complete except for testing, certification, and/or marking.
Subject merchandise also includes refillable stainless steel kegs that have been further processed in a third country, including but not limited to, attachment of necks, collars, spears or valves, heat treatment, pickling, passivation, painting, testing, certification or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of
Specifically excluded are the following:
(1) Vessels or containers that are not approximately cylindrical in nature (
(2) stainless steel kegs, vessels, or containers that have either a “ball lock” valve system or a “pin lock” valve system (commonly known as “Cornelius,” “corny” or “ball lock” kegs);
(3) necks, spears, couplers or taps, collars, and valves that are not imported with the subject merchandise; and
(4) stainless steel kegs that are filled with beer, wine, or other liquid and that are designated by the Commissioner of Customs as Instruments of International Traffic within the meaning of section 332(a) of the
The merchandise covered by this investigation are currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheadings 7310.10.0010, 7310.10.0050, 7310.29.0025, and 7310.29.0050.
These HTSUS subheadings are provided for convenience and customs purposes; the written description of the scope of this investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) determines that refillable stainless steel kegs (kegs) from the Federal Republic of Germany (Germany) are being, or are likely to be, sold in the United States at less than fair value (LTFV). The period of investigation (POI) is July 1, 2017 through June 30, 2018. The final estimated dumping margins of sales at LTFV are shown in the “Final Determination” section of this notice.
Applicable October 24, 2019.
Micahel Romani, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-0198.
On June 4, 2019, Commerce published the
The products covered by this investigation are refillable stainless steel kegs from Germany. For a complete description of the scope of this investigation,
On March 29, 2019, we issued a Preliminary Scope Decision Memorandum.
As provided in section 782(i) of the Tariff Act of 1930, as amended (the Act), Commerce verified the sales and cost data reported by Blefa GmbH (Blefa) for use in our final determination. We used standard verification procedures, including an examination of relevant accounting and production records, and original source documents provided by the respondent.
All issues raised in the case briefs and rebuttal briefs submitted by interested
Based on our analysis of the comments received and our findings at verification, we made certain changes to the margin calculations for Blefa since the
Section 735(c)(5)(A) of the Act provides that the estimated weighted-average dumping margin for all-other producers and exporters not individually investigated shall be equal to the weighted average of the estimated weighted-average dumping margins established for individually investigated exporters and producers, excluding any margins that are zero or
Commerce determines that the following estimated weighted-average dumping margins exist for the period July 1, 2017 through June 30, 2018:
In accordance with section 735(c)(1)(B) of the Act, we will instruct U.S. Customs and Border Protection (CBP) to continue the suspension of liquidation of all appropriate entries of kegs from Germany, as described in Appendix I to this notice, which were entered, or withdrawn from warehouse, for consumption on or after June 4, 2019, the date of publication of the
Pursuant to section 735(c)(l) of the Act and 19 CFR 351.210(d), Commerce will instruct CBP to require cash deposits equal to the weighted-average dumping margins indicated in the table above as follows: (1) The cash deposit rate for Blefa will be equal to the estimated weighted-average dumping margin determined in this final determination; (2) if the exporter is not a respondent identified above, but the producer is, then the cash deposit rate will be equal to the company-specific estimated weighted-average dumping margin established for that producer of the subject merchandise; and (3) the cash deposit rate for all other producers and exporters will be 7.47 percent, the all-others estimated weighted-average dumping margin. These suspension of liquidation and cash deposit instructions will remain in effect until further notice.
We will disclose the calculations performed within five days of public announcement of this notice in accordance with 19 CFR 351.224(b).
In accordance with section 735(d) of the Act, Commerce will notify the International Trade Commission (ITC) of its final determination. Because the final determination is affirmative, in accordance with section 735(b)(2) of the Act, the ITC will make its final determination as to whether the domestic industry in the United States is materially injured, or threatened with material injury, by reason of imports of kegs from Germany no later than 45 days after our final determination. If the ITC determines that material injury or threat of material injury does not exist, the proceeding will be terminated and all cash deposits will be refunded. If the ITC determines that such injury does exist, Commerce will issue an antidumping duty order directing CBP to assess, upon further instruction by Commerce, antidumping duties on all imports of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the effective date of the suspension of liquidation.
This notice serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the disposition 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 the terms of an APO is a violation subject to sanction.
This determination and this notice are issued and published pursuant to sections 735(d) and 777(i)(1) of the Act and 19 CFR 352.210(c).
The merchandise covered by this investigation are kegs, vessels, or containers with bodies that are approximately cylindrical in shape, made from stainless steel (
“Unassembled” or “unfinished” refillable stainless steel kegs include drawn stainless steel cylinders that have been welded to form the body of the keg and attached to an upper (top) chime and/or lower (bottom) chime. Unassembled refillable stainless steel kegs may or may not be welded to a neck, may or may not have a valve assembly attached, and may be otherwise complete except for testing, certification, and/or marking.
Subject merchandise also includes refillable stainless steel kegs that have been further processed in a third country, including but not limited to, attachment of necks, collars, spears or valves, heat treatment, pickling, passivation, painting, testing, certification or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the in-scope refillable stainless steel keg.
Specifically excluded are the following:
(1) vessels or containers that are not approximately cylindrical in nature (
(2) stainless steel kegs, vessels, or containers that have either a “ball lock” valve system or a “pin lock” valve system (commonly known as “Cornelius,” “corny” or “ball lock” kegs);
(3) necks, spears, couplers or taps, collars, and valves that are not imported with the subject merchandise; and
(4) stainless steel kegs that are filled with beer, wine, or other liquid and that are designated by the Commissioner of Customs as Instruments of International Traffic within the meaning of section 332(a) of the
The merchandise covered by this investigation are currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheadings 7310.10.0010, 7310.10.0050, 7310.29.0025, and 7310.29.0050.
These HTSUS subheadings are provided for convenience and customs purposes; the written description of the scope of this investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) determines that imports of refillable stainless steel kegs (kegs) from the People's Republic of China (China) are being, or are likely to be, sold in the United States at less than fair value (LTFV). In addition, Commerce determines that critical circumstances exist with respect to certain imports of the subject merchandise. The period of investigation (POI) is January 1, 2018 through June 30, 2018. The final estimated weighted-average dumping margins are listed below in the “Final Determination” section of this notice.
Applicable October 24, 2019.
Thomas Schauer or Aimee Phelan, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-0410 or (202) 482-0697, respectively.
Commerce published the
The period of investigation is January 1, 2018 through June 30, 2018.
The product covered by this investigation is kegs from China. For a full description of the scope of this investigation,
All issues raised in the case and rebuttal briefs that were submitted by parties in this investigation are addressed in the Issues and Decision Memorandum. A list of issues raised is attached to this notice at Appendix II. The Issues and Decision Memorandum is a public document and is made available to the public via Enforcement and Compliance's Antidumping and Countervailing Duty Centralized Electronic Service System (ACCESS). ACCESS is available to registered users at
As provided in section 782(i) of the Tariff Act of 1930, as amended (the Act), we verified the U.S. sales and factors of production information submitted by Ningbo Master International Trade Co., Ltd. (Ningbo Master) in July 2019.
We continue to find that the use of facts available is warranted in determining the rate for the China-wide entity pursuant to sections 776(a)(1) and (a)(2)(A)-(C) of the Act.
Based on our analysis of the comments received and our findings at verification, we made certain changes to our dumping margin calculation for Ningbo Master and revised the margins for non-selected respondents and the China-wide entity to reflect the revised margins for Ningbo Master.
Consistent with the
In the
Commerce determines that the following weighted-average dumping margins exist:
Consistent with
With respect to Jingye and Ulix, consistent with the decision of the Court of Appeals for the Federal Circuit in
We intend to disclose the calculations performed to parties in this proceeding within five days after public announcement of the final determination or, if there is no public announcement, within five days of the date of publication of the notice of final determination in the
In accordance with section 735(c)(1)(B) of the Act, Commerce will instruct U.S. Customs and Border Protection (CBP) to continue to suspend liquidation of all entries of kegs from China, as described in Appendix I of this notice, which were entered, or withdrawn from warehouse, for consumption on or after June 4, 2019, the date of publication of the
Because we find that critical circumstances exist for subject merchandise produced for the China-wide entity, we will instruct CBP to suspend liquidation of all entries of kegs from China which were entered, or withdrawn from warehouse, for consumption on or after March 6, 2019, which is 90 days prior to the date of publication of the
Pursuant to section 735(c)(1)(B)(ii) of the Act, upon the publication of this notice, Commerce will instruct CBP to require a cash deposit
In accordance with section 735(d) of the Act, we will notify the International Trade Commission (ITC) of our final affirmative determination of sales at LTFV. Because the final determination in this proceeding is affirmative, in accordance with section 735(b)(2) of the Act, the ITC will make its final determination as to whether the domestic industry in the United States is materially injured, or threatened with material injury, by reason of imports of subject merchandise from China no later than 45 days after our final determination. If the ITC determines that such injury does not exist, this proceeding will be terminated, and all securities posted will be refunded or canceled. If the ITC determines that such injury does exist, Commerce will issue an antidumping duty order directing CBP to assess, upon further instruction by Commerce, antidumping duties on all imports of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the effective date of the suspension of liquidation.
This notice will serve as a reminder to the parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of 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 sanctionable violation.
This determination is issued and published in accordance with sections 735(d) and 777(i)(1) of the Act and 19 CFR 351.210(c).
The merchandise covered by this investigation are kegs, vessels, or containers with bodies that are approximately cylindrical in shape, made from stainless steel (
“Unassembled” or “unfinished” refillable stainless steel kegs include drawn stainless steel cylinders that have been welded to form the body of the keg and attached to an upper (top) chime and/or lower (bottom) chime. Unassembled refillable stainless steel kegs may or may not be welded to a neck, may or may not have a valve assembly attached, and may be otherwise complete except for testing, certification, and/or marking.
Subject merchandise also includes refillable stainless steel kegs that have been further processed in a third country, including but not limited to, attachment of necks, collars, spears or valves, heat treatment, pickling, passivation, painting, testing, certification or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the in-scope refillable stainless steel keg.
Specifically excluded are the following:
(1) Vessels or containers that are not approximately cylindrical in nature (
(2) stainless steel kegs, vessels, or containers that have either a “ball lock” valve system or a “pin lock” valve system (commonly known as “Cornelius,” “corny” or “ball lock” kegs);
(3) necks, spears, couplers or taps, collars, and valves that are not imported with the subject merchandise; and
(4) stainless steel kegs that are filled with beer, wine, or other liquid and that are designated by the Commissioner of Customs as Instruments of International Traffic within the meaning of section 332(a) of the
The merchandise covered by this investigation are currently classified in the Harmonized Tariff Schedule of the United States (HTSUS) under subheadings 7310.10.0010, 7310.10.0050, 7310.29.0025, and 7310.29.0050.
These HTSUS subheadings are provided for convenience and customs purposes; the written description of the scope of this investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Commerce) is rescinding the administrative review of the countervailing duty (CVD) order on certain amorphous silica fabric (silica fabric) from the People's Republic of China (China) for the period January 1, 2018, through December 31, 2018, based on timely withdrawal of the request for review.
Applicable October 24, 2019.
Tyler Weinhold, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1121.
On March 5, 2019, Commerce published a notice of opportunity to request an administrative review of the CVD order on silica fabric from China for the period January 1, 2018, through
Pursuant to 19 CFR 351.213(d)(1), the Secretary will rescind an administrative review, in whole or in part, if a party who requested the review withdraws the request within 90 days of the date of publication of the notice of initiation of the requested review. As noted above, the petitioner timely withdrew its request for review by the 90-day deadline. No other party requested an administrative review. Accordingly, we are rescinding the administrative review of the CVD order on silica fabric from China covering the period January 1, 2018, to December 31, 2018, in its entirety.
Commerce will instruct U.S. Customs and Border Protection (CBP) to assess CVDs on all appropriate entries at a rate equal to the cash deposit of estimated CVDs required at the time of entry, or withdrawal from warehouse, for consumption, during the period January 1, 2018, to December 31, 2018, in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue appropriate assessment instructions directly to CBP 15 days after publication of this notice in the
This notice serves as the only reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the presumption that reimbursement of the countervailing duties occurred and the subsequent assessment of doubled countervailing duties.
This notice also serves as the only reminder to parties subject to administrative protective order (APO) of their responsibility concerning the return or destruction of proprietary information disclosed under an APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return/destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.
This notice is issued and published in accordance with sections 751 of the Act and 19 CFR 351.213(d)(4).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; reissuance of incidental harassment authorization.
NMFS has received a request from the Port of Kalama (POK) for the re-issuance of a previously issued incidental harassment authorization (IHA) with the only change being effective dates that are one year later (October 19, 2019—October 18, 2020). The initial IHA authorized take of three species of marine mammals, by Level A and Level B harassment, incidental to construction activities associated with an expansion project at the POK on the Lower Columbia River, Washington. The project has been delayed and none of the work covered in the initial IHA (effective October 18, 2018—October 18, 2019) has been conducted. The scope of the activities and anticipated effects remain the same, authorized take numbers would not change, and the required mitigation, monitoring, and reporting would remain the same as authorized in the 2018 IHA referenced above. NMFS is, therefore, issuing a second IHA to cover the identical incidental take analyzed and authorized in the initial IHA.
This authorization is effective from October 19, 2019 through October 18, 2020.
An electronic copy of the final 2018 IHA previously issued to POK, POK's application, and the
Amy Fowler, Office of Protected Resources, NMFS, (301) 427-8401.
Sections 101(a)(5)(A) and (D) of the Marine Mammal Protection Act (MMPA; 16 U.S.C. 1361
An authorization for incidental takings shall be granted if NMFS finds that the taking will have a negligible impact on the species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for subsistence uses (where relevant), and if the permissible methods of taking and requirements pertaining to the mitigation, monitoring and reporting of such takings are set forth.
NMFS has defined “negligible impact” in 50 CFR 216.103 as an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.
The MMPA states that the term “take” means to harass, hunt, capture, kill or attempt to harass, hunt, capture, or kill any marine mammal.
Except with respect to certain activities not pertinent here, the MMPA defines “harassment” as any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild (Level A harassment); or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering (Level B harassment).
On September 28, 2015, we received a request from the POK for authorization of the taking, by Level B harassment only, of marine mammals incidental to the construction associated with the Port of Kalama Expansion Project, which involved construction of the Kalama Marine Manufacturing and Export Facility including a new marine terminal for the export of methanol, and installation of engineered log jams, restoration of riparian wetlands, and the removal of existing wood piles in a side channel as mitigation activities. The specified activity is expected to result in the take of three species of marine mammals (harbor seals, California sea lions, and Steller sea lions). A final version of the application, which we deemed adequate and complete, was submitted on December 10, 2015. We published a notice of a proposed IHA and request for comments on March 21, 2016 (81 FR 715064). After the public comment period and before we issued the final IHA, POK requested that we issue the IHA for 2017 instead of the 2016 work season. We subsequently published the final notice of our issuance of the IHA on December 12, 2016 (81 FR 89436), effective from September 1, 2017-August 31, 2018. In-water work associated with the project was expected to be completed within the one-year timeframe of the IHA.
On June 21, 2018, POK informed NMFS that work relevant to the specified activity considered in the MMPA analysis for the 2017-2018 IHA was postponed and would not be completed. POK requested that the IHA be issued to be effective for the period from 2018-2019. In support of that request, POK submitted an application addendum affirming that no change in the proposed activities is anticipated and that no new information regarding the abundance of marine mammals is available that would change the previous analysis and findings. A notice for the proposed incidental take authorization was published on July 25, 2018 (83 FR 35220), and a corrected notice was published on August 14, 2018 (83 FR 40257). On November 13, 2018, NMFS published final notice of our issuance of an IHA authorizing take of marine mammals incidental to the Port of Kalama Expansion Project (83 FR 56304). The effective dates of that IHA were October 18, 2018 through October 18, 2019.
On August 21, 2019, POK informed NMFS that the project was being delayed by one year. None of the work identified in the IHA (
The planned activities (including mitigation, monitoring, and reporting), authorized incidental take, and anticipated impacts on the affected stocks are the same as those analyzed and authorized through the previously issued IHA.
Planned activities include construction of a marine terminal and dock/pier for the export of methanol, and associated compensatory mitigation activities for the purposes of offsetting habitat effects from the action. Specifically, the location, timing, and nature of the activities, including the types of equipment planned for use, are identical to those described in the 2018 IHA. The mitigation and monitoring are also identical to the 2018 IHA and will include implementing shutdown procedures if any marine mammal approaches or enters the Level A harassment zone(s), limiting construction to daylight hours only, using bubble curtains during impact driving of steel piles, using soft-start during impact pile driving, and monitoring and reporting of qualified protected species observers (PSOs).
Species that are expected to be taken by the planned activity include harbor seal (
A description of the methods and inputs used to estimate take anticipated to occur and, ultimately, the take that was authorized is found in the previous documents referenced above. The methods of estimating take are identical to those used in the previous IHA, as is the density of marine mammals. NMFS has reviewed recent Stock Assessment Reports, information on relevant Unusual Mortality Events, and recent scientific literature, and determined that no new information affects our original analysis of impacts or take estimate under the original IHA.
We refer to the documents related to the previously issued IHA, which include the
POK will conduct activities identical to those analyzed in the previous 2018 IHA. As described above, the number of authorized takes of the same species and stocks of marine mammals are identical to the numbers that were found to meet the negligible impact and small numbers standards and authorized under the 2018 IHA and no new information has emerged that would change those findings. The re-issued 2019 IHA includes identical required mitigation, monitoring, and reporting measures as the 2018 IHA, and there is no new information suggesting that our analysis or findings should change.
Based on the information contained here and in the referenced documents, NMFS has determined the following: (1) The required mitigation measures will effect the least practicable impact on marine mammal species or stocks and their habitat; (2) the authorized takes will have a negligible impact on the affected marine mammal species or stocks; (3) the authorized takes represent small numbers of marine mammals relative to the affected stock abundances; and (4) POK's activities will not have an unmitigable adverse impact on taking for subsistence purposes as no relevant subsistence uses of marine mammals are implicated by this action.
To comply with the National Environmental Policy Act of 1969 (NEPA; 42 U.S.C. 4321
Accordingly, NMFS has determined that the issuance of the IHA qualifies to be categorically excluded from further NEPA review. This action is consistent with categories of activities identified in CE B4 of the Companion Manual for NOAA Administrative Order 216-6A, which do not individually or cumulatively have the potential for significant impacts on the quality of the human environment and for which we have not identified any extraordinary circumstances that would preclude this categorical exclusion.
Section 7(a)(2) of the Endangered Species Act of 1973 (ESA: 16 U.S.C. 1531
NMFS has issued an IHA to POK for in-water construction activities associated with the POK Expansion Project from October 19, 2019 through October 18, 2020. All previously described mitigation, monitoring, and reporting requirements from the 2018 IHA are incorporated.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meeting, request for comments.
This notice informs the public of an upcoming scoping process, including a scoping meeting, to solicit public comments on whether, based on best available information, existing National Marine Fisheries Service (NMFS) regulations and other measures adequately protect killer whales from the impacts of vessels and noise in the inland waters of Washington State and, if not, what actions NMFS should take. To inform comments, information on existing regulations and other protective measures are available at:
Written or electronic scoping comments must be received by December 23, 2019.
You may submit comments on this document by either of the following methods:
•
•
Comments can also be provided in person during the scoping meeting, listed below.
Grace Ferrara, West Coast Region, National Marine Fisheries Service. Telephone: 206-526-6172. Email:
The date, time, and location of the scoping meeting is scheduled as follows:
Tuesday, November 12th, 2019—Friday Harbor, WA, 5 p.m. to 8 p.m., Brickworks Event Center, 150 Nichols St., Friday Harbor, WA 98250.
NMFS listed the Southern Resident killer whale distinct population segment as endangered under the Endangered Species Act (ESA) in 2005 (70 FR 69903; November 18, 2005). During the listing of Southern Residents and the development of the 2008 Recovery Plan, vessel impacts were identified as one of the three main threats to recovery (NMFS, 2008). While in the inland waters of Washington State, this population is the target of an active transboundary commercial whale watch industry. In 2009, NMFS concluded that the voluntary guidelines in place to
When NMFS implemented these protective vessel regulations in 2011, we committed to evaluating their effectiveness post-implementation. NMFS completed this evaluation in 2017 and the Technical Memo (Ferrara et al., 2017) can be found here:
Since the implementation of the 2011 vessel regulations, NMFS has continued to participate in efforts to develop and receive public input for protective measures to reduce vessel impacts on killer whales in Washington's inland waters. NMFS has partnered with the Washington Department of Fish and Wildlife (WDFW) to enforce the regulations, providing funding through three ESA grants from 2013 to the present to expand WDFW's involvement in protecting Southern Resident killer whales. A killer whale protection workshop held by NMFS in 2013 brought scientists, enforcement officers, non-governmental organizations, industry, and members of the public together to review existing protections for the whales as well as the role of monitoring, enforcement of boater education efforts, identify data gaps, and provide an opportunity for stakeholder input on next steps to address vessel effects on killer whales. In late 2016, NMFS received a petition to establish a Whale Protection Zone (WPZ) on the west side of San Juan Island. In response to that petition, NMFS sought public comment and, during a 90-day comment period in 2017, members of the public, local and state government, federal agencies, tribal organizations, NGOs, and industry submitted comments on the proposed WPZ design as well as protected areas for Southern Residents in general.
NMFS also engaged in broader efforts to study and develop measures to reduce vessel impacts. In March 2018, the Washington State Governor established the Southern Resident Orca Task Force to identify immediate actions to benefit Southern Residents as well as develop a long-term action plan for recovery. NMFS serves on this Task Force as well as in its Vessel Working Group. In its first year, the Task Force made 12 recommendations to fulfill the goal of reducing disturbance from vessels to Southern Residents. The full list of recommendations can be found here:
Since 2017 NMFS has also served on the Advisory Working Group and the Acoustic Technical Committee for a voluntary slow-down trial, called ECHO, for piloted vessels transiting through Haro Strait. This trial has provided valuable insight into the impact of reducing the speed of large ships on the ambient noise level in an important foraging area for Southern Resident killer whales, as well as the impact of displacing vessel traffic away from an area frequented by Southern Residents. When compared to the pre-trial period, the acoustic intensity of ambient noise in the area of the west coast of San Juan Island was reduced by as much as 44 percent (corresponding to a 2.5 DB reduction in media sound pressure level) when vessel slowed down through the Strait (Joy
This scoping process aims to gather input regarding the need to revise the existing regulations, the scope of actions to be proposed for any rulemaking, the development of alternatives to that would be analyzed in the NEPA analysis, and the potential impact of management actions. NMFS is soliciting information from the public, governmental agencies, Tribes, the scientific community, industry, environmental entities, and any other interested parties. In particular, we request information and comments concerning: (1) The advisability of and need for changes to the existing regulations; (2) alternative management options for regulating vessel interactions with killer whales; (3) scientific and commercial information regarding the effect of vessels on killer whales and their habitat; (4) potential economic impacts of management options; and (5) any additional relevant information that NMFS should consider should it undertake rulemaking. In any future rulemaking, NMFS would consider existing voluntary and regulatory efforts to protect the whales, effectiveness and consistency of protective measures, transboundary coordination, the best available scientific information and public input in developing any amendments to the current federal vessel regulations.
Comments and suggestions received as part of this scoping process will be considered when developing the alternatives for analysis. Comments that were submitted to NMFS regarding the 2010 Environmental Assessment or previous proposed rule will be considered and do not need to be resubmitted.
40 CFR 1501.2, 1501.7; 16 U.S.C. 1540(f)) and MMPA section 112(a) (16 U.S.C. 1382(a)).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice; receipt of application.
Notice is hereby given that NMFS Pacific Islands Fisheries Science Center, Hawaiian monk seal Research Program (Responsible Party, Charles Littnan), has applied in due form for a permit to conduct research and
Written, telefaxed, or email comments must be received on or before November 25, 2019.
The application and related documents are available for review by selecting “Records Open for Public Comment” from the “Features” box on the Applications and Permits for Protected Species (APPS) home page,
These documents are also available upon written request or by appointment in the Permits and Conservation Division, Office of Protected Resources, NMFS, 1315 East-West Highway, Room 13705, Silver Spring, MD 20910; phone (301) 427-8401; fax (301) 713-0376.
Written comments on this application should be submitted to the Chief, Permits and Conservation Division, at the address listed above. Comments may also be submitted by facsimile to (301) 713-0376, or by email to
Those individuals requesting a public hearing should submit a written request to the Chief, Permits and Conservation Division at the address listed above. The request should set forth the specific reasons why a hearing on this application would be appropriate.
Sara Young or Amy Sloan, (301) 427-8401.
The subject permit is requested under the authority of the Marine Mammal Protection Act of 1972, as amended (MMPA; 16 U.S.C. 1361
The applicant requests a 5-year permit to carry out research and enhancement activities designed to recover the endangered Hawaiian monk seal. Activities would occur along beaches and nearshore waters throughout the Hawaiian Archipelago (Northwestern Hawaiian Islands [NWHI] and main Hawaiian Islands [MHI]) and Johnston Atoll.
Research is intended to identify impediments to recovery, inform the design of conservation interventions, and evaluate those measures. Research activities include visual and photographic monitoring, tagging, pelage bleach/dye marking, health screening, foraging studies, deworming research, necropsies, tissue sampling, import/export of parts, behavioral modification research, vocalization studies and vaccination research.
Enhancement activities are designed to improve the survival and reproductive success of individual monk seals, with the intent to improve subpopulation and overall species' status. Enhancement activities include deworming, translocation, hazing and removal of aggressive adult male seals that harm or kill other seals, disentangling, dehooking, medical treatment, behavioral modification, vaccination, and supplemental feeding of post-release rehabilitated seals.
Annual number of individual seals to be taken by take type (annually, unless otherwise specified) could be up to 1,500 for monitoring, 400 for tagging, 1,200 for bleach/dye marking, 150 for health screening, 10 moribund seals by euthanasia, 80 instrumentations, 300 for deworming treatments, 80 for acoustic recording, translocations of nursing pups to birth or foster mothers as warranted (estimated 20 pups), translocations to alleviate risk as warranted (estimated 60 seals), translocations to the NWHI of any age seal in the MHI with unmanageable behavior to alleviate risk to humans and the seals involved (as warranted but likely not to exceed 2 per year), translocation of 20 weaned pups and 30 juvenile/subadults as one-way or as part of two-stage translocation for enhancement, hazing aggressive adult males from conspecifics as warranted (estimated 10 seals), 20 adult male removals (including up to 10 lethal removals over five years), unlimited (
In compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321
Concurrent with the publication of this notice in the
Defense Counterintelligence and Security Agency, DoD.
Information collection notice.
In compliance with the
Consideration will be given to all comments received by December 23, 2019.
You may submit comments, identified by docket number and title, by any of the following methods:
To request more information on this proposed information collection or to obtain a copy of the proposal and associated collection instruments, please write to Department of Defense Consolidated Adjudications Facility, Attn: E.A. Foster, Fort George Meade, Maryland 20755, or call the DoD CAF Privacy Act Office, at 301-833-3790.
Environmental Protection Agency (EPA).
Notice of final order on petitions to object to state operating permits.
The EPA Administrator signed an Order, dated October 3, 2019, denying the petition submitted by Sierra Club (Petitioner) objecting to a proposed Clean Air Act (CAA) title V operating permit issued to Mill Creek Generating Station (Mill Creek) located in Jefferson County, Kentucky. The Order responds to a June 2, 2017, petition requesting that the EPA object to the final operating permit number O-0127-16-V. This permitting action was issued by the Louisville Metro Air Pollution Control District (LMAPCD). The Order constitutes a final action on the petition addressed therein.
Copies of the Order, the petition, and all pertinent information relating thereto are on file at the following location: EPA Region 4; Air and Radiation Division; 61 Forsyth Street SW; Atlanta, Georgia 30303-8960. The Order is also available electronically at the following address:
Art Hofmeister, Air Permits Section, EPA Region 4, at (404) 562-9115 or
The CAA affords the EPA a 45-day period to review and, as appropriate, the authority to object to operating permits proposed by state permitting authorities under title V of the CAA, 42 U.S.C. 7661-7661f. Section 505(b)(2) of the CAA and 40 CFR 70.8(d) authorize any person to petition the EPA Administrator to object to a title V operating permit within 60 days after the expiration of the EPA's 45-day review period if the EPA has not objected on its own initiative. Petitions must be based only on objections to the permit that were raised with reasonable specificity during the public comment period provided by the state, unless the petitioner demonstrates that it was impracticable to raise these issues during the comment period or the grounds for the issues arose after this period. Pursuant to sections 307(b) and 505(b)(2) of the CAA, a petition for judicial review of those parts of the Order that deny issues in the petition may be filed in the United States Court of Appeals for the appropriate circuit within 60 days from the date this notice is published in the
Petitioner submitted a petition requesting that the EPA object to the proposed CAA title V operating permit no. O-0127-16-V issued by LMAPCD to Mill Creek. Petitioner claims that this permitting action: Includes an impermissible long-term emission limit that is inadequate to protect the 1-hour sulfur dioxide National Ambient Air Quality Standards (NAAQS) and, even if it were permissible, the long-term limit is too high to protect the NAAQS.
On October 3, 2019, the Administrator issued an Order denying the petition. The Order explains the EPA's basis for denying the petition.
Environmental Protection Agency (EPA).
Notice of a final decision on a UIC no migration petition reissuance.
Notice is hereby given that a reissuance of an exemption to the Land Disposal Restrictions, under the 1984 Hazardous and Solid Waste Amendments to the Resource Conservation and Recovery Act, has been granted to Veolia for two Class I
This action was effective as of October 2, 2019.
Copies of the petition reissuance and all pertinent information relating thereto are on file at the following location: Environmental Protection Agency, Region 6, Water Division, Safe Drinking Water Branch (6WDD), 1201 Elm Street, Suite 500, Dallas, Texas 75270-2102.
Philip Dellinger, Chief, Ground Water/UIC Section, EPA—Region 6, telephone (214) 665-8324.
Environmental Protection Agency (EPA).
Notice of availability.
This notice of availability announces the Environmental Protection Agency's (EPA) Preliminary Effluent Guidelines Program Plan 14 (Preliminary Plan 14) and solicits public comment. Section 304(m) of the Clean Water Act (CWA) requires the EPA to biennially publish a plan for new and revised effluent limitations guidelines, after public review and comment. Preliminary Plan 14 identifies any new or existing industrial categories selected for effluent guidelines or pretreatment standards and provides a schedule for their development. The EPA typically publishes a preliminary plan upon which the public is invited to comment, and then publishes a final plan thereafter. The EPA developed Preliminary Plan 14 based on its review and analysis of data from 2016, 2017, and 2018 as part of its annual review process.
Comments must be received on or before November 25, 2019.
Submit your comments, identified by Docket ID No. EPA-HQ-OW-2018-0618, to the
Dr. Phillip Flanders, Engineering and Analysis Division, Office of Water, 4303T, U.S. Environmental Protection Agency, 1200 Pennsylvania Avenue NW, Washington, DC 20460; telephone number: (202) 566-8323; fax number: (202) 566-1053; email address:
1. Docket. The EPA has established an official public docket for these actions under Docket ID No. EPA-HQ-OW-2018-0618. The official public docket is the collection of materials that are available for public viewing at the Water Docket in the EPA Docket Center, (EPA/DC) EPA West, Room 3334, 1301 Constitution Ave. NW, Washington, DC 20460.
2. Electronic Access. You can access this
3. Internet access. Copies of the supporting documents are available at
The outline of this document follows.
This notice of availability is published under the authority of the CWA, 33 U.S.C. 1251,
The EPA prepares Preliminary Effluent Guidelines Program Plans pursuant to CWA section 304(m). Preliminary plans provide a summary of the EPA's annual review of effluent guidelines and pretreatment standards, consistent with CWA sections 301(d), 304(b), 304(g), 304(m), and 307(b). From these reviews, preliminary plans identify any new or existing industrial categories selected for effluent guidelines or pretreatment standards rulemakings and provide a schedule for such rulemakings. In addition, preliminary plans present any new or existing categories of industry selected for further review and analysis.
Preliminary Plan 14 discusses the one ongoing rulemaking (and the associated schedule) for the Steam Electric Power Generating Point Source Category. The EPA has concluded that no additional categories warrant new or revised effluent guidelines at this time. Preliminary Plan 14 provides updates
Preliminary Plan 14 can be found at
The EPA requests comments and information on the overall content of Preliminary Plan 14 and specifically on the following topics.
The EPA solicits comments on the reviews of industrial wastewater discharges and treatment technologies that were conducted for the development of Preliminary Plan 14 and described therein. The EPA solicits comments on the new analyses and tools announced in Preliminary Plan 14, including analyses of industrial sources and discharges of nutrients and per- and polyfluoroalkyl substances (PFAS), a new methodology for proposed treatment technology reviews, and a proposed effluent limitations guidelines database. Preliminary Plan 14 presents initial results for some new analyses (
The EPA solicits comment on other data sources it might use in its annual reviews and biennial planning process.
Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA).
Notice and request for comments.
In accordance with section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, and the Office of Management and Budget (OMB) regulations, DoD, GSA, and NASA invite the public to comment on a revision and renewal concerning patents. DoD, GSA, and NASA invite comments on: Whether the proposed collection of information is necessary for the proper performance of the functions of Federal Government acquisitions, including whether the information will have practical utility; the accuracy of the estimate of the burden of the proposed information collection; ways to enhance the quality, utility, and clarity of the information to be collected; and ways to minimize the burden of the information collection on respondents, including the use of automated collection techniques or other forms of information technology. OMB has approved this information collection for use through January 31, 2020. DoD, GSA, and NASA propose that OMB extend its approval for use for three additional years beyond the current expiration date.
DoD, GSA, and NASA will consider all comments received by December 23, 2019.
DoD, GSA, and NASA invite interested persons to submit comments on this collection by either of the following methods:
•
•
Zenaida Delgado, Procurement Analyst, at telephone 202-969-7207, or
9000-0096, Patents.
The patent coverage in Federal Acquisition Regulation (FAR) subpart 27.2 requires the contractor to report each notice of a claim of patent or copyright infringement that came to the contractor's attention in connection with performing a Government contract (FAR 52.227-2).
The contractor is also required to report all royalties anticipated or paid in excess of $250 for the use of patented inventions by furnishing the name and address of licensor, date of license agreement, patent number, brief description of item or component, percentage or dollar rate of royalty per unit, unit price of contract item, and number of units (FAR 52.227-6, and 52.227-9).
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice of meeting.
In accordance with the Federal Advisory Committee Act, the CDC announces the following meeting for the Board of Scientific Counselors, National Center for Injury Prevention and Control, (BSC, NCIPC). This meeting is open to the public limited only by the space and ports available. The meeting room accommodates 70 participants and there will be 2,000 ports available. Due to the limited availability of meeting space, we are encouraging the pubic to please register using the link provided:
There will be public comment periods at the end of each meeting day; from 3:35 p.m.-4:05 p.m. on December 4, 2019 and from 10:40 a.m.-10:55 a.m. on December 5, 2019.
The meeting will be held on December 4, 2019, 9:00 a.m. to 4:40 p.m., EST and December 5, 2019, 9:00 a.m. to 11:30 a.m., EST.
Hilton Garden Inn Atlanta—Buckhead, 3342 Peachtree Road NE, Atlanta, Georgia 30326 and via Teleconference: Dial-In Number: 1-800-475-0522, Participant Code: 7074867.
Gwendolyn H. Cattledge, Ph.D., M.S.E.H., Deputy Associate Director for Science, NCIPC, CDC, 4770 Buford Highway NE, Mailstop F-63, Atlanta, GA 30341, Telephone (770) 488-1430. Email address:
The Director, Strategic Business Initiatives Unit, Office of the Chief Operating Officer, Centers for Disease Control and Prevention, has been delegated the authority to sign
Centers for Medicare and Medicaid Services (CMS), HHS.
Proposed notice.
This proposed notice acknowledges the receipt of an application from Utilization Review Accreditation Commission for initial recognition as a national accrediting organization for suppliers of home infusion therapy services that wish to participate in the Medicare program. Within 60 days of receipt of an organization's complete application, the statute requires CMS to publish a notice that identifies the national accrediting body making the request, describes the nature of the request, and provides at least a 30-day public comment period.
To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on November 25, 2019.
In commenting, please refer to file code CMS-3389-PN. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.
Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):
1.
2.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3.
For information on viewing public comments, see the beginning of the
Christina Mister-Ward, (410) 786-2441.
Shannon Freeland, (410) 786-4348.
Lillian Williams, (410) 786-8636.
Infusion therapy is a treatment option for Medicare beneficiaries with a wide range of acute and chronic conditions. Section 5012 of the 21st Century Cures Act (Pub. L. 114-255, enacted December 13, 2016) added section 1861(iii) to the Social Security Act (the Act), establishing a new Medicare benefit for home infusion therapy (HIT) services. Section 1861(iii)(1) of the Act defines HIT as professional services, including nursing services; training and education not otherwise covered under the durable medical equipment (DME) benefit; remote monitoring; and other monitoring services. HIT must be furnished by a qualified HIT supplier and furnished in the individual's home. The individual must be under—
• The care of an applicable provider (that is, physician, nurse practitioner, or physician assistant); and
• A plan of care established and periodically reviewed by a physician in coordination with the furnishing of home infusion drugs under Part B, that prescribes the type, amount, and duration of infusion therapy services that are to be furnished.
Section 1861(iii)(3)(D)(III) of the Act requires that a qualified HIT supplier be accredited by an accrediting organization (AO) designated by the Secretary in accordance with section 1834(u)(5) of the Act. Section 1834(u)(5)(A) of the Act identifies factors for designating AOs and in reviewing and modifying the list of designated AOs. These statutory factors are as follows:
• The ability of the organization to conduct timely reviews of accreditation applications.
• The ability of the organization take into account the capacities of suppliers located in a rural area (as defined in section 1886(d)(2)(D) of the Act).
• Whether the organization has established reasonable fees to be charged to suppliers applying for accreditation.
• Such other factors as the Secretary determines appropriate.
Section 1834(u)(5)(B) of the Act requires the Secretary to designate AOs to accredit HIT suppliers furnishing HIT not later than January 1, 2021. Section 1861(iii)(3)(D) of the Act defines “qualified home infusion therapy suppliers” as being accredited by a CMS-approved AO.
In the March 1, 2019
Regulations for the approval and oversight of AOs for HIT organizations are located at 42 CFR part 488, subpart L. The requirements for HIT suppliers are located at 42 CFR part 486, subpart I.
Section 1834(u)(5) of the Act and the regulations at 42 CFR 488.1010 (Application and re-application procedures for national HIT AOs) require that our findings concerning review and approval of a national AO's requirements consider, among other factors, the applying AO's requirements for accreditation; survey procedures; resources for conducting required surveys; capacity to furnish information for use in enforcement activities; monitoring procedures for provider entities found not in compliance with the conditions or requirements; and ability to provide CMS with the necessary data.
Section 488.1020(a) requires that we publish, after receipt of an organization's complete application, a notice identifying the national accrediting body making the request, describing the nature of the request, and providing at least a 30-day public comment period. In accordance with § 488.1010(d), we have 210 days from the receipt of a complete application to publish notice of approval or denial of the application.
The purpose of this proposed notice is to inform the public of the Utilization Review Accreditation Commission's (URAC) initial request for CMS approval of its HIT accreditation program. This notice also solicits public comment on whether URAC's requirements meet or exceed the Medicare conditions of participation for HIT services.
URAC submitted all the necessary materials to enable us to make a determination concerning its request for initial approval of its HIT accreditation program. This application was determined to be complete on August 30, 2019. Under section 1834(u)(5) of the Act and § 488.1010, our review and evaluation of URAC will be conducted in accordance with, but not necessarily limited to, the following factors:
• The equivalency of URAC's standards for HIT as compared with CMS' HIT conditions for certification.
• URAC's survey process to determine the following:
++ The composition of the survey team, surveyor qualifications, and the ability of the organization to provide continuing surveyor training.
++ The comparability of URAC's to CMS standards and processes, including survey frequency, and the ability to investigate and respond appropriately to complaints against accredited facilities.
++ URAC's processes and procedures for monitoring a HIT supplier found out of compliance with URAC's program requirements.
++ URAC's capacity to report deficiencies to the surveyed facilities and respond to the facility's plan of correction in a timely manner.
++ URAC's capacity to provide CMS with electronic data and reports necessary for effective assessment and interpretation of the organization's survey process.
++ The adequacy of URAC's staff and other resources, and its financial viability.
++ URAC's capacity to adequately fund required surveys.
++ URAC's policies with respect to whether surveys are announced or unannounced, to assure that surveys are unannounced.
++ URAC's policies and procedures to avoid conflicts of interest, including the appearance of conflicts of interest, involving individuals who conduct surveys, audits or participate in accreditation decisions.
++ URAC's agreement to provide CMS with a copy of the most current accreditation survey together with any other information related to the survey as CMS may require (including corrective action plans).
• URAC's agreement or policies for voluntary and involuntary termination of suppliers.
• URAC agreement or policies for voluntary and involuntary termination of the HIT AO program.
This document does not impose information collection and requirements, that is, reporting, recordkeeping or third party disclosure requirements. Consequently, there is no need for review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
Because of the large number of public comments we normally receive on
Upon completion of our evaluation, including evaluation of comments received as a result of this notice, we will publish a final notice in the
Centers for Medicare & Medicaid Services (CMS), HHS.
Notice.
This notice announces the next meeting of the APOE (the Panel) in accordance with the Federal Advisory Committee Act. The Panel advises and makes recommendations to the Secretary of the U.S. Department of Health and Human Services (HHS) and the Administrator of the Centers for Medicare & Medicaid Services (CMS) on opportunities to enhance the effectiveness of consumer education strategies concerning the Health Insurance Marketplace, Medicare, Medicaid, and the Children's Health Insurance Program (CHIP). This meeting is open to the public.
Lisa Carr, Designated Federal Official, Office of Communications, 200 Independence Avenue SW, Mailstop 325G HHH, Washington, DC 20201, 202-690-5742, or via email at
Additional information about the APOE is available at:
The Advisory Panel for Outreach and Education (APOE) (the Panel) is governed by the provisions of the Federal Advisory Committee Act (FACA) (Pub. L. 92-463), as amended (5 U.S.C. Appendix 2), which sets forth standards for the formation and use of federal advisory committees. The Panel is authorized by section 1114(f) of the Social Security Act (42 U.S.C. 1314(f)) and section 222 of the Public Health Service Act (42 U.S.C. 217a).
The Secretary of the U.S. Department of Health and Human Services (HHS) (the Secretary) signed the charter establishing the Citizen's Advisory Panel on Medicare Education
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Pub. L. 108-173) expanded the existing health plan options and benefits available under the M+C program and renamed it the Medicare Advantage (MA) program. CMS has had substantial responsibilities to provide information to Medicare beneficiaries about the range of health plan options available and better tools to evaluate these options. The successful MA program implementation required CMS to consider the views and
In addition, Title I of the MMA authorized the Secretary and the Administrator of CMS (by delegation) to establish the Medicare prescription drug benefit. The drug benefit allows beneficiaries to obtain qualified prescription drug coverage. In order to effectively administer the MA program and the Medicare prescription drug benefit, we have substantial responsibilities to provide information to Medicare beneficiaries about the range of health plan options and benefits available, and to develop better tools to evaluate these plans and benefits.
The Patient Protection and Affordable Care Act (Pub. L. 111-148) and Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152) (collectively referred to as the Affordable Care Act) expanded the availability of other options for health care coverage and enacted a number of changes to Medicare as well as to Medicaid and CHIP. Qualified individuals and qualified employers are now able to purchase private health insurance coverage through a competitive marketplace, called an Affordable Insurance Exchange (also called Health Insurance Marketplace
The scope of this Panel also includes advising on issues pertaining to the education of providers and stakeholders with respect to the Affordable Care Act and certain provisions of the Health Information Technology for Economic and Clinical Health (HITECH) Act enacted as part of the American Recovery and Reinvestment Act of 2009 (ARRA) (Pub. L. 111-5).
On January 21, 2011, the Panel's charter was renewed and the Panel was renamed the Advisory Panel for Outreach and Education. The Panel's charter was most recently renewed on January 19, 2019, and will terminate on January 19, 2021 unless renewed by appropriate action.
In accordance with the January 19, 2019, charter, the APOE will advise the HHS and CMS on developing and implementing education programs that support individuals who are enrolled in or eligible for Medicare, Medicaid, CHIP, or health coverage available through the Health Insurance Marketplace
The charter will terminate on January 19, 2021, unless renewed by appropriate action. The APOE was chartered under 42 U.S.C. 217a, section 222 of the Public Health Service Act, as amended. The APOE is governed by provisions of Public Law 92-463, as amended (5 U.S.C. Appendix 2), which sets forth standards for the formation and use of advisory committees.
In accordance with the renewed charter, the APOE will advise the Secretary of Health and Human Services and the CMS Administrator concerning optimal strategies for the following:
• Developing and implementing education and outreach programs for individuals enrolled in, or eligible for, Medicare, Medicaid, the CHIP, and coverage available through the Health Insurance Marketplace
• Enhancing the federal government's effectiveness in informing Medicare, Medicaid, CHIP, or the Health Insurance Marketplace
• Expanding outreach to vulnerable and underserved communities, including racial and ethnic minorities, in the context of Medicare, Medicaid, the CHIP and the Health Insurance Marketplace
• Assembling and sharing an information base of “best practices” for helping consumers evaluate health coverage options.
• Building and leveraging existing community infrastructures for information, counseling, and assistance.
• Drawing the program link between outreach and education, promoting consumer understanding of health care coverage choices, and facilitating consumer selection/enrollment, which in turn support the overarching goal of improved access to quality care, including prevention services, envisioned under the Affordable Care Act.
The current members of the Panel as of September 9, 2019 are—Angie Boddie, Director of Health Programs, National Caucus and Center on Black Aging, Inc.; Julie Carter, Senior Federal Policy Associate, Medicare Rights Center; Scott Ferguson, Director of Care Transitions and Population Health, Mount Sinai St. Luke's Hospital; Leslie Fried, Senior Director, Center for Benefits Access, National Council on Aging; David Goldberg, President and CEO of Mon Health System; Jean-Venable R. Goode, Professor, Department of Pharmacotherapy and Outcomes Science, School of Pharmacy, Virginia Commonwealth University; Louise Scherer Knight, Director, Harry J. Duffey Family Patient and Family Services Program, Johns Hopkins Sidney Kimmel Comprehensive Cancer Center; Cheri Lattimer, Executive Director, National Transitions of Care Coalition; Michael Minor, National Director, H.O.P.E. HHS Partnership, National Baptist Convention USA, Incorporated; Cathy Phan, Business Development Coordinator, Asian American Health Coalition dba HOPE Clinic; Margot Savoy, Chair, Department of Family and Community Medicine, Temple University Physicians; Congresswoman Allyson Schwartz, President and CEO, Better Medicare Alliance; and Tobin Van Ostern, Co-Founder, Young Invincibles Advisors; Tia Whitaker, Statewide Director, Outreach and Enrollment, Pennsylvania Association of Community Health Centers.
In accordance with section 10(a) of the FACA, this notice announces a meeting of the APOE. The agenda for the November 14, 2019 meeting will include the following:
Individuals or organizations that wish to make a 5-minute oral presentation on an agenda topic should submit a written copy of the oral presentation to the DFO at the address listed in the
The meeting is open to the public, but attendance is limited to the space available. Persons wishing to attend this meeting must register by contacting the DFO at the address listed in the
The REAL ID Act of 2005 (Pub. L. 109-13) establishes minimum standards for the issuance of state-issued driver's licenses and identification (ID) cards. It prohibits federal agencies from accepting an official driver's license or ID card from a state for any official purpose unless the Secretary of the Department of Homeland Security determines that the state meets these standards. Beginning October 2015, photo IDs (such as a valid driver's license) issued by a state or territory not in compliance with the Real ID Act will not be accepted as identification to enter federal buildings. Visitors from these states/territories will need to provide alternative proof of identification (such as a valid passport) to gain entrance into federal buildings. The current list of states from which a federal agency may accept driver's licenses for an official purpose is found at
We recommend that confirmed registrants arrive reasonably early, but no earlier than 45 minutes prior to the start of the meeting, to allow additional time to clear security. Security measures include the following:
Individuals who are not registered in advance will not be permitted to enter the building and will be unable to attend the meeting.
This document does not impose information collection requirements, that is, reporting, recordkeeping, or third-party disclosure requirements. Consequently, there is no need for review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
Sec. 1114 (f) of the Social Security Act (42 U.S.C. 1314(f)), sec. 222 of the Public Health Service Act (42 U.S.C. 217a), and sec. 10(a) of Pub. L. 92-463 (5 U.S.C. App. 2, sec. 10(a) and 41 CFR part 102-3).
Centers for Medicare & Medicaid 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 on the collection(s) of information must be received by the OMB desk officer by November 25, 2019.
When commenting on the proposed information collections, please reference the document identifier or OMB control number. To be assured consideration, comments and recommendations must be received by the OMB desk officer via one of the following transmissions: OMB, Office of Information and Regulatory Affairs, Attention: CMS Desk Officer, Fax Number: (202) 395-5806
To obtain copies of a supporting statement and any related forms for the proposed collection(s) summarized in this notice, you may make your request using one of following:
1. Access CMS' website address at website address at
1. Email your request, including your address, phone number, OMB number, and CMS document identifier, to
2. Call the Reports Clearance Office at (410) 786-1326.
William Parham at (410) 786-4669.
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. 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 (44 U.S.C. 3506(c)(2)(A)) requires federal agencies to publish a 30-day notice in the
1.
The final rule “Patient Protection and Affordable Care Act; Annual Eligibility Redeterminations for Exchange Participation and Insurance Affordability Programs; Health Insurance Issuer Standards Under the Affordable Care Act, Including Standards Related to Exchanges” (79 FR 52994), provides that an Exchange may choose to conduct the annual redetermination process for a plan year (1) in accordance with the existing procedures described in 45 CFR 155.335; (2) in accordance with procedures described in guidance issued by the Secretary for the coverage year; or (3) using an alternative proposed by the Exchange and approved by the Secretary. The final rule also amends the requirements for product renewal and re-enrollment (or non-renewal) notices to be sent by QHP issuers in the Exchanges and specifies content for these notices.
Centers for Medicare & Medicaid Services (CMS), HHS.
Proposed notice.
This proposed notice acknowledges the receipt of an application from The Joint Commission (TJC) for continued recognition as a national accrediting organization for home health agencies (HHAs) that wish to participate in the Medicare or Medicaid programs. The statute requires that within 60 days of receipt of an organization's complete application, the Centers for Medicare and Medicaid Services (CMS) publish a notice that identifies the national accrediting body making the request, describes the nature of the request, and provides at least a 30-day public comment period.
To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on November 25, 2019.
In commenting, please refer to file code CMS-3384-PN. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one of the ways listed):
1.
Follow the “Submit a comment” instructions.
2.
Please allow sufficient time for mailed comments to be received before the close of the comment period.
3.
4.
a. For delivery in Washington, DC—Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)
b. For delivery in Baltimore, MD—Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address, please call telephone number (410) 786-7195 in advance to schedule your arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.
For information on viewing public comments, see the beginning of the
Sharon Lash (410) 786-9457.
Caecilia Blondiaux (410) 786-2190.
Under the Medicare program, eligible beneficiaries may receive covered services from a home health agency (HHA), provided certain requirements are met. Sections 1861(m) and (o), 1891 and 1895 of the Social Security Act (the Act) establish distinct criteria for an entity seeking designation as an HHA. Regulations concerning provider agreements are at 42 CFR part 489 and those pertaining to activities relating to the survey and certification of facilities and other entities are at 42 CFR part 488. The regulations at 42 CFR parts 409 and 484 specify the conditions that an HHA must meet to participate in the Medicare program, the scope of covered services and the conditions for Medicare payment for home health care.
Generally, to enter into a provider agreement with the Medicare program, an HHA must first be certified by a state survey agency as complying with the conditions or requirements set forth in 42 CFR part 484 of our regulations. Thereafter, the HHA is subject to regular surveys by a state survey agency to determine whether it continues to meet these requirements.
However, there is an alternative to surveys by state agencies. Section 1865(a)(1) of the Act provides that, if a provider entity demonstrates through accreditation by an approved national accrediting organization that all applicable Medicare conditions are met or exceeded, we will deem those provider entities as having met the requirements. Accreditation by an accrediting organization is voluntary and is not required for Medicare participation.
If an accrediting organization is recognized by the Secretary of Health and Human Services as having standards for accreditation that meet or exceed Medicare requirements, any provider entity accredited by the national accrediting body's approved program would be deemed to meet the Medicare conditions. A national accrediting organization applying for CMS approval of their accreditation program under 42 CFR part 488, subpart A must provide CMS with reasonable assurance that the accrediting organization requires the accredited provider entities to meet requirements that are at least as stringent as the Medicare conditions. Our regulations concerning the approval of accrediting organizations are set forth at § 488.5. The regulations at § 488.5(e)(2)(i) require accrediting organizations to reapply for continued approval of their accreditation program every 6 years or sooner as determined by CMS.
The Joint Commission's (TJC's) term of approval for their HHA accreditation program expires March 31, 2020.
Section 1865(a)(2) of the Act and our regulations at § 488.5 require that our findings concerning review and approval of a national accrediting organization's requirements consider, among other factors, the applying accrediting organization's requirements for accreditation; survey procedures; resources for conducting required surveys; capacity to furnish information for use in enforcement activities; monitoring procedures for provider entities found not in compliance with the conditions or requirements; and ability to provide us with the necessary data for validation.
Section 1865(a)(3)(A) of the Act further requires that we publish, within 60 days of receipt of an organization's complete application, a notice identifying the national accrediting body making the request, describing the nature of the request, and providing at least a 30-day public comment period. We have 210 days from the receipt of a complete application to publish notice of approval or denial of the application.
The purpose of this proposed notice is to inform the public of TJC's request for continued approval for its HHA accreditation program. This notice also solicits public comment on whether TJC's requirements meet or exceed the Medicare conditions of participation (CoPs) for HHAs.
TJC submitted all the necessary materials to enable us to make a determination concerning its request for continued approval of its HHA accreditation program. This application was determined to be complete on July 15, 2019. Under section 1865(a)(2) of the Act and our regulations at § 488.5 (Application and re-application procedures for national accrediting organizations), our review and evaluation of TJC will be conducted in accordance with, but not necessarily limited to, the following factors:
• The equivalency of TJC's standards for HHAs as compared with CMS' HHA CoPs.
• TJC's survey process to determine the following:
++ The composition of the survey team, surveyor qualifications, and the ability of the organization to provide continuing surveyor training.
++ The comparability of TJC's processes to those of state agencies, including survey frequency, and the ability to investigate and respond appropriately to complaints against accredited HHAs.
++ TJC's processes and procedures for monitoring HHAs found out of compliance with TJC's program requirements. These monitoring procedures are used only when TJC identifies noncompliance. If noncompliance is identified through validation reviews or complaint surveys, the state survey agency monitors corrections as specified at § 488.9(c).
++ TJC's capacity to report deficiencies to the surveyed HHAs and respond to the HHA's plan of correction in a timely manner.
++ TJC's capacity to provide us with electronic data and reports necessary for effective validation and assessment of the organization's survey process.
++ The adequacy of TJC's staff and other resources, and its financial viability.
++ TJC's capacity to adequately fund required surveys.
++ TJC's policies with respect to whether surveys are announced or unannounced, to assure that surveys are unannounced.
++ TJC's policies and procedures to avoid conflicts of interest, including the appearance of conflicts of interest, involving individuals who conduct surveys or participate in accreditation decisions.
++ TJC's agreement to provide us with a copy of the most current accreditation survey together with any other information related to the survey as we may require (including corrective action plans).
This document does not impose information collection requirements, that is reporting, recordkeeping or third-party disclosure requirements. Consequently, there is no need for review by the Office Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).
Because of the large number of public comments we normally receive on
Upon completion of our evaluation, including evaluation of comments received as a result of this notice, we will publish a final notice in the
Food and Drug Administration, HHS.
Notice of availability.
The Food and Drug Administration (FDA or Agency) is announcing the availability of the draft guidance entitled “Breast Implants—Certain Labeling Recommendations to Improve Patient Communication.” This draft guidance contains recommendations concerning the content and format for certain labeling information for saline and silicone gel-filled breast implants. FDA is seeking comments on all aspects of the draft guidance, including the respective benefits and risks of smooth and textured breast implants and applicability of the recommendations to both types. This draft guidance is not final nor is it in effect at this time.
Submit either electronic or written comments on the draft guidance by December 23, 2019 to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance.
You may submit comments on any guidance at any time as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
You may submit comments on any guidance at any time (see 21 CFR 10.115(g)(5)).
An electronic copy of the guidance document is available for download from the internet. See the
Cynthia Chang, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4646, Silver Spring, MD 20993-0002, 301-796-6891.
Over the past few years, FDA has received new information pertaining to risks associated with breast implants, including breast implant-associated anaplastic large cell lymphoma and systemic symptoms commonly referred to as breast implant illness that some patients attribute to their implants. FDA has taken several steps to better understand and address risks associated with breast implants, including convening the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Committee on March
For these reasons, FDA is now providing recommendations concerning the content and format of certain labeling information for these devices. Specifically, FDA is recommending that manufacturers incorporate a boxed warning and a patient decision checklist into the labeling for these devices to better ensure certain information is received and understood by patients. This draft guidance also recommends updated and additional labeling information, including updates to the silicone gel-filled breast implant rupture screening recommendations, inclusion of an easy-to-find description of materials, and provision of patient device cards that were recommended at the March 2019 panel meeting.
This draft guidance is not intended to include a complete listing of all labeling components for breast implants. When finalized, the recommendations in this draft guidance will supplement or in some cases replace recommendations in FDA's guidance entitled “Saline, Silicone Gel, and Alternative Breast Implants” (November 2006) (
Based on the information presented at the March 2019 panel meeting, FDA continues to gather available information regarding the benefits and risks associated with different types of breast implants, and consider appropriate labeling and regulatory requirements for them. FDA will continue to analyze all available information regarding the risks associated with breast implants and take additional actions as determined necessary or appropriate. FDA invites comments on the benefits and risks of smooth and textured breast implants, respectively, as well as the labeling recommendations for these implants.
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the current thinking of FDA on “Breast Implants—Certain Labeling Recommendations to Improve Patient Communication.” It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
Persons interested in obtaining a copy of the draft guidance may do so by downloading an electronic copy from the internet. A search capability for all Center for Devices and Radiological Health guidance documents is available at
This draft guidance refers to previously approved collections of information. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521). The collections of information in the following FDA regulations have been approved by OMB as listed in the following table:
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing that a proposed collection of information has been submitted to the Office of Management and Budget (OMB) for review and clearance under the Paperwork Reduction Act of 1995.
Fax written comments on the collection of information by November 25, 2019.
To ensure that comments on the information collection are received, OMB recommends that written comments be faxed to the Office of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, Fax: 202-395-7285, or emailed to
Amber Sanford, Office of Operations, Food and Drug Administration, Three White Flint North, 10A-12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796-8867,
In compliance with 44 U.S.C. 3507, FDA has submitted the following proposed collection of information to OMB for review and clearance.
Section 522 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 360
In the
FDA estimates the burden of this collection of information as follows:
Our estimated burden for the information collection reflects a decrease of 29,982 hours. We attribute this adjustment to a decrease in the number of submissions we received over the last few years.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing an opportunity for public comment on the proposed collection of certain information by the Agency. Under the Paperwork Reduction Act of 1995 (PRA), Federal Agencies are required to publish notice in the
Submit either electronic or written comments on the collection of information by December 23, 2019.
You may submit comments as follows. Please note that late, untimely filed comments will not be considered. Electronic comments must be submitted on or before December 23, 2019. The
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Amber Sanford, Office of Operations, Food and Drug Administration, Three White Flint North, 10A-12M, 11601 Landsdown St., North Bethesda, MD 20852, 301-796-8867,
Under the PRA (44 U.S.C. 3501-3521), Federal Agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. “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 (44 U.S.C. 3506(c)(2)(A)) requires Federal Agencies to provide a 60-day notice in the
With respect to the following collection of information, FDA invites comments on these topics: (1) Whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed 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) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.
Under section 515 of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 360e) all devices placed into class III by FDA are subject to
Manufacturers of class III preamendments devices (devices that were in commercial distribution before May 28, 1976) are not required to submit a PMA until 30 months after the issuance of a final classification regulation or until 90 days after the publication of a final regulation requiring the submission of a PMA, whichever period is later. FDA may allow more than 90 days after issuance of a final rule for submission of a PMA.
A postamendments device is one that was first distributed commercially on or after May 28, 1976. Postamendments devices determined by FDA to be substantially equivalent to preamendments class III devices are subject to the same requirements as the preamendments devices. FDA determines substantial equivalence after reviewing an applicant's premarket notification submitted in accordance with section 510(k) of the FD&C Act (21 U.S.C. 360(k)). Postamendments devices determined by FDA to be not substantially equivalent to either preamendments devices or postamendments devices classified into class I or II are “new” devices and fall automatically into class III. Before such devices can be marketed, they must have an approved PMA or be must reclassified into class I or class II.
The Food and Drug Administration Modernization Act of 1997 (FDAMA) (Pub. L. 105-115) amended the FD&C Act by streamlining the process of bringing safe and effective drugs, medical devices, and other therapies to the U.S. market. FDAMA added section 515(d)(6) to the FD&C Act, which provided that PMA supplements were required for all device changes that affect safety and effectiveness unless such changes are modifications to manufacturing procedures or method of manufacture. That type of manufacturing change requires a 30-day notice, or where FDA finds such notice inadequate, a 135-day PMA supplement.
The implementing regulations, contained in 21 CFR part 814, further specify the contents of a PMA for a medical device and the criteria FDA will employ in approving, denying, or withdrawing approval of a PMA and supplements to PMAs. The regulations' purpose is to establish an efficient and thorough procedure for FDA's review of PMAs and supplements to PMAs for class III medical devices. The regulations facilitate the approval of PMAs and supplements to PMAs for devices that have been shown to be reasonably safe and effective and otherwise meet the statutory criteria for approval. The regulations also allow for the denial of PMAs and supplements to PMAs for devices that have not been shown to be reasonably safe and effective and that do not otherwise meet the statutory criteria for approval.
The burden estimate is based on the annual rate of receipt of PMA submissions for fiscal years (FYs) 2016 through 2018 and our expectation of submissions to come in the next few years. The burden data for PMAs is based on data provided by applicants by device type and cost element in an earlier study.
Additionally, the “Human Subject Protection; Acceptance of Data from Clinical Investigations for Medical Devices” final rule (83 FR 7366; February 21, 2018) amended this section to address requirements for a PMA supported by data from clinical investigations conducted outside the United States. The applicant will be required to submit the information as described in § 814.20(b)(6)(ii)(C). We estimate this will take 30 minutes per respondent. We estimate that 10 respondents annually will submit such information.
The collections in OMB control number 0910-0741, “Human Subject Protection; Acceptance of Data from Clinical Studies for Medical Devices,” were submitted to OMB as a new information collection request with the expectation that the currently approved requirements will be amended. As noted in the Supporting Statement for OMB control number 0910-0741, we are amending OMB control number 0910-0231 to reflect the information collections associated with the rulemaking under § 814.20(b)(6)(ii)(C).
PMAs have been required since 1976, and there are 801 active PMAs that could be subject to these requirements, based on actual FDA data, and approximately 39 new PMAs are approved every year. The aggregate burden for the estimated 446 PMA holders of approved original PMAs for the next few years is estimated to be 7,582 hours.
The applicant determines which records should be maintained during product development to document and/or substantiate the device's safety and effectiveness. Records required by the current good manufacturing practices for medical devices regulation (part 820) may be relevant to a PMA review and may be submitted as part of an application. In individual instances, records may be required as conditions of approval to ensure the device's continuing safety and effectiveness.
FDA estimates the burden of this collection of information as follows:
We made the following changes to the information collection:
• Added the burden estimate for “Information on clinical investigations conducted outside the United States (814.20(b)(6)(ii)(C)),” which is associated with the “Human Subject Protection; Acceptance of Data from Clinical Investigations for Medical Devices” final rule as described previously in this document.
• Revised the burden description and table to reflect that the Expedited Access Pathway and Priority Review have been superseded by the Breakthrough Devices Program.
• Updated our burden estimate with FYs 2016 to 2018 data.
These adjustments resulted in an overall increase of 34,782 hours to the estimated burden.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA or Agency) is announcing a publication containing modifications the Agency is making to the list of standards FDA recognizes for use in premarket reviews (FDA Recognized Consensus Standards). This publication, entitled “Modifications to the List of Recognized Standards, Recognition List Number: 052” (Recognition List Number: 052), will assist manufacturers who elect to declare conformity with consensus standards to meet certain requirements for medical devices.
Submit either electronic or written comments on the notice at any time. These modifications to the list of recognized standards are applicable October 24, 2019.
You may submit comments on the current list of FDA Recognized Consensus Standards at any time as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION”. The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
An electronic copy of Recognition List Number: 052 is available on the internet at
Scott Colburn, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 5514, Silver Spring, MD 20993, 301-796-6287,
Section 204 of the Food and Drug Administration Modernization Act of 1997 (Pub. L. 105-115) amended section 514 of the Federal Food, Drug, and Cosmetic Act (FD&C Act) (21 U.S.C. 360d). Amended section 514 allows FDA to recognize consensus standards developed by international and national organizations for use in satisfying portions of device premarket review submissions or other requirements.
In the
These notices describe the addition, withdrawal, and revision of certain standards recognized by FDA. The Agency maintains hypertext markup language (HTML) and portable document format (PDF) versions of the list of FDA Recognized Consensus Standards. Additional information on the Agency's Standards and Conformity Assessment Program is available at
FDA is announcing the addition, withdrawal, correction, and revision of certain consensus standards the Agency is recognizing for use in premarket submissions and other requirements for devices. FDA is incorporating these modifications to the list of FDA Recognized Consensus Standards in the Agency's searchable database. FDA is using the term “Recognition List Number: 052” to identify the current modifications.
In Table 1, FDA describes the following modifications: (1) The withdrawal of standards and their replacement by others, if applicable; (2) the correction of errors made by FDA in listing previously recognized standards; and (3) the changes to the supplementary information sheets of recognized standards that describe revisions to the applicability of the standards.
In section III, FDA lists modifications the Agency is making that involve new entries and consensus standards added as modifications to the list of recognized standards under Recognition List Number: 052.
In Table 2, FDA provides the listing of new entries and consensus standards added as modifications to the list of recognized standards under Recognition List Number: 052. These entries are of standards not previously recognized by FDA.
FDA maintains the current list of FDA Recognized Consensus Standards in a searchable database that may be accessed at
Any person may recommend consensus standards as candidates for recognition under section 514 of the FD&C Act by submitting such recommendations, with reasons for the recommendation, to
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and
Federal Emergency Management Agency, DHS.
Notice.
Comments are requested on proposed flood hazard determinations, which may include additions or modifications of any Base Flood Elevation (BFE), base flood depth, Special Flood Hazard Area (SFHA) boundary or zone designation, or
Comments are to be submitted on or before January 22, 2020.
The Preliminary FIRM, and where applicable, the FIS report for each community are available for inspection at both the online location
You may submit comments, identified by Docket No. FEMA-B-1969, to Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
Rick Sacbibit, Chief, Engineering Services Branch, Federal Insurance and Mitigation Administration, FEMA, 400 C Street SW, Washington, DC 20472, (202) 646-7659, or (email)
FEMA proposes to make flood hazard determinations for each community listed below, in accordance with section 110 of the Flood Disaster Protection Act of 1973, 42 U.S.C. 4104, and 44 CFR 67.4(a).
These proposed 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. These flood hazard determinations are used to meet the floodplain management requirements of the NFIP and are used to calculate the appropriate flood insurance premium rates for new buildings built after the FIRM and FIS report become effective.
The communities affected by the flood hazard determinations are provided in the tables below. Any request for reconsideration of the revised flood hazard information shown on the Preliminary FIRM and FIS report that satisfies the data requirements outlined in 44 CFR 67.6(b) is considered an appeal. Comments unrelated to the flood hazard determinations also will be considered before the FIRM and FIS report become effective.
Use of a Scientific Resolution Panel (SRP) is available to communities in support of the appeal resolution process. SRPs are independent panels of experts in hydrology, hydraulics, and other pertinent sciences established to review conflicting scientific and technical data and provide recommendations for resolution. Use of the SRP only may be exercised after FEMA and local communities have been engaged in a collaborative consultation process for at least 60 days without a mutually acceptable resolution of an appeal. Additional information regarding the SRP process can be found online at
The watersheds and/or communities affected are listed in the tables below. The Preliminary FIRM, and where applicable, FIS report for each community are available for inspection at both the online location
Federal Emergency Management Agency, DHS.
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 LOMR will be used by insurance agents and others to calculate appropriate flood insurance premium rates for new buildings and the contents of those buildings. For rating purposes, 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
Fish and Wildlife Service, Interior.
Notice of availability; request for comment and information.
We, the Fish and Wildlife Service (Service), announce receipt of an application from Palmetto Lake Placid-Washington Blvd., LLC (applicant) for an incidental take permit (ITP) under the Endangered Species Act. The applicant requests the ITP to take the federally listed sand skink, blue-tailed mole skink, and Florida scrub-jay incidental to construction in Highlands County, Florida. We request public comment on the application, which includes the applicant's proposed habitat conservation plan (HCP), and the Service's preliminary determination that this HCP qualifies as “low-effect,” categorically excluded, under the National Environmental Policy Act. To make this determination, we used our environmental action statement and low-effect screening form, both of which are also available for public review.
We must receive your written comments by November 25, 2019.
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•
•
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Heather Hitt, by U.S. mail (see
We, the Fish and Wildlife Service (Service), announce receipt of an application from Palmetto Lake Placid-Washington Blvd., LLC (applicant) for an incidental take permit (ITP) under the Endangered Species Act of 1973, as amended (ESA; 16 U.S.C. 1531
Palmetto Lake Placid-Washington Blvd., LLC requests a 5-year ITP to take skinks and scrub-jays incidental to the conversion of approximately 1.42 acres of occupied skink and scrub-jay foraging and sheltering habitat for the construction of a commercial development on a 1.42-acre parcel in Section 33, Township 36 South, Range 30 East, Highlands County, Florida. The applicant proposes to mitigate for take of the skinks and scrub-jays by purchasing credits equivalent to 2.84 acres of skink-occupied habitat from the Backbone Conservation Bank and to 2.84 acres of scrub-jay occupied habitat from the Tippen Bay Scrub-Jay Conservation Bank. The Service would require the applicant to purchase the credits prior to engaging in land clearing activities on the parcel.
Before including your address, phone number, email address, or other personal identifying information in your comment, be aware that your entire comment—including your personal identifying information—may be made available to the public. While you may request that we withhold your personal identifying information, we cannot guarantee that we will be able to do so.
The Service has made a preliminary determination that the applicant's project, including land clearing, construction of the commercial development, and the proposed mitigation measure, would individually and cumulatively have a minor or negligible effect on skinks, scrub-jays, and the environment. Therefore, we have preliminarily concluded that the ITP for this project would qualify for categorical exclusion and the HCP is low effect under our NEPA regulations at 43 CFR 46.205 and 46.210. A low-effect HCP is one that would result in (1) minor or negligible effects on federally listed, proposed, and candidate species and their habitats; (2) minor or negligible effects on other environmental values or resources; and, (3) impacts that, when considered together with the impacts of other past, present, and reasonable foreseeable similarly situated projects, would not over time result in significant cumulative effects to environmental values or resources.
The Service will evaluate the application and the comments received to determine whether to issue the requested permit. We will also conduct an intra-Service consultation pursuant to section 7 of the ESA to evaluate the effects of the proposed take. After considering the above findings, we will determine whether the permit issuance criteria of section 10(a)(1)(B) of the ESA have been met. If met, the Service will issue ITP number TE50084D-0 to Palmetto Lake Placid-Washington Blvd., LLC for incidental take of skinks and scrub-jays.
The Service provides this notice under section 10(c) (16 U.S.C. 1539(c)) of the ESA and NEPA regulations 40 CFR 1506.6.
Fish and Wildlife Service, Interior.
Notice of information collection; request for comment.
In accordance with the Paperwork Reduction Act of 1995, we, the U.S. Fish and Wildlife Service (Service), are proposing to renew an information collection with revisions.
Interested persons are invited to submit comments on or before November 25, 2019.
Send written comments on this information collection request (ICR) to the Office of Management and Budget's Desk Officer for the Department of the Interior by email at
To request additional information about this ICR, contact Madonna L. Baucum, Service Information Collection Clearance Officer, by email at
In accordance with the Paperwork Reduction Act of 1995, we provide the general public and other Federal agencies with an opportunity 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.
On February 28, 2019, we published a
We are again soliciting comments on the proposed ICR that is described below. We are especially interested in public comment addressing the following issues: (1) Is the collection necessary to the proper functions of the Service; (2) will this information be processed and used in a timely manner; (3) is the estimate of burden accurate; (4) how might the Service enhance the quality, utility, and clarity of the information to be collected; and (5) how might the Service minimize the burden of this collection on the respondents, including through the use of information technology.
Comments that you submit in response to this notice are a matter of public record. 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 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.
Under 50 CFR 20.20, migratory bird hunters must register for the Migratory Bird Harvest Information Program (HIP) in each State in which they hunt each year. State natural resource agencies must send names and addresses of all migratory bird hunters to Branch of Monitoring and Information Management, U.S. Fish and Wildlife Service Division of Migratory Bird Management, on an annual basis.
The Migratory Bird Hunter Survey is based on the Migratory Bird Harvest Information Program. We randomly select migratory bird hunters and ask them to report their harvest. The resulting estimates of harvest per hunter are combined with the complete list of migratory bird hunters to provide estimates of the total harvest for the species surveyed.
The Parts Collection Survey estimates the species, sex, and age composition of the harvest, and the geographic and temporal distribution of the harvest. Randomly selected successful hunters who responded to the Migratory Bird Hunter Survey the previous year are asked to complete and return a postcard if they are willing to participate in the Parts Collection Survey. We provide postage-paid envelopes to respondents before the hunting season and ask them to send in a wing or the tail feathers from each duck or goose that they harvest, or a wing from each mourning dove, woodcock, band-tailed pigeon, snipe, rail, or gallinule that they harvest. We use the wings and tail feathers to identify the species, sex, and age of the harvested sample. We also ask respondents to report on the envelope the date and location of harvest for each bird. We combine the results of this survey with the harvest estimates obtained from the Migratory Bird Hunter Survey to provide species-specific national harvest estimates.
The combined results of these surveys enable us to evaluate the effects of season length, season dates, and bag limits on the harvest of each species, and thus help us determine appropriate hunting regulations.
The Sandhill Crane Harvest Survey is an annual questionnaire survey of people who obtained a sandhill crane hunting permit. At the end of the hunting season, we randomly select a sample of permit holders and ask them to report the date, location, and number of birds harvested for each of their sandhill crane hunts. Their responses provide estimates of the temporal and geographic distribution of the harvest as well as the average harvest per hunter, which, combined with the total number of permits issued, enables us to estimate the total harvest of sandhill cranes. Based on information from this survey, we adjust hunting regulations as needed.
In fall of 2019, we will be implementing a new, online platform for the Migratory Bird Hunter Survey. In 2018, OMB approved usability testing of the online platform under the Department of the Interior's “Fast
The platform will be optimized for use on multiple device types (computer, tablet, or phone; Android or Apple OS). Unlike the paper survey form, the online survey platform walks a participant through the process of entering their harvest for a single day, asking for one piece of information at a time. This reduces confusion and the likelihood that the hunter will provide incorrect information. Also, data quality is improved at each step with a new system of checks and pre-populated menus which limit the types of responses and prevent errors (
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
United States International Trade Commission.
Notice.
The Commission hereby gives notice of the scheduling of the final phase of antidumping and countervailing duty investigation Nos. 701-TA-620 and 731-TA-1445 (Final) pursuant to the Tariff Act of 1930 (“the Act”) to determine whether an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports of wooden cabinets and vanities from China, provided for in subheadings 9403.40.90, 9403.60.80, and 9403.90.70 of the Harmonized Tariff Schedule of the United States, preliminarily determined by the Department of Commerce (“Commerce”) to be subsidized and sold at less-than-fair-value.
October 9, 2019.
Calvin Chang ((202) 205-3062) or Ahdia Bavari ((202) 205-3191), Office of Investigations, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436. Hearing-impaired persons can obtain information on this matter by contacting the Commission's TDD terminal on 202-205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at 202-205-2000. General information concerning the Commission may also be obtained by accessing its internet server (
Wooden cabinets and vanities are covered by the investigation whether or not they are imported attached to, or in conjunction with, faucets, metal plumbing, sinks and/or sink bowls, or countertops. If wooden cabinets or vanities are imported attached to, or in conjunction with, such merchandise, only the wooden cabinet or vanity is covered by the scope.
Subject merchandise includes the following wooden component parts of cabinets and vanities: (1) Wooden cabinet and vanity frames (2) wooden cabinet and vanity boxes (which typically include a top, bottom, sides, back, base blockers, ends/end panels, stretcher rails, toe kicks, and/or shelves), (3) wooden cabinet or vanity doors, (4) wooden cabinet or vanity drawers and drawer components (which typically include sides, backs, bottoms, and faces), (5) back panels and end panels, (6) and desks, shelves, and tables that are attached to or incorporated in the subject merchandise.
Subject merchandise includes all unassembled, assembled and/or “ready to assemble” (RTA) wooden cabinets and vanities, also commonly known as “flat packs,” except to the extent such merchandise is already covered by the scope of antidumping and countervailing duty orders on Hardwood Plywood from the People's Republic of China. See Certain Hardwood Plywood Products from the People's Republic of China: Amended Final Determination of Sales at Less Than Fair Value, and Antidumping Duty Order, 83 FR 504 (January 4, 2018); Certain Hardwood Plywood Products from the People's Republic of China: Countervailing Duty Order, 83 FR 513 (January 4, 2018). RTA wooden cabinets and vanities are defined as cabinets or vanities packaged so that at the time of importation they may include: (1) Wooden components required to assemble a cabinet or vanity (including drawer faces and doors); and (2) parts (
Subject merchandise also includes wooden cabinets and vanities and in-scope components that have been further processed in a third country, including but not limited to one or more of the following: Trimming, cutting, notching, punching, drilling, painting, staining, finishing, assembly, or any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the country of manufacture of the in-scope product.
Excluded from the scope of this investigation, if entered separate from a wooden cabinet or vanity are:
(1) Aftermarket accessory items which may be added to or installed into an interior of a cabinet and which are not considered a structural or core component of a wooden cabinet or vanity.
Aftermarket accessory items may be made of wood, metal, plastic, composite material, or a combination thereof that can be inserted into a cabinet and which are utilized in the function of organization/accessibility on the interior of a cabinet; and include:
• Inserts or dividers which are placed into drawer boxes with the purpose of organizing or dividing the internal portion of the drawer into multiple areas for the purpose of containing smaller items such as cutlery, utensils, bathroom essentials, etc.
• Round or oblong inserts that rotate internally in a cabinet for the purpose of accessibility to foodstuffs, dishware, general supplies, etc.
(2) Solid wooden accessories including corbels and rosettes, which serve the primary purpose of decoration and personalization.
(3) Non-wooden cabinet hardware components including metal hinges, brackets, catches, locks, drawer slides, fasteners (nails, screws, tacks, staples), handles, and knobs.
(4) Medicine cabinets that meet all of the following five criteria are excluded from the scope: (1) Wall mounted; (2) assembled at the time of entry into the United States; (3) contain one or more mirrors; (4) be packaged for retail sale at time of entry; and (5) have a maximum depth of seven inches.
Also excluded from the scope of this investigation are:
(1) All products covered by the scope of the antidumping duty order on Wooden Bedroom Furniture from the People's Republic of China. See Notice of Amended Final Determination of Sales at Less Than Fair Value and Antidumping Duty Order: Wooden Bedroom Furniture from the People's Republic of China, 70 FR 329 (January 4, 2005).
(2) All products covered by the scope of the antidumping and countervailing
Imports of subject merchandise are classified under Harmonized Tariff Schedule of the United States (HTSUS) statistical numbers 9403.40.9060 and 9403.60.8081. The subject component parts of wooden cabinets and vanities may be entered into the United States under HTSUS statistical number 9403.90.7080. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the scope of this investigation is dispositive.
For further information concerning the conduct of this phase of the investigations, hearing procedures, and rules of general application, consult the Commission's Rules of Practice and Procedure, part 201, subparts A and B (19 CFR part 201), and part 207, subparts A and C (19 CFR part 207).
Additional written submissions to the Commission, including requests pursuant to section 201.12 of the Commission's rules, shall not be accepted unless good cause is shown for accepting such submissions, or unless the submission is pursuant to a specific request by a Commissioner or Commission staff.
In accordance with sections 201.16(c) and 207.3 of the Commission's rules, each document filed by a party to the investigations must be served on all other parties to the investigations (as identified by either the public or BPI service list), and a certificate of service must be timely filed. The Secretary will not accept a document for filing without a certificate of service.
These investigations are being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to section 207.21 of the Commission's rules.
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that the U.S. International Trade Commission has received a complaint entitled
Lisa R. Barton, Secretary to the Commission, U.S. International Trade Commission, 500 E Street SW, Washington, DC 20436, telephone (202) 205-2000. The public version of the complaint can be accessed on the Commission's Electronic Document Information System (EDIS) at
General information concerning the Commission may also be obtained by accessing its internet server at United States International Trade Commission (USITC) at
The Commission has received a complaint and a submission pursuant to § 210.8(b) of the Commission's Rules of Practice and Procedure filed on behalf of M-I L.L.C. on October 18, 2019. The complaint alleges violations of section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) in the importation into the United States, the sale for importation, and the sale within the United States after importation of certain shaker screens for drilling fluids, components thereof, and related marketing materials. The complaint names as respondents: Hebei GN Solids Control Co., Ltd. of China; GN Solids America LLC of Houston, TX; Anping Shengjia Hardware Mesh Co., Ltd. of China; Hebei Hengying Wire Cloth Co., Ltd. of China; Xi'an Brightway Energy Equipment Co., Ltd. of China; and Brightway Solids Control Co., Ltd. of Houston, TX. The complainant requests that the Commission issue cease and desist orders, a general exclusion order, or in the alternative a limited exclusion order, and impose a bond upon respondents' alleged infringing articles during the 60-day Presidential review period pursuant to 19 U.S.C. 1337(j).
Proposed respondents, other interested parties, and members of the public are invited to file comments on any public interest issues raised by the complaint or § 210.8(b) filing. Comments should address whether issuance of the relief specifically requested by the complainant in this investigation would affect the public health and welfare in the United States, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, or United States consumers.
In particular, the Commission is interested in comments that:
(i) Explain how the articles potentially subject to the requested remedial orders are used in the United States;
(ii) identify any public health, safety, or welfare concerns in the United States relating to the requested remedial orders;
(iii) identify like or directly competitive articles that complainant, its licensees, or third parties make in the United States which could replace the subject articles if they were to be excluded;
(iv) indicate whether complainant, complainant's licensees, and/or third party suppliers have the capacity to replace the volume of articles potentially subject to the requested exclusion order and/or a cease and desist order within a commercially reasonable time; and
(v) explain how the requested remedial orders would impact United States consumers.
Written submissions on the public interest must be filed no later than by close of business, eight calendar days after the date of publication of this notice in the
Persons filing written submissions must file the original document electronically on or before the deadlines stated above and submit 8 true paper copies to the Office of the Secretary by noon the next day pursuant to § 210.4(f) of the Commission's Rules of Practice and Procedure (19 CFR 210.4(f)). Submissions should refer to the docket number (“Docket No. 3416”) in a prominent place on the cover page and/or the first page. (
Any person desiring to submit a document to the Commission in confidence must request confidential treatment. All such requests should be directed to the Secretary to the Commission and must include a full statement of the reasons why the Commission should grant such treatment.
This action is taken under the authority of section 337 of the Tariff Act of 1930, as amended (19 U.S.C. 1337), and of §§ 201.10 and 210.8(c) of the
By order of the Commission.
United States International Trade Commission.
October 31, 2019 at 11:00 a.m.
Room 101, 500 E Street SW, Washington, DC 20436, Telephone: (202) 205-2000.
Open to the public.
1. Agendas for future meetings: None.
2. Minutes.
3. Ratification List.
4. Vote on Inv. Nos. 731-TA-1422 and 1423 (Final) (Strontium Chromate from Austria and France). The Commission is currently scheduled to complete and file its determinations and views of the Commission by November 21, 2019.
5. Vote on Inv. Nos. 701-TA-454 and 731-TA-1144 (Second Review) and 731-TA-1210-1212 (Review) (Welded Stainless Steel Pressure Pipe from China, Malaysia, Thailand, and Vietnam). The Commission is currently scheduled to complete and file its determinations and views of the Commission by November 14, 2019.
6. Vote on Inv. No. 731-TA-1021 (Third Review) (Malleable Iron Pipe Fittings from China). The Commission is currently scheduled to complete and file its determination and views of the Commission by November 21, 2019.
7. Outstanding action jackets: None.
The Commission is holding the meeting under the Government in the Sunshine Act, 5 U.S.C. 552(b). In accordance with Commission policy, subject matter listed above, not disposed of at the scheduled meeting, may be carried over to the agenda of the following meeting.
By order of the Commission.
Joint Board for the Enrollment of Actuaries.
Notice of Federal Advisory Committee meeting.
The Joint Board for the Enrollment of Actuaries gives notice of a closed meeting of the Advisory Committee on Actuarial Examinations.
The meeting will be held on November 8, 2019, from 8:30 a.m. to 5:00 p.m.
The meeting will be held at the Internal Revenue Service, 1555 Poydras Street, New Orleans, LA 70112.
Elizabeth Van Osten, Designated Federal Officer, Advisory Committee on Actuarial Examinations, at 202-317-3648.
Notice is hereby given that the Advisory Committee on Actuarial Examinations will meet at the Internal Revenue Service, 1555 Poydras Street, New Orleans, LA 70112, on November 8, 2019, from 8:30 a.m. to 5:00 p.m.
The purpose of the meeting is to discuss topics and questions that may be recommended for inclusion on future Joint Board examinations in actuarial mathematics, pension law and methodology referred to in 29 U.S.C. 1242(a)(1)(B).
A determination has been made as required by section 10(d) of the Federal Advisory Committee Act, 5 U.S.C. App., that the subject of the meeting falls within the exception to the open meeting requirement set forth in Title 5 U.S.C. 552b(c)(9)(B), and that the public interest requires that such meeting be closed to public participation.
Bureau of Alcohol, Tobacco, Firearms and Explosives, Department of Justice.
60-Day notice.
The Department of Justice (DOJ), Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), will submit the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
Comments are encouraged and will be accepted for 60 days until December 23, 2019.
If you have additional comments, regarding the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions, or additional information, please contact: Renee Reid, FO/ESB—Mailstop (7.E-401), either by mail at 99 New York Ave. NE, Washington, DC 20226, by email at
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
1.
2.
3.
Form number (if applicable): ATF Form 3252.2.
Component: Bureau of Alcohol, Tobacco, Firearms and Explosives, U.S. Department of Justice.
4.
Primary: Individuals or households.
Other (if applicable): None.
Abstract: Any individual registering as a confidential informant (CI) for ATF must provide their personally identifiable information (PII) on the Informant Agreement—(ATF Form 3252.2). ATF will utilize the information to verify the identity of the CI, who can provide useful and credible information to ATF regarding felonious criminal activities.
5.
6.
Antitrust Division, Department of Justice.
Notice.
The Department of Justice, Antitrust Division, is submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995.
The Department of Justice encourages public comment and will accept input until December 23, 2019.
If you have additional comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Sarah Oldfield, Deputy Chief Legal Advisor—Criminal, U.S. Department of Justice, Antitrust Division, 950 Pennsylvania Ave. NW, Room 3311, Washington, DC 20530 (email:
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
1.
2.
3.
4.
5.
6.
National Institute of Justice, U.S. Department of Justice.
30-Day notice.
The Department of Justice (DOJ), Office of Justice Programs, National Institute of Justice, will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. The proposed information collection is published to obtain comments from the public and affected agencies. This proposed information collection was previously published in the
If you have comments, especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Christine (Tina) Crossland, Senior Social Science Analyst, National Institute of Justice, Office of Research, Evaluation, and Technology, 810 Seventh Street NW, Washington, DC 20531 (overnight 20001) or via email at
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
1.
2.
3.
4.
The NBS will be conducted in geographically dispersed tribal communities across the U.S. (lower 48 and Alaska) using a NIJ-developed sampling strategy for which the primary aim is to provide an accurate
The NBS is critical to quantifying the magnitude of violence and victimization in tribal communities and understanding service needs. At the end of this study, the NBS is expected to produce a deeper understanding of the issues faced by Native American women living in Indian Country and Alaska Native villages and help formulate public policies and prevention strategies to decrease the incidence of violent crimes against AI and AN women.
5.
6.
If additional information is required contact: Melody Braswell, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE, 3E.405A, Washington, DC 20530.
National Credit Union Administration (NCUA).
Notice and request for comment.
The National Credit Union Administration (NCUA), as part of a continuing effort to reduce paperwork and respondent burden, invites the
Written comments should be received on or before December 23, 2019 to be assured consideration.
Interested persons are invited to submit written comments on the information collection to Mackie Malaka, National Credit Union Administration, 1775 Duke Street, Suite 6018, Alexandria, Virginia 22314; Fax No. 703-519-8579; or email at
Address requests for additional information to Mackie Malaka at the address above or telephone 703-548-2704.
By Gerard Poliquin, Secretary of the Board, the National Credit Union Administration, on October 21, 2019.
The NSF management officials having responsibility for the advisory committee listed below have determined that renewing this committee for another two years is necessary and in the public interest in connection with the performance of duties imposed upon the Director, National Science Foundation (NSF), by 42 U.S.C. 1861
STEM Education Advisory Panel, #2624.
Effective date for renewal is October 18, 2019. For more information, please contact Crystal Robinson, NSF, at (703) 292-8687.
Nuclear Regulatory Commission.
Draft interim staff guidance; request for comment.
The U.S. Nuclear Regulatory Commission (NRC) is soliciting public comment on its draft interim staff guidance which is intended to facilitate the staff's understanding of the in-reactor phenomena important to safety for the chromium-coated zirconium alloy fuel cladding concepts, as well as to provide guidance for NRC staff reviewing vendor applications. Chromium-coated zirconium alloy fuel cladding concepts are being pursued by several U.S. fuel vendors as part of the U.S. Department of Energy's accident tolerant fuel program.
Submit comments by November 25, 2019. 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 before this date.
You may submit comments by any of the following methods:
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•
For additional direction on obtaining information and submitting comments, see “Obtaining Information and Submitting Comments” in the
Tekia Govan, Office of Nuclear Reactor Regulation, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001; telephone: 301-415-6197; email:
Please refer to Docket ID NRC-2019-0208 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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Please include Docket ID NRC-2019-0208 in your comment submission. The NRC cautions you not to include identifying or contact information that you do not want to be publicly disclosed in your comment submission. The NRC will post all comment submissions at
If you are requesting or aggregating comments from other persons for submission to the NRC, then you should inform those persons not to include identifying or contact information that they do not want to be publicly disclosed in their comment submission. Your request should state that the NRC does not routinely edit comment submissions to remove such information before making the comment submissions available to the public or entering the comment into ADAMS.
This interim staff guidance (ISG) is intended to provide guidance for NRC staff reviewing applications involving fuel products with chromium-coated zirconium alloy cladding. For coated claddings of this type, a phenomena identification and ranking table (PIRT) was generated for the NRC by Pacific Northwest National Laboratory; the guidance provided in this ISG extensively references the PIRT report, “Degradation and Failure Phenomena of Accident Tolerant Fuel Concepts: Chromium Coated Zirconium Alloy Cladding,” issued June 2019. The suggested cladding properties specified acceptable fuel design limits and new failure mechanisms sections from the PIRT are replicated in Appendices B and C. These appendices supersede Sections 5.1 and 5.2 of the PIRT report.
This ISG is not intended as stand-alone review guidance, but instead supplements NUREG-0800, “Standard Review Plan,” Section 4.2, “Fuel System Design,” and discusses the potential impact of coated claddings on reviews performed under Standard Review Plan (SRP), Section 4.3, “Nuclear Design,” Section 4.4, “Thermal and Hydraulic Design,” and Chapter 15, “Transient and Accident Analysis.” In addition to the guidance provided in this ISG, reviewers of coated cladding applications should familiarize themselves with the PIRT report and with the relevant sections of the SRP.
The PIRT report and this ISG focus primarily on metallic chromium coatings applied to a zirconium alloy base metal, with some additional discussion that is applicable to chromium-based ceramic coatings. Reviewers of submittals on ceramic chromium-coated zirconium alloy claddings should carefully read the PIRT to determine the applicability to the review.
This ISG does not apply to reviews of fuel products other than metallic or ceramic chromium-based coatings on a zirconium alloy substrate.
For the Nuclear Regulatory Commission.
The U.S. Nuclear Waste Technical Review Board will meet in Alexandria, Virginia, on November 19, 2019 to review information on DOE research and development activities related to drying, packaging, and dry storage of spent nuclear fuel.
Pursuant to its authority under section 5051 of Public Law 100-203, Nuclear Waste Policy Amendments Act (NWPAA) of 1987, the U.S. Nuclear Waste Technical Review Board will hold a public meeting in Alexandria, Virginia, on Tuesday, November 19, 2019, to review information on U.S. Department of Energy (DOE) research and development (R&D) activities related to drying, packaging, and dry storage of spent nuclear fuel (SNF), including aluminum-clad SNF. The Board is an independent federal agency established by Congress to conduct an ongoing technical and scientific evaluation of activities undertaken by DOE to manage and dispose of SNF and high-level radioactive waste (HLW).
The Board meeting will be held at the Embassy Suites Alexandria Hotel, 1900 Diagonal Road, Alexandria, VA 22314. The hotel telephone number is (703) 684-5900.
The meeting will begin at 8:00 a.m. and is scheduled to adjourn at 5:00 p.m. Speakers representing the DOE Office of Nuclear Energy, the DOE Office of Environmental Management, and the national laboratories will report on R&D projects related to the drying, packaging, and dry storage of SNF. Computer modeling of the thermal behavior of SNF casks and canisters also will be discussed. Information on the development of the DOE standardized canister for DOE-managed SNF and research on long-term dry storage of aluminum-clad SNF will be presented. Additionally, the Board will hear presentations from researchers in other countries, where the drying and dry-storage of aluminum-clad SNF is under examination. A detailed meeting agenda will be available on the Board's website at
The meeting will be open to the public, and opportunities for public comment will be provided before the lunch break and again at the end of the meeting. Those wanting to speak are encouraged to sign the Public Comment Register at the check-in table near the entrance to the meeting room. Speakers will be taken in the order in which they signed in and depending on the number a time limit on individual remarks may be set. However, written comments of any length may be submitted to the Board staff or by mail or electronic mail. All comments received in writing will be included in the meeting record, which will be posted on the Board's website after the meeting. The workshop will be webcast, and the link to the webcast will be available on the Board's website (
The Board was established in the Nuclear Waste Policy Amendments Act of 1987 as an independent federal agency in the Executive Branch to evaluate the technical and scientific validity of DOE activities related to the management and disposal of SNF and HLW and to provide objective expert advice to Congress and the Secretary of Energy on these issues. Board members are experts in their fields and are appointed to the Board by the President from a list of candidates submitted by the National Academy of Sciences. The Board reports its findings, conclusions, and recommendations to Congress and the Secretary of Energy. All Board reports, correspondence, congressional testimony, and meeting transcripts and related materials are posted on the Board's website.
For information on the meeting agenda, contact Dan Ogg:
Postal Regulatory Commission.
Notice.
The Commission is noticing a recent Postal Service filing for the Commission's consideration concerning negotiated service agreements. 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 3010, and 39 CFR part 3020, 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 3015, and 39 CFR part 3020, subpart B. Comment deadline(s) for each request appear in section II.
1.
This Notice will be published in the
Pursuant to Section 19(b)(1)
The Exchange proposes to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stock, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS and under the Act.
Rule 6.65A-O essentially serves as a roadmap for the Exchange's universal changes due to the implementation of the Plan, and Commentary .03 to Rule 6.87-O provides that transactions executed during a limit or straddle state are not subject to the obvious and catastrophic error rules. A limit or straddle state occurs when at least one side of the National Best Bid (“NBB”) or Offer (“NBO”) bid/ask is priced at a non-tradable level. Specifically, a straddle state exists when the NBB is below the lower price band while the NBO is inside the prices band or when the NBO is above the upper price band and the NBB is within the band, while a limit state occurs when the NBO equals the lower price band (without crossing the NBB), or the NBB equals the upper price band (without crossing the NBO). The Exchange adopted the Options Pilots to protect investors because when an underlying security is in a limit or straddle state, there will not be a reliable price for the security to serve as a benchmark for the price of the option. Specifically, the Exchange adopted Commentary .03 to Rule 6.87-O because the application of the obvious and catastrophic error rules would be impracticable given the potential for lack of a reliable NBBO in the options market during limit and straddle states. When adjusting or busting a trade pursuant to the obvious error rule, the determination of theoretical value of a trade generally references the NBB (for erroneous sell transactions) or NBO (for erroneous buy transactions) just prior to the trade in question, and is therefore not reliable when at least one side of the NBBO is priced at a non-tradeable level, as is the case in limit and straddle states. In such a situation, determining theoretical value is often a subjective rather than an objective determination and could give rise to additional uncertainty and confusion for investors. As a result, application of the obvious and catastrophic error rules would be impracticable given the lack of a reliable NBBO in the options market during limit and straddle states, and may produce undesirable effects or unanticipated consequences.
The Exchange adopted additional measures via other Options Pilot rules that are designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
For these reasons, the Exchange believes the Options Pilots are designed to add certainty on the options markets, which encourages more investors to participate in light of the changes associated with the Plan. The Plan was originally implemented on a pilot-basis in order to allow the public, the participating exchanges, and the Commission to assess the operation of the Plan and whether the Plan should be modified prior to approval on a permanent basis. As stated, the Exchange adopted the Option Pilots to coincide with this pilot; to continue the protections therein while the industry gains further experience operating the Plan.
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange also believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
The Exchange understands that the other national securities exchanges have filed or will file similar proposals to make permanent their respective pilot programs. Since the Commission's approval of Amendment 18 allowing the Plan to operate on a permanent basis, the Exchange and other national securities exchanges have determined that no further amendments should be made to the Options Pilots;
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
In particular, the Exchange believes that the proposed rule supports the objectives of perfecting the mechanism of a free and open market and the national market system because it promotes transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market
As stated, the Exchange believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rules 6.65A-O and Commentary .03 to Rule 6.87-O, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges have filed or will also file similar proposals to make permanent their respective pilot programs.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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)
The Exchange proposes to extend the current pilot program related to Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to extend the current pilot program related to Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The pilot program is currently due to expire on October 18, 2019.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 11.19 (Clearly Erroneous Executions) that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
These changes were originally scheduled to operate for a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or “LULD Plan”),
The Exchange now proposes to amend Rule 7.10 to extend the pilot's effectiveness for a further six months to the close of business on April 20, 2020. If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (c), (e)(2), (f), and (g) as described in former Rule 11.19 will be in effect, and the provisions of paragraphs (i) through (k) shall be null and void.
The Exchange does not propose any additional changes to Rule 7.10. Extending the effectiveness of Rule 7.10 for an additional six months will provide the Exchange and other self-regulatory organizations additional time to consider whether further amendments to the clearly erroneous execution rules are appropriate.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange and other self-regulatory organizations consider whether further amendments to these rules are appropriate. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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)
The Exchange proposes to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stock, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS and under the Act.
Rule 953.1NY essentially serves as a roadmap for the Exchange's universal changes due to the implementation of the Plan, and Commentary .03 to Rule 975NY provides that transactions executed during a limit or straddle state are not subject to the obvious and catastrophic error rules. A limit or straddle state occurs when at least one side of the National Best Bid (“NBB”) or Offer (“NBO”) bid/ask is priced at a non-tradable level. Specifically, a straddle state exists when the NBB is below the lower price band while the NBO is inside the prices band or when the NBO is above the upper price band and the NBB is within the band, while a limit state occurs when the NBO equals the lower price band (without crossing the NBB), or the NBB equals the upper price band (without crossing the NBO). The Exchange adopted the Options Pilots to protect investors because when an underlying security is in a limit or straddle state, there will not be a reliable price for the security to serve as a benchmark for the price of the option. Specifically, the Exchange adopted Commentary .03 to Rule 975NY because the application of the obvious and catastrophic error rules would be impracticable given the potential for lack of a reliable NBBO in the options
The Exchange adopted additional measures via other Options Pilot rules that are designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
For these reasons, the Exchange believes the Options Pilots are designed to add certainty on the options markets, which encourages more investors to participate in light of the changes associated with the Plan. The Plan was originally implemented on a pilot-basis in order to allow the public, the participating exchanges, and the Commission to assess the operation of the Plan and whether the Plan should be modified prior to approval on a permanent basis. As stated, the Exchange adopted the Option Pilots to coincide with this pilot; to continue the protections therein while the industry gains further experience operating the Plan.
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, submitted on April 4, 2014, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange (the “LULD Limit and Straddle Reports”).
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange also believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
The Exchange understands that the other national securities exchanges have filed or will file similar proposals to make permanent their respective pilot programs. Since the Commission's approval of Amendment 18 allowing the Plan to operate on a permanent basis, the Exchange and other national securities exchanges have determined that no further amendments should be made to the Options Pilots;
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
In particular, the Exchange believes that the proposed rule supports the objectives of perfecting the mechanism of a free and open market and the national market system because it promotes transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Commentary .03 to Rule 975NY, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan.
As stated, the Exchange believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rules 953.1NY and Commentary .03 to Rule 975NY, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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)
The Exchange proposes to extend the current pilot program related to Article 20, Rule 10 (Handling of Clearly Erroneous Transactions) and Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to extend the current pilot program related to Article 20, Rule 10 (Handling of Clearly Erroneous Transactions) and Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The pilot program is currently due to expire on October 18, 2019.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Article 20, Rule 10 that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
These changes were originally scheduled to operate for a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or “LULD Plan”),
The Exchange has announced that it will transition to trading on Pillar on November 4, 2019.
The Exchange now proposes to amend Article 20, Rule 10 and Rule 7.10 to extend the pilot's effectiveness for a further six months until the close of business on April 20, 2020. If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (c), (e)(2), (f), and (g) of Article 20, Rule 10 prior to being amended by SR-CHX-2010-13 shall be in effect, and the provisions of paragraphs (i) through (k) shall be null and void.
The Exchange does not propose any additional changes to Article 20, Rule 10 or Rule 7.10. Extending the effectiveness of these rules for an additional six months will provide the Exchange and other self-regulatory organizations additional time to consider whether further amendments to the clearly erroneous execution rules are appropriate.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange and other self-regulatory organizations consider whether further amendments to these rules are appropriate. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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 (the “Act”),
LTSE proposes to untie the effectiveness of the market-wide circuit breaker (“MWCB”) mechanism in Rule 11.280 from that of the Plan to Address Extraordinary Market Volatility Pursuant to Rule 608 of Regulation NMS (the “LULD Plan”) and to extend the MWCB pilot's effectiveness to the close of business on October 18, 2020. LTSE has designated this rule change as “non-controversial” under Section 19(b)(3)(A) of the Act
The text of the proposed rule change is available at the Exchange's website at
In its filing with the Commission, the self-regulatory organization included
Paragraphs (a) through (d) and (f) of Rule 11.280 describe the methodology for determining when to halt trading in all stocks due to extraordinary market volatility (
Specifically, the Exchange proposes to move Rule 11.280(e) (“Limit Up-Limit Down Mechanism”) to new Rule 11.281, keep Rule 11.280(f) within Rule 11.280 by renumbering it as Rule 11.280(e), and move Rule 11.280(g) (“Authority to Initiate Trading Halts”) and Rule 11.280(h) (“Procedure for Initiating and Terminating a Trading Halt”) to new Rule 11.282. Cross-references to these provisions in the LTSE rulebook—contained in Rules 11.230, 11.350, 14.001, and 14.210, and the supplementary material to Rule 14.207—would be updated accordingly.
MWCBs under Rule 11.280 provide an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. All U.S. equity exchanges have rules relating to MWCBs, which are designed to slow the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity. MWCBs provide for trading halts in all equities and options markets during a severe market decline as measured by a single-day decline in the S&P 500 Index.
Pursuant to Rule 11.280, a market-wide trading halt will be triggered if the S&P 500 Index declines in price by specified percentages from the prior day's closing price of that index. Currently, the triggers are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level 2) and 20% (Level 3). A market decline that triggers a Level 1 or Level 2 circuit breaker after 9:30 a.m. ET and before 3:25 p.m. ET would halt market-wide trading for 15 minutes, while a similar market decline at or after 3:25 p.m. ET would not halt market-wide trading. A market decline that triggers a Level 3 circuit breaker, at any time during the trading day, would halt market-wide trading for the remainder of the trading day.
The Exchange will use the MWCB pilot extension period to develop with the other self-regulatory organizations (“SROs”) rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, with industry member participation in such testing. The extension will also permit the SROs to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,
The MWCB mechanism under Rule 11.280 is an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. Extending the MWCB pilot for an additional year, to expire on October 18, 2020, would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, which would include industry member participation in such testing. The extension would also permit the SROs to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The Exchange also believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning when and how to halt trading in all stocks as a result of extraordinary market volatility. Based on the foregoing, the Exchange believes the benefits to market participants from the MWCB under Rule 11.280 should continue on a pilot basis because the MWCB will promote fair and orderly markets, and protect investors and the public interest.
Additionally, the Exchange believes that it is consistent with the public interest and the protection of investors to move to separate rules for clarity the LULD provisions and regulatory trading halt provisions in Rule 11.280. Furthermore, the Exchange believes it is consistent with the public interest and the protection of investors to clarify that these provisions, found in paragraphs (e), (g) and (h) are not subject to any pilot period. These clarifying changes are designed to ensure continued compliance by the Exchange and its Members with the requirements of the LULD Plan and to remove any ambiguity on the ongoing applicability of the LULD Plan or other trading halt provisions.
The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in the furtherance of the purposes of the Act because the proposal would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, in conjunction with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism. Furthermore, as noted above, the pilot proposed to be scheduled to expire on October 18, 2020, will permit the exchanges to
Further, the Exchange understands that FINRA and other national securities exchanges have filed or will file proposals to extend their rules regarding the MWCB pilot. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
Additionally, the clarity to be provided by re-designating paragraph (e) as a separate rule implementing the LULD provisions, and paragraphs (g) and (h) as a separate rule providing the authority under which the Exchange can initiate a trading halt “in circumstances in which LTSE deems it necessary to protect investors and the public interest,” and the procedures by which LTSE can both initiate and terminate a trading halt, would not have an impact on competition.
Written comments were neither solicited nor received.
The Exchange has designated this rule filing as non-controversial under Section 19(b)(3)(A)
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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.
Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-LTSE-2019-03 and should be submitted on or before November 14, 2019.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange is filing a proposal to amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit Down, to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility.
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 purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stock, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS and under the Act.
The Exchange adopted the Options Pilots to protect investors because when an underlying security is in a limit or straddle state, there will not be a reliable price for the security to serve as a benchmark for the price of the option. Specifically, the Exchange adopted Exchange Rule 521, Interpretation and Policy .01, because the application of the obvious and catastrophic error rules would be impracticable given the potential for lack of a reliable NBBO in the options market during limit and straddle states. When adjusting or busting a trade pursuant to the obvious error rule, the determination of theoretical value of a trade generally references the NBB (for erroneous sell transactions) or NBO (for erroneous buy transactions) just prior to the trade in question, and is therefore not reliable when at least one side of the NBBO is priced at a non-tradeable level, as is the case in limit and straddle states. In such a situation, determining theoretical value may often times be a very subjective rather than an objective determination and could give rise to additional uncertainty and confusion for investors. As a result, application of the obvious and catastrophic error rules would be impracticable given the lack of a reliable NBBO in the options market during limit and straddle states, and may produce undesirable effects or unanticipated consequences.
The Exchange adopted additional measures via other Options Pilot rules that are designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, approved on April 8, 2013, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Since the Commission's approval of Amendment 18 allowing the Plan to operate on a permanent basis, the Exchange and other national securities exchanges have determined that no further amendments should be made to the Options Pilots;
The Exchange also proposes to amend Exchange Rule 530 to remove the following sentence from the first paragraph: “The Exchange will provide the Commission with data and analysis during the duration of this pilot as requested.” The purpose of this proposed change is to further align the Exchange's Limit Up-Limit Down rules with competing options exchanges that have proposed rules consistent with this proposal. For example, Cboe Exchange, Inc. (“Cboe”) removed a similar provision in a 2015 rule filing
Additionally, the proposed changes would align the Exchange's rules with the similar rule by Cboe.
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.
In particular, the Exchange believes that the proposed rule changes support the objectives of perfecting the mechanism of a free and open market and the national market system because they promote transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Exchange Rule 521, Interpretation and Policy .01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan. As stated, the Exchange believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
Further, the Exchange believes that the proposed rule change to remove text in the first paragraph of Exchange Rule 530 regarding the Exchange providing the Commission with data and analysis during the duration of the pilot as requested supports the objectives of perfecting the mechanism of a free and open market and the national market system because it furthers aligns the Exchange's Limit Up-Limit Down rules with competing options exchanges.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rule 521, Interpretation and Policy .01 and Exchange Rule 530, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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”)
FINRA is proposing to extend the current pilot program related to FINRA Rule 11892 (Clearly Erroneous Transactions in Exchange-Listed Securities) (“Clearly Erroneous Transaction Pilot” or “Pilot”) until April 20, 2020.
The text of the proposed rule change is available on FINRA's website at
In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
FINRA is proposing a rule change to extend the current pilot program related to FINRA Rule 11892 governing clearly erroneous transactions in exchange-listed securities until the close of business on April 20, 2020. Extending the Pilot would provide FINRA and the national securities exchanges additional time to consider a permanent proposal for clearly erroneous transaction reviews.
On September 10, 2010, the Commission approved, on a pilot basis, changes to FINRA Rule 11892 that, among other things: (i) Provided for uniform treatment of clearly erroneous transaction reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of FINRA to deviate from the objective standards set forth in the rule.
On April 9, 2019, FINRA filed a proposed rule change to untie the effectiveness of the Clearly Erroneous Transaction Pilot from the effectiveness of the Plan, and to extend the Pilot's effectiveness to the close of business on October 18, 2019.
FINRA has filed the proposed rule change for immediate effectiveness and has requested that the Commission waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so FINRA can implement the proposed rule change immediately.
FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,
FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous transaction rules across the U.S. equities markets while FINRA and the national securities exchanges consider further amendments to these rules in light of the approval of the Plan as permanent. FINRA understands that the national securities exchanges also will file similar proposals to extend their clearly erroneous execution pilot programs, as applicable. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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 (the “Act”),
Cboe BZX Exchange, Inc. (“BZX” or the “Exchange”) is filing with the Securities and Exchange Commission (the “Commission”) to make permanent an options market rule linked to the equity market Plan to Address Extraordinary Market Volatility. 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 purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stocks, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS under the Act.
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, approved on October 22, 2015, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange notes that the Commission recently approved to make permanent a substantively identical options pilot rule of the Exchange's affiliated exchange, Cboe Options Exchange, Inc. (“Cboe Options)
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
In particular, the Exchange believes that the proposed rule supports the objectives of perfecting the mechanism of a free and open market and the national market system because it promotes transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. As stated, the Commission recently approved to make permanent a substantively identical options pilot within the rules of the Exchange's affiliated exchange, Cboe Options, and the Exchange now proposes the same. The Exchange believes that eliminating the pilot basis for the Options Pilot and making such rule permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Rule 6.29.01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan. Accordingly, the Exchange believes that making the Options Pilot permanent will further the goals of investor protection and fair and orderly markets as the rule effectively addresses extraordinary market volatility pursuant to the Plan.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rule 20.6.01, which implements protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs, and, as stated above, notes that the Commission recently approved to make permanent substantively the same options pilot rule on Cboe Options. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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 (the “Act”),
Cboe Exchange, Inc. (the “Exchange” or “Cboe Options”) proposes to extend the pilot period related to the market-wide circuit breaker in Rule 5.22. The text of the proposed rule change is provided in Exhibit 5.
Cboe Exchange, Inc. (the “Exchange” or “Cboe Options”) proposes to extend the pilot period related to the market-wide circuit breaker in Rule 5.22. The text of the proposed rule change is provided in Exhibit 5.[sic]
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.
Exchange Rule 5.22 describes the methodology for determining when to halt trading in all stock options due to extraordinary market volatility,
The Exchange now proposes to amend Rule 5.22 to extend the pilot to the close of business on October 18, 2020. This filing does not propose any substantive or additional changes to Rule 5.22. The Exchange will use the extension period to develop with the other SROs rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, with industry member participation in such testing. The extension will also permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The market-wide circuit breaker under Rule 5.22 provides an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. As stated above, because all U.S. equity exchanges and FINRA adopted uniform rules on a pilot basis relating to market-wide circuit breakers in 2012 (“MWCB Rules”), which are designed to slow the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity, the Exchange, too, adopted a MWCB mechanism on a pilot basis pursuant to Rule 5.22[sic] Market-wide circuit breakers provide for trading halts in all equities and options markets during a severe market decline as measured by a single-day decline in the S&P 500 Index.
Pursuant to Rule 5.22, a market-wide trading halt will be triggered if the S&P 500 Index declines in price by specified percentages from the prior day's closing price of that index. Currently, the triggers are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level 3). A market decline that triggers a Level 1 or Level 2 halt after 9:30 a.m. ET and before 3:25 p.m. ET would halt market-wide trading for 15 minutes, while a similar market decline at or after 3:25 p.m. ET would not halt market-wide trading. A market decline that triggers a Level 3 halt, at any time during the trading day, would halt market-wide trading until the primary listing market opens the next trading day.
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
The MWCB mechanism under Rule 5.22 is an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. Extending the MWCB pilot for an additional year would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, which would include industry member participation in such testing. The extension will also permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The Exchange also believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning when and how to halt trading in all stocks as a result of extraordinary market volatility. Based on the foregoing, the Exchange believes the benefits to market participants from the MWCB under Rule 5.22 should continue on a pilot basis because the MWCB will promote fair and orderly markets, and protect investors and the public interest.
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 because the proposal would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, in conjunction with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism. In addition, as noted above, the extension will permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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.
Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-Cboe-2019-100 and should be submitted on or before November 14, 2019.
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. (“EDGX” or the “Exchange”) is filing with the Securities and Exchange Commission (the “Commission”) to make permanent an options market rule linked to the equity market Plan to Address Extraordinary Market Volatility. The
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 purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stocks, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS under the Act.
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, approved on October 22, 2015, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange notes that the Commission recently approved to make permanent a substantively identical options pilot rule of the Exchange's affiliated exchange, Cboe Options Exchange, Inc. (“Cboe Options),
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
In particular, the Exchange believes that the proposed rule supports the objectives of perfecting the mechanism of a free and open market and the national market system because it promotes transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. As stated, the Commission recently approved to make permanent a substantively identical options pilot within the rules of the Exchange's affiliated exchange, Cboe Options, and the Exchange now proposes the same. The Exchange believes that eliminating the pilot basis for the Options Pilot and making such rule permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Rule 6.29.01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rule 20.6.01, which implements protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs, and, as stated above, notes that the Commission recently approved to make permanent substantively the same options pilot rule on Cboe Options. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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)
The Exchange proposes to extend the current pilot program related to Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to extend the current pilot program related to Rule 7.10 (Clearly Erroneous Executions) to the close of business on April 20, 2020. The pilot program is currently due to expire on October 18, 2019.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 128 (Clearly Erroneous Executions) that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
These changes were originally scheduled to operate for a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or “LULD Plan”),
The Exchange now proposes to amend Rule 7.10 to extend the pilot program's effectiveness for a further six months until the close of business on April 20, 2020. If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (c), (e)(2), (f), and (g) shall be in effect, and the provisions of paragraphs (i) through (k) shall be null and void.
The Exchange does not propose any additional changes to Rule 7.10. Extending the effectiveness of Rule 7.10 for an additional six months will provide the Exchange and other self-regulatory organizations additional time to consider whether further amendments to the clearly erroneous execution rules are appropriate.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange and other self-regulatory organizations consider whether further amendments to these rules are appropriate. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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.
Securities and Exchange Commission.
Exemptive order.
The Securities and Exchange Commission (“Commission” or “SEC”) is issuing an order granting an exemption from compliance with certain provisions of the Securities Exchange Act of 1934 (“Exchange Act”) and the rules thereunder to broker-dealers and certain other persons engaging in certain transactions in securities of exchange-traded funds (“ETFs”) relying on rule 6c-11 under the Investment Company Act of 1940 (“Investment Company Act”).
This exemptive order is effective December 23, 2019.
Darren Vieira, Special Counsel, Brandon Hill, Special Counsel, or Joanne Rutkowski, Assistant Chief Counsel, at (202) 551-5550; in the Division of Trading and Markets; Daniel Duchovny, Special Counsel, Office of Mergers and Acquisitions, at (202) 551-3440, in the Division of Corporation Finance; Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
The Commission adopted rule 6c-11 under the Investment Company Act, which permits ETFs that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order from the Commission under the Investment Company Act.
While the relief under rule 6c-11 is limited to exemptions under the Investment Company Act,
After considering comments, we believe that it is appropriate to make all ETFs, including those that do not rely on rule 6c-11, eligible for the redeemable securities exceptions in rules 101(c)(4) and 102(d)(4) of Regulation M and rule 10b-17(c) under the Exchange Act in connection with secondary market transactions in ETF shares and the creation or redemption of creation units and the exemption in rule 11d1-2 under the Exchange Act for a registered open-end investment company or unit investment trust.
The Commission agrees that such relief could further reduce regulatory complexity and administrative delay, and eliminate potential inconsistencies between rule 6c-11 and the related Exchange Act relief that ETFs have obtained to operate.
An ETF issues shares that can be bought or sold throughout the day in the secondary market at a market-determined price. Like other investment companies, an ETF pools the assets of multiple investors and invests those assets according to its investment objective and principal investment strategies. Each share of an ETF represents an undivided interest in the underlying assets of the ETF. Similar to mutual funds, ETFs continuously offer their shares for sale.
Unlike mutual funds, however, ETFs do not sell or redeem individual shares. Instead, “authorized participants” that have contractual arrangements with the ETF, or one of its service providers, purchase and redeem ETF shares directly from the ETF in blocks called “creation units.”
An authorized participant that purchases a creation unit of ETF shares directly from the ETF deposits with the ETF a “basket” of securities and other assets identified by the ETF that day, and then receives the creation unit of ETF shares in return for those assets.
By this order, the Commission is seeking to reduce the complexities and burden that may otherwise be associated with the ETF creation and redemption process, subject to appropriate conditions intended to ensure investor protections.
The Commission is granting a conditional exemption from Exchange Act section 11(d)(1) and Exchange Act rules 10b-10, 15c1-5, 15c1-6, and 14e-5 as discussed further below. The exemption should help to simplify the offering and operating process for ETFs. The exemption will provide relief to broker-dealers from these provisions of the Exchange Act with respect to ETFs relying on rule 6c-11.
The Commission is limiting relief under this exemption to transactions in securities issued by ETFs that rely on rule 6c-11 because the specific findings in support of the exemptive order are based, in part, on the conditions in rule 6c-11. The Commission believes that the portfolio and other transparency requirements in rule 6c-11, when combined with the conditions in this order, address the policy concerns underlying the relevant statutory provision and rules. For example, rule 6c-11 requires ETFs to disclose their portfolio holdings each day through their website. This portfolio transparency, along with the availability of information regarding ETFs through the National Securities Clearing Corporation (“NSCC”), other intermediaries, and the ETF itself, should provide customers engaging in creation or redemption transactions an opportunity to identify or inquire about potential conflicts of interest involving a component security a broker-dealer would otherwise be required to disclose. These requirements should also help customers determine if they should request that their broker-dealer provide any omitted information.
The exemption from Exchange Act section 11(d)(1) and Exchange Act rules 10b-10, 15c1-5, 15c1-6, and 14e-5 is only available with respect to transactions involving securities of an ETF relying on rule 6c-11. The rule defines an ETF as a registered open-end management investment company that: (i) Issues (and redeems) creation units to (and from) authorized participants in exchange for a basket and a cash balancing amount (if any); and (ii) issues shares that are listed on a national securities exchange and traded at market-determined prices.
1. The ETF is structured as an open-end management investment company;
2. The ETF discloses portfolio holdings each business day on its website before the opening of regular trading on the primary listing exchange of the ETF's shares in a standardized manner;
3. The ETF provides website disclosure of (i) the ETF's current NAV per share, market price, and premium or discount, each as of the end of the prior business day; (ii) a table showing the number of days the ETF's shares traded at a premium or discount during the most recently completed calendar year and calendar quarters of the current year; (iii) a line graph showing ETF premiums and discounts for the most recently completed year and calendar
4. The ETF adopts and implement written policies and procedures that govern the construction of baskets and the process that will be used for the acceptance of baskets. If the ETF utilizes custom baskets, these policies and procedures must (i) set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interest of the ETF and its shareholders, including the process for any revisions to, or deviations from, those parameters; and (ii) specify the titles or roles of the employees of the ETF's investment adviser who are required to review each custom basket for compliance with those parameters; and
5. The ETF preserves and maintains copies of all written agreements between an authorized participant and the ETF (or one of the ETF's service providers) that allow the authorized participant to purchase or redeem creation units.
Consistent with our approach in Rule 6c-11, the exemption provided by this order will be available regardless of whether the ETF is actively managed
The exemption provided by this order from Exchange Act section 11(d)(1) and Exchange Act rules 10b-10, 15c1-5, and 15c1-6 is available only with respect to transactions involving an ETF that meets the diversification requirement applicable to a regulated investment company in Internal Revenue Code (“IRC”) Sec. 851(b)(3)(B), 26 U.S.C. 851(b)(3)(B) (the “IRC diversification requirement”).
not more than 25 percent of the value of its total assets is invested in—(i) the securities (other than Government securities or the securities of other regulated investment companies) of any one issuer, (ii) the securities (other than the securities of other regulated investment companies) of two or more issuers which the taxpayer controls and which are determined, under regulations prescribed by the Secretary [of the Treasury], to be engaged in the same or similar trades or businesses or related trades or businesses, or (iii) the securities of one or more qualified publicly traded partnerships (as defined in subsection (h)).
Diversification, together with the conditions discussed below, forms the basis for the Commission's conclusion that relief from section 11(d)(1) and rules 10b-10, 15c1-5, and 15c1-6 is necessary and appropriate in the public interest and consistent with investor protection.
Exchange Act rule 10b-10 generally requires a broker or dealer that effects a securities transaction for a customer to send to the customer, at or before the completion of the transaction, a written notification (“confirmation”) disclosing certain information, including among other items, the identity, price, and number of share or units (or principal amount) of the security purchased or sold by the customer. The confirmation requirement provides basic investor protections by conveying information that allows investors to verify the terms of their transactions; alerting investors to potential conflicts of interest with their broker-dealers; acting as a safeguard against fraud; and providing investors a means to evaluate the costs of their transactions and the quality of their broker-dealer's execution.
The Commission is granting an exemption from Exchange Act rule 10b-10 that will allow a broker-dealer that is effecting an in-kind creation or redemption transaction on behalf of a customer to confirm the transaction without providing a contemporaneous statement of the identity, price or number of shares or units (or principal amount) of each component security tendered to or delivered by the ETF, subject to the following conditions:
1. Confirmation statements of issuance and redemption transactions in ETF shares will contain all of the information specified in paragraph (a) of rule 10b-10 other than identity, price, and number of shares or units (or principal amount) of each component security tendered or received by the customer in the transaction.
2. Any confirmation statement of an issuance or redemption transaction in ETF shares that omits the identity, price, or number of shares or units (or principal amount) of component securities will contain a statement that such omitted information will be provided to the customer upon request; and
3. All such requests will be fulfilled in a timely manner in accordance with paragraph (c) of rule 10b-10.
The requirement that confirmation statements include all of the information specified in paragraph (a) of rule 10b-10 other than the identity, price, and number of shares or units (or principal amount) of each component security tendered or received in the transaction preserves a customer's right to receive other important information from the confirmation about the terms of the customer's transaction at or before the completion of the transaction. The statement that the omitted information will be provided upon request informs the customer of the right to receive the omitted information. The requirement for a broker-dealer to fulfill such requests in a timely manner in accordance with paragraph (c) of rule 10b-10 clarifies that a broker-dealer
The Commission also believes that, in general, information regarding ETFs is accessible through a variety of sources, including the NSCC, intermediaries and the ETFs themselves. The Commission believes that the conditions above will allow any customers who would like additional information regarding identity, price, or number of shares or units (or principal amount) to receive the information in a timely manner. This exemption reduces the burden that may otherwise be associated with creation and redemption transactions while preserving a customer's ability to access the omitted information upon request.
Exchange Act rule 15c1-5 requires a broker-dealer effecting a transaction to disclose any control relationship with an issuer of a security that it purchases for or sells to a customer. Similarly, Rule 15c1-6 requires a broker-dealer to disclose its participation or interest in a primary or secondary distribution of a security that it purchases for or sells to a customer. The Commission is granting a conditional exemption from Exchange Act rules 15c1-5 and 15c1-6 that will allow a broker-dealer that is effecting an in-kind creation or redemption transaction on behalf of a customer to effect that transaction without providing disclosure regarding a control relationship with an issuer or participation in a distribution of a component security tendered to or delivered by the ETF.
As discussed above, the composite nature of diversified ETF portfolios and the relatively small proportionate share of any component security in a basket mean that any individual ETF portfolio security that would be subject to disclosure under rules 15c1-5 or 15c1-6 will be a small portion of the portfolio. This diversification should reduce the impact that any potential conflicts of interest involving a component security that a broker-dealer may have and mitigate the concern that a broker-dealer could use an ETF to avoid disclosure of a conflict of interest that would otherwise be required to be disclosed under rules 15c1-5 and 15c-6.
Rule 6c-11 provides ETFs with flexibility to use custom baskets that contain a non-representative selection of the ETFs' portfolio securities.
The exemption from rules 15c1-5 and 15c1-6 is subject to a further condition that requires the broker-dealer to provide any information to which a customer is entitled under rule 15c1-5 or 15c1-6 upon request and to fulfill such requests in a timely manner. The Commission believes that this condition will ensure that any customers who would like to access this information for any of the investor protections needs described above will be able to receive it.
Similar to rule 10b-10 above, the Commission believes that the general availability of information regarding ETFs through a variety of sources, including the NSCC, intermediaries and the ETFs themselves, supports this exemption. This access allows market participants that use basket information to obtain information regarding securities they will exchange in a creation or redemption transaction. The Commission believes that this information also should provide market participants seeking to engage in creation or redemption transactions an opportunity to identify or otherwise inquire about the control relationships or interest in a distribution that a broker-dealer would otherwise be required to disclose pursuant to these rules.
Exchange Act section 11(d)(1) generally prohibits a person that is both a broker and a dealer from extending or maintaining credit, or arranging for the extension or maintenance of credit, to or for a customer on any security (other than an exempted security) which was part of a distribution of a new issue of securities in which the broker-dealer participated. Because ETFs are in continuous distribution, broker-dealers effecting creation and redemption transactions on behalf of customers are participating in the distribution of new issue securities with respect to shares of ETFs, and thus are continuously subject to the restrictions of section 11(d)(1). Section 11(d)(1) issues arise both with Broker-Dealer APs and with broker-dealers who effect only secondary market transactions (“Non-AP Broker-Dealers”).
As noted in section II above, a Broker-Dealer AP is a registered broker-dealer that has entered into a contractual arrangement with an ETF or one of its service providers that allows the Broker-Dealer AP to place orders for the purchase or redemption of creation units, but Broker-Dealer APs are not compensated by ETFs in connection with the creation or redemption of ETF shares. Broker-Dealers may have different reasons for becoming authorized participants, including for their own proprietary trading, to facilitate customer trades, to hedge or otherwise manage their own risk, or to arbitrage differences between the ETF's market price and its NAV.
The Commission is granting an exemption from the new issue lending restriction in section 11(d)(1) for a Broker-Dealer AP that extends or maintains credit, or arranges for the extension or maintenance of credit, on ETF shares subject to the following two conditions:
1. Neither the Broker-Dealer AP, nor any natural person associated with such Broker-Dealer AP, directly or indirectly (including through any affiliate of such Broker-Dealer AP), receives from the “Fund Complex”
(A) Gifts that do not exceed an annual amount per person fixed periodically by FINRA and are not preconditioned on achievement of a sales target;
(B) An occasional meal, a ticket to a sporting event or the theater, or comparable entertainment which is neither so frequent nor so extensive as to raise any question of propriety and is not preconditioned on achievement of a sales target; [and]
(C) Payment or reimbursement by offerors in connection with meetings held by an offeror or by a member for the purpose of training or education of associated persons of a member, subject to certain conditions.
2. The Broker-Dealer AP does not extend, maintain or arrange for the extension or maintenance of credit to or for a customer on shares of the ETF before thirty days have passed from the date that the ETF's shares initially commence trading (except to the extent that such extension, maintenance, or arranging of credit is otherwise permitted pursuant to rule 11d1-1).
The exemption permits a Broker-Dealer AP to accept only limited forms of non-cash compensation that do not present broker-dealers with the types of potential conflicts of interest in their sale of securities that section 11(d)(1) addresses.
Many broker-dealers effect ETF securities transactions solely on the secondary market, whether for themselves or as agent for their customers. They do not enter contractual arrangements to effect creation or redemption transactions with the ETF or one of its service providers. Thus, these Non-AP Broker-Dealers have not undertaken to distribute ETF shares and generally do not receive any compensation for selling ETF shares, other than, in some cases, limited forms of non-cash compensation. Non-AP Broker-Dealers may reasonably be considered not to be participating in the distribution of new issue securities within the meaning of section 11(d)(1). However, to remove any ambiguity about the circumstances when Non-AP Broker-Dealers may offer margin on ETF securities the Commission is granting this exemption from section 11(d)(1).
The Commission believes this relief is appropriate because, as stated above, Non-AP Broker-Dealers do not engage in creation and redemption transactions with ETFs and, thus, may reasonably be considered not to be participating in the distribution of the ETFs' securities. In addition, this relief is subject to the condition that Non-AP Broker-Dealers do not (and their associated persons who are natural persons do not), directly or indirectly (including through any affiliate of such Non-AP Broker-Dealer), receive from the Fund Complex any payment, compensation or other economic incentive to promote or sell the shares of the ETF to persons outside the Fund Complex, other than non-cash compensation. For the foregoing reasons, the Commission believes it is necessary and appropriate and in the public interest and consistent with investor protection to grant this exemption.
Exchange Act rule 14e-5 prohibits “covered persons” from directly or indirectly purchasing or arranging to purchase any securities that are the subject of a tender offer (“subject securities”)
The Commission is granting a conditional exemption from rule 14e-5 to an ETF, the legal entity of which the ETF is a series, and authorized participants and any other persons who create and redeem shares of the ETF in creation units pursuant to contractual arrangements pertaining to such legal entity and the ETF, and who are covered persons with respect to a tender offer involving an ETF's component securities. The conditional exemption will allow such persons (i) to redeem ETF shares in creation unit sizes for a redemption basket that may include a subject security or related security, (ii) to engage in secondary market transactions with respect to the ETF shares after the first public announcement of the tender offer and during such tender offer given that such transactions could include, or be deemed to include, purchases of, or arrangements to purchase, subject securities or related securities, and (iii) make purchases of, or arrangements to purchase, subject securities or related securities in the secondary market for the purpose of transferring such securities to purchase one or more creation units of ETF shares. The exemption from rule 14e-5 is subject to the following conditions:
1. No purchases of subject securities or related securities made by broker-dealers acting as dealer-managers of a tender offer would be effected for the purpose of facilitating a tender offer;
2. If there is a change in the composition of a ETF's portfolio of component securities and a broker-dealer acting as a dealer-manager of a tender offer is unable to rely on the exception found in rule 14e-5(b)(5) for basket transactions because (i) the basket of subject securities or related securities contains fewer than 20 securities or (ii) the subject securities and related securities make up more than 5% of the value of the basket, then any purchases of an ETF component security by such dealer-manager during a tender offer will be effected for the purpose of adjusting a basket of securities in the ordinary course of its business and not for the purpose of facilitating a tender offer; and
3. Except for the relief specifically granted herein, any broker-dealer acting as a dealer-manager of a tender offer will comply with rule 14e-5.
The Commission believes this exemption will facilitate the ability of authorized participants and others to engage in creation or redemption transactions between the public announcement of a tender offer and its expiration, thereby permitting the ETF to operate as intended for the benefit of its holders and as disclosed in publicly filed documents. The conditions applicable to the relief will ensure that authorized participants and other recipients of the relief do not effect creation or redemption transactions
In light of the above, and in accordance with Exchange Act Section 36, the Commission finds that conditionally exempting broker-dealers that engage in certain transactions in securities of ETFs that can rely on Investment Company Act rule 6c-11 from the requirements of section 11(d)(1) of the Exchange Act and Exchange Act rules 10b-10, 15c1-5, 15c1-6, and 14e-5 necessary and appropriate in the public interest, and consistent with the protection of investors.
This exemption is subject to modification or revocation at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Exchange Act. In addition, persons relying on this exemption are directed to the anti-fraud and anti-manipulation provisions of the federal securities laws, particularly section 10(b) of the Exchange Act and rule 10b-5 thereunder.
By the Commission.
Pursuant to Section 19(b)(1)
The Exchange proposes to extend the current pilot program related to Rule 7.10-E (Clearly Erroneous Executions) to the close of business on April 20, 2020. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to extend the current pilot program related to Rule 7.10-E (Clearly Erroneous Executions) to the close of business on April 20, 2020. The pilot program is currently due to expire on October 18, 2019.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 7.10-E that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
These changes were originally scheduled to operate for a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or “LULD Plan”),
The Exchange now proposes to amend Rule 7.10-E to extend the pilot's effectiveness for a further six months until the close of business on April 20, 2020. If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (c), (e)(2), (f), and (g) shall be in effect, and the provisions of paragraphs (i) through (k) shall be null and void.
The Exchange does not propose any additional changes to Rule 7.10-E. Extending the effectiveness of Rule 7.10-E for an additional six months will provide the Exchange and other self-regulatory organizations additional time to consider whether further amendments to the clearly erroneous execution rules are appropriate.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange and other self-regulatory organizations consider whether further amendments to these rules are appropriate. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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 (the “Act”),
Cboe C2 Exchange, Inc. (“C2” or the “Exchange”) is filing with the Securities and Exchange Commission (the “Commission”) to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility. 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 purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stocks, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to a rule filing, approved on April 3, 2014, each month, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange notes that the Commission recently approved to make permanent substantively identical options pilots within the rules of the Exchange's affiliated exchange, Cboe Options Exchange, Inc. (“Cboe Options)
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
In particular, the Exchange believes that the proposed rule supports the objectives of perfecting the mechanism of a free and open market and the national market system because it promotes transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. As stated, the Commission recently approved to make permanent substantively identical options pilots within the rules of the Exchange's affiliated exchange, Cboe Options, and the Exchange now proposes the same. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Rule 6.29.01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan. As
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rules 6.39 or Interpretation and Policy .01 to Rule 6.29, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs, and, as stated above, notes that the Commission recently approved to make permanent substantively the same options pilot rules on Cboe Options. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On August 19, 2019, ICE Clear Europe Limited (“ICE Clear Europe”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The proposed rule change would amend the Back-Testing Policy to update the description of ICE Clear Europe's back-testing process, including the level at which ICE Clear Europe performs back-testing, and the back-testing of ICE Clear Europe's special strategy portfolios and Monte Carlo (“MC”) model.
The proposed rule change would amend the Back-Testing Policy to state that ICE Clear Europe performs back-testing at the Clearing Member account level, rather than at the portfolio level, on a daily basis. The proposed rule change would move the section on Detailed Daily Portfolio Back-Testing Results from section 3.4 into a new section numbered 3.1 and update the description in that section to reflect back-testing at the Clearing Member account level. This proposed change is intended to make the description of ICE Clear Europe's back-testing more precise and consistent with ICE Clear Europe's current practice.
The proposed rule change would also update the description of ICE Clear Europe's performance of back-testing using special strategy portfolios. As explained in the Back-Testing Policy, ICE Clear Europe performs daily back-testing for the model using a specific set of special strategy portfolios at 99.5% and 99.75% quantiles. The proposed rule change would add to this set of special strategy portfolios an additional strategy, iTraxx Senior Financial 5Y.OTR Arb. This new strategy would be constructed in the same manner as the existing strategies but would relate only to the iTraxx Senior Financials 5Y index. Because ICE Clear Europe regularly back tests using this strategy, ICE Clear Europe is adding this strategy to the Back-Testing Policy to reflect its current practice.
The proposed rule change would also amend the description of the other special strategies to better reflect ICE Clear Europe's practices in employing the special strategies. For example, the proposed rule change would update the names of the special strategies; change the use of the terms “short” and “long” to “bought” and “sold”; and specify that, for the sake of completeness, ICE Clear Europe also considers the opposite strategy when back-testing a special strategy (
The proposed rule change would amend the description of the back-testing of ICE Clear Europe's MC model to make a number of clarifications. This amendment is intended only to clarify what is meant in the policy by “Monte Carlo back-testing”, which is back-testing only the MC model and not the stress-based model. There would be no change to the current practice with respect to MC model back testing. First, the proposed rule change would clarify that back-tests are performed daily on the Spread Response component of the Initial Margin using ICE Clear Europe's MC model and is specific to that model, rather than the combined Spread Response approach which uses the worst loss estimated between either the scenario-based approach or the Monte Carlo approach. Second, the proposed rule change would clarify that ICE Clear Europe performs the MC back-test on individual Clearing Member accounts using the risk approach for the Spread Response Initial Margin, rather than at the portfolio level. As part of this change, the proposed rule change would remove specific references to the risk quantiles. Third, the proposed rule change would clarify that the back-tested risk measure includes the sum of the following quantities: MC value-at-risk, interest rate, recovery rate, and basis risk. The current Back-Testing Policy does not include a specific reference to “basis risk”, but rather to the “portfolio” quantity. This would clarify that the basis risk initial margin component is part of the back-tested initial margin components. Fourth, the proposed rule change would remove an unnecessary distinction depending on whether the indices are decomposed, which is not applicable using the MC approach. In ICE Clear Europe's view, these changes would improve the readability of the policy and better reflect current ICE Clear Europe practices, but would not alter such practices.
ICE Clear Europe represents that these changes, as a whole, clarify that, with respect to MC back-testing, ICE Clear Europe is back-testing only the MC model and not the stress-based model.
With respect to reporting of back-testing results, the proposed rule change would require that the Clearing Risk department report the CDS back testing results and analysis to the CDS Product Risk Committee and the Model Oversight Committee on a monthly basis. Currently, the Back-Testing Policy only requires reporting to the CDS Product Risk Committee (on a monthly basis). Similarly, the proposed rule change would require that the Clearing Risk department provide an exceedance summary to the CDS Product Risk Committee and the Model Oversight Committee monthly, while currently the Back-Testing Policy only requires that the Clearing Risk department provide an exceedance summary to the CDS
With respect to the Basel Traffic Light System (“BTLS”) Exceedance Summaries, the proposed rule change would move the description of the exceedance summary from Section [**] into new Section 3.2, which is labeled Back-Testing the Production Model with Clearing Members Accounts. Additionally, in Section 3.5, the proposed rule change would clarify that BTLS Exceedance Summaries are provided for back-testing at the Clearing Member account level, as discussed above. The proposed rule change also would revise the frequency of reporting to state that, at least monthly, BTLS Exceedance Summaries are reported using the production model for each Clearing Member's account, special-strategies, and the MC model. Currently the CDS Clearing Back-Testing Policy specifies that BTLS Exceedance Summaries are reported [insert current frequency]. ICE Clear Europe represents that this would align the frequency of the reporting to the relevant regulatory requirement under Commission Rule 17Ad-22(b)(2).
The proposed rule change would remove specific references to testing quantiles of 99% and 99.25%, because ICE Clear Europe no longer tests at those specific quantiles given that they are lower than the minimum 99.5% quantile used by ICE Clear Europe and prescribed by the European Market Infrastructure Regulation.
Finally, the proposed rule change would correct typographical errors and update defined terms and references as needed.
Section 19(b)(2)(C) of the Act directs the Commission to approve a proposed rule change of a self-regulatory organization if it finds that such proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to such organization.
Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of ICE Clear Europe be designed to promote the prompt and accurate clearance and settlement of securities transactions and, to the extent applicable, derivative agreements, contracts, and transactions, as well as to assure the safeguarding of securities and funds which are in the custody or control of ICE Clear Europe or for which it is responsible, and, in general, to protect investors and the public interest.
As discussed in detail below, the Commission believes that the changes described above, taken as a whole, would help to improve ICE Clear Europe's back-testing, which in turn would help improve ICE Clear Europe's ability to avoid losses that could disrupt ICE Clear Europe's ability to promptly and accurately clear security based swap transactions, and therefore would help promote the prompt and accurate clearance and settlement of securities transactions.
First, in providing that ICE Clear Europe conducts back-testing at the Clearing Member account level, rather than at the portfolio level, the Commission believes that the proposed rule change would help to improve ICE Clear Europe's back-testing by making the description of ICE Clear Europe's process more precise and ensuring that the description is consistent with ICE Clear Europe's current practice. Moreover, by adding a new special strategy portfolio for iTraxx Senior Financial 5Y.OTR Arb, the Commission believes that the proposed rule change would help ensure that ICE Clear Europe back-tests using this strategy, which could offer ICE Clear Europe additional insight and data by providing a new strategy to test. Similarly, the Commission believes that the proposed rule change, in amending the description of the other strategies to better reflect ICE Clear Europe's practices in employing the strategies, would help to ensure that ICE Clear Europe's back-testing of the special strategies is consistent with ICE Clear Europe's current practices and uniform among different back-tests. In making the changes described above to the MC back-testing, to clarify that ICE Clear Europe is back-testing only the MC model and not the stress based model, the Commission similarly believes that the proposed rule change would help to ensure that ICE Clear Europe's back-testing of the MC Model is consistent with ICE Clear Europe's current practices and uniform among different back-tests. Finally, in removing references to testing quantiles that ICE Clear Europe no longer employs, and correcting typographical errors and updating defined terms and references, the Commission believes that the proposed rule change would eliminate unnecessary terms and errors in the Back-Testing Policy which could lead to erroneous application of ICE Clear Europe's back-testing process. The Commission believes that all of these changes, taken as a whole, would help to improve the quality of ICE Clear Europe's back-testing.
Moreover, the Commission believes that the changes described above with respect to reporting of back-testing results would help improve ICE Clear Europe's use of the information generated by back-testing. Specifically, in requiring that the Clearing Risk department report back-testing results and an exceedance summary to the Model Oversight Committee, in addition to the Product Risk Committee, the Commission believes that the proposed rule change would help to ensure that the Model Oversight Committee has back-testing information which it could use to help improve ICE Clear Europe's margin model. Similarly, in requiring that the Clearing Risk Department review back-testing results on a daily basis, the Commission believes that the proposed rule change would help to ensure that any deficiencies or problems revealed by back-testing are taken into consideration without delay. Finally, in amending the reporting of the BTLS Exceedance Summaries, the Commission believes that the proposed rule change would help to provide a better representation of the results of back-testing against the BTLS.
Finally, because back-testing can help reveal inadequacies in ICE Clear Europe's margin requirements and the models that support those requirements, the Commission believes that the proposed rule change would help to ensure that ICE Clear Europe maintains effective margin requirements. Given that an effective margin system is necessary to manage ICE Clear Europe's credit exposures to its Clearing Members and the risks associated with clearing security based swap-related portfolios, the Commission believes that the proposed rule change would help improve ICE Clear Europe's ability to avoid losses that could result from the mismanagement of such credit exposures and risks. Because such losses could disrupt ICE Clear Europe's ability to promptly and accurately clear
Therefore, the Commission finds that the proposed rule change would promote the prompt and accurate clearance and settlement of securities transactions, assure the safeguarding of securities and funds in ICE Clear Europe's custody and control, and, in general, protect investors and the public interest, consistent with the Section 17A(b)(3)(F) of the Act.
Rules 17Ad-22(e)(2)(i) and (v) require that ICE Clear Europe establish, implement, maintain and enforce written policies and procedures reasonably designed to provide for governance arrangements that are clear and transparent and specify clear and direct lines of responsibility.
As discussed above, the proposed rule change would revise the Back-Testing Policy by requiring that that the Clearing Risk department report the CDS back-testing results and analysis and provide an exceedance summary to the Model Oversight Committee as well as to the CDS Product Risk Committee. The Commission believes that this change would improve the transparency of ICE Clear Europe's governance arrangements by clarifying the role played by the Model Oversight Committee in reviewing the results of back-testing. Similarly, in requiring that the Clearing Risk Department review back-testing results on a daily basis, the Commission believes that the proposed rule change would help clearly define the responsibility of the Clearing Risk Department in reviewing the results of back-testing.
Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rules 17Ad-22(e)(2)(i) and (v).
Rule 17Ad-22(e)(6)(vi) requires that ICE Clear Europe establish, implement, maintain and enforce written policies and procedures reasonably designed to cover its credit exposures to its participants by establishing a risk-based margin system that, at a minimum is monitored by management on an ongoing basis and is regularly reviewed, tested, and verified by, among other things, conducting back-tests of its margin model at least once each day using standard predetermined parameters and assumptions.
As discussed above, the proposed rule change would amend the Back-Testing Policy to state that ICE Clear Europe performs back-testing at the Clearing Member account level on a daily basis. The proposed rule change also would require that the Clearing Risk Department review back-testing results on a daily basis. The Commission believes that both of these changes would to ensure that ICE Clear Europe conducts back-testing at least once each day.
Therefore, for the above reasons the Commission finds that the proposed rule change is consistent with Rule 17Ad-22(e)(6)(vi).
On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act, and in particular, with the requirements of Section 17A(b)(3)(F) of the Act
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 C2 Exchange, Inc. (the “Exchange” or “C2”) proposes to extend the pilot period related to the market-wide circuit breaker in Rule 6.32.01. 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
Exchange Rule 6.32.01 describes the methodology for determining when to halt trading in all stock options due to extraordinary market volatility,
The Exchange now proposes to amend Rule 6.32.01 to extend the pilot to the close of business on October 18, 2020. This filing does not propose any substantive or additional changes to Rule 6.32.01. The Exchange will use the extension period to develop with the other SROs rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, with industry member participation in such testing. The extension will also permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The market-wide circuit breaker under Rule 6.32.01 provides an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. As stated above, because all U.S. equity exchanges and FINRA adopted uniform rules on a pilot basis relating to market-wide circuit breakers in 2012 (“MWCB Rules”), which are designed to slow the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity, the Exchange, too, adopted a MWCB mechanism on a pilot basis pursuant to Rule 6.32.01[sic] Market-wide circuit breakers provide for trading halts in all equities and options markets during a severe market decline as measured by a single-day decline in the S&P 500 Index.
Pursuant to Rule 6.32.01, a market-wide trading halt will be triggered if the S&P 500 Index declines in price by specified percentages from the prior day's closing price of that index. Currently, the triggers are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level 3). A market decline that triggers a Level 1 or Level 2 halt after 9:30 a.m. ET and before 3:25 p.m. ET would halt market-wide trading for 15 minutes, while a similar market decline at or after 3:25 p.m. ET would not halt market-wide trading. A market decline that triggers a Level 3 halt, at any time during the trading day, would halt market-wide trading until the primary listing market opens the next trading day.
The Exchange believes the proposed rule change is consistent with the Securities Exchange Act of 1934 (the “Act”) and the rules and regulations thereunder applicable to the Exchange and, in particular, the requirements of Section 6(b) of the Act.
The MWCB mechanism under Rule 6.32.01 is an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. Extending the MWCB pilot for an additional year would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, which would include industry member participation in such testing. The extension will also permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The Exchange also believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning when and how to halt trading in all stocks as a result of extraordinary market volatility. Based on the foregoing, the Exchange believes the benefits to market participants from the MWCB under Rule 6.32.01 should continue on a pilot basis because the MWCB will promote fair and orderly markets, and protect investors and the public interest.
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 because the proposal would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, in conjunction with the other SROs, consider and develop rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism. In addition, as noted above, the extension will permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process. Further, the Exchange understands that FINRA and other national securities exchanges will file proposals to extend their rules regarding the market-wide circuit breaker pilot. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
The Exchange neither solicited nor received comments on the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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.
Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-C2-2019-022 and should be submitted on or before November 14, 2019.
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 BYX Exchange, Inc. (“BYX” or the “Exchange”) is filing with the Securities and Exchange Commission (the “Commission”) a proposal to extend the pilot related to the market-wide circuit breaker in Rule 11.18. The text of the proposed rule change is enclosed as 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.
BYX Rules 11.18(a) through (d), (f) and (g) describe the methodology for determining when to halt trading in all stocks due to extraordinary market volatility,
The Exchange now proposes to amend Rule 11.18 to extend the pilot to the close of business on October 18, 2020. This filing does not propose any substantive or additional changes to Rule 11.18. The Exchange will use the extension period to develop with the other SROs rules and procedures that would allow for the periodic testing of the performance of the MWCB mechanism, with industry member participation in such testing. The extension will also permit the exchanges to consider enhancements to the MWCB processes such as modifications to the Level 3 process.
The market-wide circuit breaker under Rule 11.18 provides an important, automatic mechanism that is invoked to promote stability and investor confidence during a period of significant stress when securities markets experience extreme broad-based declines. All U.S. equity exchanges and FINRA adopted uniform rules on a pilot basis relating to market-wide circuit breakers in 2012 (“MWCB Rules”), which are designed to slow the effects of extreme price movement through coordinated trading halts across securities markets when severe price declines reach levels that may exhaust market liquidity. Market-wide circuit breakers provide for trading halts in all equities and options markets during a severe market decline as measured by a single-day decline in the S&P 500 Index.
Pursuant to Rule 11.18, a market-wide trading halt will be triggered if the S&P 500 Index declines in price by specified percentages from the prior day's closing price of that index. Currently, the triggers are set at three circuit breaker thresholds: 7% (Level 1), 13% (Level 2), and 20% (Level 3). A market decline that triggers a Level 1 or Level 2 halt after 9:30 a.m. ET and before 3:25 p.m. ET would halt market-wide trading for 15 minutes, while a similar market decline at or after 3:25 p.m. ET would not halt market-wide trading. A market decline that triggers a Level 3 halt, at any time during the trading day, would halt market-wide trading until the primary listing market opens the next trading day.
The Exchange believes that its proposal is consistent with Section 6(b) of the Act,
The Exchange also believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning when and how to halt trading in all stocks as a result of extraordinary market volatility. Based on the foregoing, the Exchange believes the benefits to market participants from the MWCB under Rule 11.18 should continue on a pilot basis because the MWCB will promote fair and orderly markets, and protect investors and the public interest.
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 because the proposal would ensure the continued, uninterrupted operation of a consistent mechanism to halt trading across the U.S. markets while the Exchange, in
No comments were solicited or received on the proposed rule change.
Because the foregoing proposed rule change does not: (1) Significantly affect the protection of investors or the public interest; (2) impose any significant burden on competition; and (3) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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.
Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly.
All submissions should refer to File Number SR-CboeBYX-2019-017 and should be submitted
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On September 4, 2019, NYSE Arca, Inc. (the “Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”)
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 those statements may be examined at the places specified in Item V below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The Exchange proposes to make permanent Rule 7.44-E, which sets forth the Exchange's pilot Retail Liquidity Program (the “Program”). In support of the proposal to make the pilot Program permanent, the Exchange believes it is appropriate to provide background on the Program and an analysis of the economic benefits for retail investors and the marketplace flowing from operation of the Program.
In December 2013, the Commission approved the Program on a pilot basis.
In 2013, the Program's rules were set forth in NYSE Arca Equities Rule 7.44. In connection with the Exchange's implantation of Pillar, an integrated trading technology platform designed to use a single specification for connecting to the equities and options markets operated by NYSE Arca and its affiliates, New York Stock Exchange LLC and NYSE American LLC, NYSE Arca Equities Rule 7.44 was replaced by NYSE Arca Equities Rule 7.44P.
The Exchange established the Program to attract retail order flow to the Exchange, and allow such order flow to receive potential price improvement.
As described in greater detail below, under Rule 7.44-E, a new class of market participant called Retail Liquidity Providers (“RLPs”)
In approving the pilot, the Commission concluded that the Program was reasonably designed to benefit retail investors by providing price improvement opportunities to retail order flow. Further, while the Commission noted that the Program would treat retail order flow differently from order flow submitted by other market participants, such segmentation would not be inconsistent with Section 6(b)(5) of the Act,
As discussed below, the Exchange believes that the Program data supports these conclusions and that it is therefore appropriate to make the pilot Program permanent.
Rule 7.44-E(a) contains the following definitions:
• First, the term “Retail Liquidity Provider” (“RLP”) is defined as a ETP Holder that is approved by the Exchange under the Rule to act as such and to submit Retail Price Improvement Orders in accordance with the Rule.
• Second, the term “Retail Member Organization” (“RMO”) is defined as an ETP Holder that has been approved by the Exchange to submit Retail Orders.
• Third, the term “Retail Order” means an agency order or a riskless principal order meeting the criteria of FINRA Rule 5320.03 that originates from a natural person and is submitted to the Exchange by an RMO, provided that no change is made to the terms of the order with respect to price or side of market and the order does not originate from a trading algorithm or any other computerized methodology. A Retail Order may be an odd lot, round lot, or mixed lot.
• Finally, the term “Retail Price Improvement Order” means non-displayed interest in NYSE Arca-listed securities and UTP Securities, excluding NYSE-listed (Tape A) securities, that would trade at prices better than the best protected bid (“PBB”) or best protected offer (“PBO”) by at least $0.001 and that is identified as a Retail Price Improvement Order in a manner prescribed by the Exchange.
RLPs and other liquidity providers
Under Rule 7.44-E(b), any ETP Holder
An RMO must have written policies and procedures reasonably designed to assure that it will only designate orders as Retail Orders if all requirements of a Retail Order are met. Such written policies and procedures must require the ETP Holder to (i) exercise due diligence before entering a Retail Order to assure that entry as a Retail Order is in compliance with the requirements of Rule 7.44-E, and (ii) monitor whether orders entered as Retail Orders meet the applicable requirements. If the RMO represents Retail Orders from another broker-dealer customer, the RMO's supervisory procedures must be reasonably designed to assure that the orders it receives from such broker-dealer customer that it designates as Retail Orders meet the definition of a Retail Order. The RMO must (i) obtain an annual written representation, in a form acceptable to the Exchange, from each broker-dealer customer that sends it orders to be designated as Retail Orders that entry of such orders as Retail Orders will be in compliance with the requirements of this rule, and (ii) monitor whether its broker-dealer customer's Retail Order flow continues to meet the applicable requirements.
Following submission of the required materials, the Exchange provides written notice of its decision to the member organization.
To qualify as an RLP under Rule 7.44-E(c), an ETP Holder must: (1) Already be registered as a MM or LMM; (2) demonstrate an ability to meet the requirements of an RLP; (3) have the ability to accommodate Exchange-supplied designations that identify to the Exchange RLP trading activity in assigned RLP securities; and (4) have adequate trading infrastructure and technology to support electronic trading.
Under Rule 7.44-E(d), to become an RLP, an ETP Holder must submit an RLP application form with all supporting documentation to the Exchange. The Exchange would determine whether an applicant was qualified to become an RLP as set forth above.
If an applicant was approved by the Exchange to act as an RLP, the applicant would be required to establish connectivity with relevant Exchange systems before the applicant would be permitted to trade as an RLP on the Exchange.
An RLP would be permitted to withdraw its status as an RLP by giving notice to the Exchange under Rule 7.44-E(e). The withdrawal would become effective when those securities assigned to the withdrawing RLP were reassigned to another RLP. After the Exchange received the notice of withdrawal from the withdrawing RLP, the Exchange would reassign such securities as soon as practicable, but no later than 30 days after the date the notice was received by the Exchange. If the reassignment of securities took longer than the 30-day period, the withdrawing RLP would have no further obligations and would not be held responsible for any matters concerning its previously assigned RLP securities.
Under Rule 7.44-E(f), an RLP would only be permitted to enter RPIs electronically and directly into Exchange systems and facilities designated for this purpose and could only submit RPIs in their role as an RLP for the securities to which it is assigned as RLP. An RLP entering Retail Price Improvement Orders in securities to which it is not assigned is not required to satisfy these requirements.
An RLP's five-percent requirements would be calculated by determining the average percentage of time the RLP maintained an RPI in each of its RLP securities during the regular trading day, on a daily and monthly basis.
• The “Daily Bid Percentage,” calculated by determining the percentage of time an RLP maintains a Retail Price Improvement Order with respect to the PBB during each trading day for a calendar month;
• The “Daily Offer Percentage,” calculated by determining the percentage of time an RLP maintains a Retail Price Improvement Order with respect to the PBO during each trading day for a calendar month;
• The “Monthly Average Bid Percentage,” calculated for each RLP security by summing the security's “Daily Bid Percentages” for each trading day in a calendar month then dividing the resulting sum by the total number of trading days in such calendar month; and
• The “Monthly Average Offer Percentage,” calculated for each RLP security by summing the security's “Daily Offer Percentage” for each trading day in a calendar month and
Finally, only RPIs would be used when calculating whether an RLP is in compliance with its five-percent requirements.
The five-percent requirement is not applicable in the first two calendar months a member organization operates as an RLP and takes effect on the first day of the third consecutive calendar month the member organization operates as an RLP.
Rule 7.44-E(g) addresses the consequences of an RLP's failure to meet its requirements. If, after the first two months an RLP acted as an RLP, an RLP fails to meet any of the requirements set forth in Rule 7.44-E(f) for an assigned RLP security for three consecutive months, the Exchange could, in its discretion, take one or more of the following actions:
• Revoke the assignment of any or all of the affected securities from the RLP;
• revoke the assignment of unaffected securities from the RLP; or
• disqualify the member organization from its status as an RLP.
The Exchange will determine if and when an ETP Holder is disqualified from its status as an RLP. One calendar month prior to any such determination, the Exchange notifies an RLP of such impending disqualification in writing. When disqualification determinations are made, the Exchange provides a written disqualification notice to the member organization.
Rule 7.44-E(h) addresses an RMO's failure to abide by Retail Order requirements. If an RMO designates orders submitted to the Exchange as Retail Orders and the Exchange determines, in its sole discretion, that those orders fail to meet any of the requirements of Retail Orders, the Exchange may disqualify a member organization from its status as an RMO.
Rule 7.44-E(i) describes the appeal rights of ETP Holders. An ETP Holder that disputes the Exchange's decision to disapprove it under Rule 7.44-E(b) or (d) or disqualify it under Rule 7.44-E(g) or (h) may request, within five business days after notice of the decision is issued by the Exchange, that a Retail Liquidity Program Panel (“RLP Panel”) review the decision to determine if it was correct.
Under Rule 7.44-E(j), the Exchange disseminates an identifier through the Consolidated Quotation System or the UTP Quote Data Feed, as applicable, when RPI interest priced at least $0.001 better than the PBB or PBO for a particular security is available in Exchange systems (“Retail Liquidity Identifier”). The Retail Liquidity Identifier shall reflect the symbol for the particular security and the side (buy or sell) of the RPI interest, but shall not include the price or size of the RPI interest.
Under Rule 7.44-E(k), a Retail Order may not be designated with a “No Midpoint Execution” Modifier or with a minimum trade size. Under subsection (k), an RMO can designate how a Retail Order would interact with available contra-side interest as follows:
• A Type 1-Retail Order to buy (sell) is a Limit IOC Order that will trade only with available Retail Price Improvement Orders to sell (buy) and all other orders to sell (buy) with a working price below (above) the PBO (PBB) on the NYSE Arca Book and will not route. The quantity of a Type 1-Retail Order to buy (sell) that does not trade with eligible orders to sell (buy) will be immediately and automatically cancelled. A Type-1 designated Retail Order will be rejected on arrival if the PBBO is locked or crossed.
• A Type 2-Retail Order may be a Limit Order designated IOC or Day or a Market Order, and will function as follows:
○ A Type 2-Retail Order IOC to buy (sell) is a Limit IOC Order that will trade first with available Retail Price Improvement Orders to sell (buy) and all other orders to sell (buy) with a working price below (above) the PBO (PBB) on the NYSE Arca Book. Any remaining quantity of the Retail Order will trade with orders to sell (buy) on the NYSE Arca Book at prices equal to or above (below) the PBO (PBB) and will be traded as a Limit IOC Order and will not route.
○ A Type 2-Retail Order Day to buy (sell) is a Limit Order that will trade first with available Retail Price Improvement Orders to sell (buy) and all other orders to sell (buy) with a working price below (above) the PBO (PBB) on the NYSE Arca Book. Any remaining quantity of the Retail Order, if marketable, will trade with orders to sell (buy) on the NYSE Arca Book or route, and if non-marketable, will be ranked in the NYSE Arca Book as a Limit Order.
○ A Type 2-Retail Order Market to buy (sell) is a Market Order that will trade first with available Retail Price Improvement Orders to sell (buy) and all other orders to sell (buy) with a working price below (above) the NBO (NBB). Any remaining quantity of the Retail Order will function as a Market Order.
Under Rule 7.44-E(l), RPI in the same security will be ranked together with all other interest ranked as Priority 3—Non-Display Orders. Odd-lot orders ranked as Priority 2—Display Orders will have priority over orders ranked Priority 3—Non-Display Orders at each price. Any remaining unexecuted RPI interest will remain available to trade with other
Examples of priority and order allocation are as follows:
PBBO for security ABC is $10.00−$10.05.
RLP 1 enters a Retail Price Improvement Order to buy ABC at $10.01 for 500.
RLP 2 then enters a Retail Price Improvement Order to buy ABC at $10.02 for 50.
RLP 3 then enters a Retail Price Improvement Order to buy ABC at $10.03 for 500.
An incoming Type 1-Retail Order to sell ABC for 1,000 would trade first with RLP 3's bid for 500 at $10.03, because it is the best-priced bid, then with RLP 2's bid for 500 at $10.02, because it is the next best-priced bid. RLP 1 would not be filled because the entire size of the Retail Order to sell 1,000 would be depleted. The Retail Order trades with RPI Orders in price/time priority.
However, assume the same facts above, except that RLP 2's Retail Price Improvement Order to buy ABC at $10.02 was for 100. The incoming Retail Order to sell 1,000 would trade first with RLP 3's bid for 500 at $10.03, because it is the best-priced bid, then with RLP 2's bid for 100 at $10.02, because it is the next best-priced bid. RLP 1 would then receive an execution for 400 of its bid for 500 at $10.01, at which point the entire size of the Retail Order to sell 1,000 would be depleted.
Assume the same facts as above, except that RLP 3's order was not an RPI Order to buy ABC at $10.03, but rather, a non-displayed order to buy ABC at $10.03. The result will be similar to the result immediately above, in that the incoming Retail Order to sell 1,000 trades first with RLP 3's non-displayed bid for 500 at $10.03, because it is the best-priced bid, then with RLP 2's bid for 100 at $10.02, because it is the next best-priced bid. RLP 1 then receives an execution for 400 of its bid for 500 at $10.01, at which point the entire size of the Retail Order to sell 1,000 is depleted.
As a final example, assume the original facts, except that LMT 1 enters a displayed odd lot limit order to buy ABC at $10.02 for 60. The incoming Retail Order to sell for 1,000 trades first with RLP 3's bid for 500 at $10.03, because it is the best-priced bid, then with LMT 1's bid for 60 at $10.02 because it is the next best-priced bid and is ranked Priority 2—Display Orders and has priority over same-priced RPIs. The incoming Retail Order would then trade 440 shares with RLP 2's bid for 500 at $10.02 because it is the next priority category at that price, at which point the entire size of the Retail Order to sell 1,000 is depleted. The balance of RLP 2's bid would remain on the NYSE Arca Book and be eligible to trade with the next incoming Retail Order to sell.
To demonstrate how the different types of Retail Orders would trade with available Exchange interest, assume the following facts:
PBBO for security DEF is $19.99−$20.01 (100 × 100).
LMT 1 enters a Limit Order to buy DEF at $20.00 for 100.
RLP 1 then enters a Retail Price Improvement Order to buy DEF at $20.003 for 100,
MPL 1 then enters a Midpoint Passive Liquidity Order to buy DEF at $21.00 for 100.
An incoming Type 2-Retail Order IOC to sell DEF for 300 at $20.00 would trade first with MPL 1's bid for 100 at $20.005, because it is the best-priced bid, then with RLP 1's bid for 100 at $20.003, because it is the next best-priced bid, and then with LMT 1's bid for 100 at $20.00 because it is the next best-priced bid, at which point the entire size of the Retail Order to sell 300 is depleted.
Assume the same facts as above except the incoming order is a Type 2-Retail Order Day to sell DEF for 500 at $20.00. The Retail Order would trade first with MPL 1's bid for 100 at $20.005, because it is the best-priced bid, then with RLP 1's bid for 100 at $20.003, because it is the next best-priced bid, and then with LMT 1's bid for 100 at $20.00 because it is the next best-priced bid. The remaining balance of the Retail Order is displayed on the NYSE Arca Book at $20.00 as a Limit Order, resulting in a PBBO of $19.99-$20.00 (100 × 200).
Assume the same facts as above except the incoming order is a Type 1-Retail Order to sell DEF for 300. The Retail Order would trade first with MPL 1's bid for 100 at $20.005, because it is the best-priced bid, and then with RLP 1's bid for 100 at $20.003. The remaining balance of the Retail Order would be cancelled and not trade with LMT 1 because Type 1-designated Retail Orders do not trade with interest on the NYSE Arca Book other than non-displayed orders and odd-lot orders priced better than the PBBO on the opposite side of the Retail Order.
Finally, to demonstrate the priority of displayed interest over Retail Price Improvement Orders, assume the following facts:
PBBO for security GHI is $30.00—$30.05.
RLP 1 enters a Retail Price Improvement Order to buy GHI at $30.02 for 100.
LMT 1 then enters a Limit Order to buy GHI at $30.02 for 100.
New PBBO of $30.02−$30.05.
RLP 2 then enters a Retail Price Improvement Order at $30.03 for 100.
An incoming Type 2-Retail Order IOC to sell GHI for 300 at $30.01 would trade first with RLP 2's bid for 100 at $30.03, because it is the best-priced bid, then with LMT 1 for 100 at $30.02 because it is the next best-priced bid. The Retail Order would then attempt to trade with RLP 1, but because RLP 1 was priced at the PBBO and no longer price improving, RLP 1 will cancel. At that point, the remaining balance of the Retail Order will cancel because there are no remaining orders within its limit price.
Assume the same facts as above except the incoming Retail Order is for 200. The Retail Order would trade with RLP 2's bid for 100 at $30.03, because it is the best-priced bid, then with LMT 1 for 100 at $30.02 because it is the next best-priced bid. RLP 1 does not cancel because the incoming Retail Order was depleted before attempting to trade with RLP 1. RLP 1 would be eligible to trade with another incoming Retail Order because it would be priced better than the PBBO.
In approving the Program on a pilot basis, the Commission required the Exchange to “monitor the scope and operation of the Program and study the data produced during that time with respect to such issues, and will propose any modifications to the Program that may be necessary or appropriate.”
In the RLP Approval Order, the Commission observed that the Program could promote competition for retail order flow among execution venues, and that this could benefit retail investors by creating additional price improvement opportunities for marketable retail order flow, most of which is currently executed in the Over-the-Counter (“OTC”) markets without ever reaching
NYSE Arca launched the Program during April 2014. Between June and November 2014, the Program received orders totaling 4.3 billion shares, providing retail investors with price improvement of $1.6 million. As Table 1 below shows, during 2017, an average of 3.5 million shares were executed in the Program each day. During 2018, this number rose to 8.9 million shares per day but has since dropped to 3.6 million shares per day for the period May-July 2019. Total price improvement provided to retail investors for the 2017-2018 period was $6.2 million. Price improvement has been highly dependent on the mix of securities and volume sent into the Program. During the 2017-2018 period, price improvement was as low as $0.0015 and as high as $0.0055 per share. There are several high-priced securities with spreads greater than $0.01, which often received price improvement of a penny or more. Overall, fill rates have largely been in the low-to-mid 20% range, although there have been periods of fill rates north of 30% from September-November 2017, when there was a smaller share of very large orders.
Table 2 shows the frequency of order sizes entered by RMOs. The largest plurality of order types were round lot or smaller, ranging between 35% in early 2017 to more than 50% of all RMO orders entered during the summer of 2018. Very large orders (greater than 15,000 shares) accounted for less than 1% of all orders since September 2017. However, as shown in Table 3, these typically accounted for 20-25% of shares placed into the Program, and ranged above 50% of all orders in early 2017. The composition of shares executed (Table 4) was more evenly distributed and fill rates (Table 5) were much lower for the largest order sizes.
Table 5 highlights that while the Exchange indicates when there is price improving liquidity available on CQS, UTP and proprietary feeds, not all customers necessarily read that flag. Beginning in December 2017, the Exchange believes that one customer began sending orders without checking the flag, resulting in poor fill rates, even for orders less than or equal to 100 shares. This is clearly evidenced by the sharp drop in fill rates for orders of one round lot or less.
Table 6 details the development of order sizes received in the Program over time. Program orders taking liquidity sent to the Exchange averaged around 1,000 shares for the Program's recent history, with median order size mostly around 400 shares. Liquidity providing orders tend to be smaller, and mostly average well below 1,000 shares, with the median below 200 shares most months. Since any firm can enter a liquidity providing order, there may be multiple providers offering liquidity inside the quote, allowing for high fill rates.
Table 7 shows that during the two most recent years, no security maintained more than 5% of total volume in the program, and nearly two-thirds of all securities that had executions in the program averaged less than 0.25% share of consolidated trading. The Exchange notes that these
Although the Program provides the opportunity to achieve significant price improvement, the Program has not generated significant activity, relative to the overall market. The Program competes with wholesalers and similar programs offered by, among others, Cboe BYX Exchange, Inc. (“Cboe BYX”), and Nasdaq BX, the latter of which has been approved on a permanent basis.
The Exchange also analyzed market quality and market share impact by using the difference in differences statistical technique. Difference in differences (“DID”) requires studying the differential effect of data measured between a treatment group and a control group. The two groups are measured during two or more different time periods, usually a period before “treatment” and at least one time period after “treatment”, that is, a time period after which the treatment group is impacted but the control group is not. The assumption is that the control group and the treatment group are otherwise impacted equally by extraneous factors,
Because all Tape B and Tape C securities (all securities not listed on the NYSE) are eligible to participate in the Program, a natural control group does not exist for the securities participating in the Program. Hence, there is a possibility that the lack of activity in the Program could have been the result of factors that DID cannot measure. Nonetheless, to produce a control group, the Exchange identified the 50 most active ticker securities in the Program as measured by share of consolidated volume following launch of the Program. The Exchange then determined a matched sample, without replacement, using consolidated volume, volume weighted average price, and consolidated quoted spread in basis points. The matched sample compared the 50 most active ticker securities in the Program with all securities that had very low Program volume. The matching criteria minimized the sum of the squares of the percent difference between the top 50 active ticker securities and potential matches. The best 25 matches were then selected.
The Exchange executed two DID analyses:
1. Six months prior to launch of the Program (November 2013-April 2014) compared to six months following launch, excluding the first month of the Program (June 2014-November 2014) for securities with a consolidated average daily volume (“CADV”) of at least 500,000 during the pre-treatment and treatment periods. Note that the program launched during April 2014, but there were only six retail taking orders entered during that month.
2. Six months prior to launch of the Program (November 2013-April 2014) compared to all of 2017 and 2018 for securities with a CADV of at least 500,000 during the pre-treatment and treatment periods.
Because there was no natural control group, the Exchange employed flexible matching criteria. In addition to the CADV restrictions, the Exchange utilized a control versus treatment CADV ratio of 3:1, a volume weighted average price (“VWAP”) of 2:1, and a spread of 2:1. The Exchange also required potential control group stocks to have a share of Program trading less than 1/10th of the lowest of the top 50 securities for the first trading period. The Exchange excluded securities that were in the test groups of the Tick Size Pilot Program
The Exchange selected the top 25 securities by minimum differences as described above.
As noted above, the Program launched in April 2014. Only six orders RMO orders were entered during the month. The Exchange selected November 2013-April 2014 to represent the pre-launch period. To allow for Program adoption, the Exchange excluded May 2014 and chose June 2014-November 2014 to represent the post-launch period. Tables 8A and 8B show key attributes for the securities selected for the first matched sample.
For the period 2017-2018 matched sample, we excluded securities that were part of the Tick Size Pilot Program. Inclusion of those securities could have resulted in exogenous influences skewing the analyses.
The Exchange's DID analysis utilized the 25 treated and 25 control securities noted above for the following statistics:
• Time-weighted NYSE Arca quoted spreads in basis points.
• Time-weighted NYSE Arca quoted spreads in dollars and cents.
• Time-weighted consolidated quoted spreads in basis points.
• Time-weighted consolidated quoted spreads in dollars and cents.
• Trade Reporting Facility (“TRF”) share of volume during regular trading hours, excluding auctions.
• TRF share of volume, full day, including auctions.
• NYSE Arca share of volume during regular trading hours, excluding auctions.
• NYSE Arca share of volume, full day, including auctions.
• Trade-to-trade price change in basis points.
The Exchange calculated the DID regression for each of these statistics using the following formula:
As Table 10 shows, only one statistic showed any significance, and that at the weak 90% level. NYSE Arca market share during regular hours trading, excluding auctions, increased during the early comparison period.
Table 11 details results for the DID analysis comparing the pre-Program period during 2013-2014 with trading in 2017 and 2018. The DID regression shows, in all spread cases, that spreads, adjusted for control group versus treatment group, resulted in favorable spread changes. With a 90% confidence level, NYSE Arca basis point spreads fell relative to the treatment group and NYSE Arca dollar-spreads fell with 95% confidence levels. Consolidated spreads in basis points also fell according to the regression, but were not statistically significant. Dollar consolidated spreads did drop, but with a 90% confidence level. NYSE Arca regular hours share showed an increase in share at the 99.9% confidence level. This is not surprising since, as noted earlier, the Program achieved about 8% share of NYSE Arca trading during 2017. As discussed below, the more significant drops in dollar-based spreads were expected as the nature of our matching effort, resulting in the selection of stocks that saw price decreases, impacted the spread calculations, and also may have impacted the NYSE Arca regular hours share.
As Table 12 shows, lower priced stocks tend to more likely trade on the TRF as well as in the Program. Even with the large share increase in NYSE Arca, TRF share also rose, highlighting the impact of the out-of-sample matching criteria. As noted in the analysis of the NYSE Retail Program, the matching criteria used tends to focus on stocks with price drops, so the Exchange expected to see a fall in currency-based spreads.
All Tape B and Tape C Exchange-traded securities were eligible to participate in the program when it launched in 2014. Because of this factor, there was not a true control group for the Exchange to employ in its DID analysis. Instead, for purposes of making the Program permanent, the Exchange created an artificial control group and treatment group by identifying a matched sample based on the securities with the highest share of consolidated volume in the Program and matching these securities based on volume weighted average price, time-weighted quoted spread and CADV during the pre-treatment period (subject to the criteria noted above). By necessity, however, the percentage of activity in the Program itself had to be based on the post-treatment period.
This methodology provided several insights and permitted the Exchange to offer a more thorough analysis of the Program's impact. However, the Exchange believes that selection of securities with the highest share of consolidated volume in the Program for the treatment group created a biased treatment group. Securities with lower prices tend to trade more actively in the TRF as well as in the Program (Table 12). The percentage value of on low-price stocks provides greater savings to investors. For example, $0.0010 price improvement per share for a $5.00 stock saves an investor $2.00 per $10,000 invested. The same per share price improvement on a $50 stock is worth just $0.20. Table 12 shows this relationship for the 2017-2018 treatment period used in the analysis for securities eligible for the Program.
Tables 13 and 14 provide details of the changes in VWAPs, dollar-based and basis points-based spreads for both the early comparison period and the late comparison period. As shown by the last two columns in Table 13, there was virtually no difference in spreads or VWAPs both pre- and post-treatment during the early comparison period. However, in the case of the treated 2017-2018 study, when compared to November 2013-April 2014 pre-treatment period, there was an average price increase in control securities of 42%, compared to a drop of 14% for the treated stocks. This resulted in a small drop in dollar spreads and an increase in spreads in basis points for the treated stocks, while control stocks saw a small increase in percentage spreads and a larger rise in dollar spreads. Additionally, several of the treatment securities had average spreads during the pre-period near $0.01, the minimum, meaning a price drop was reflected solely in the spreads calculated in basis points and these stocks were tick-constrained.
In conclusion, the Exchange believes that the Program was a positive experiment in attracting retail order flow to a public exchange. The order flow the Program attracted to the Exchange provided tangible price improvement to retail investors through a competitive pricing process unavailable in non-exchange venues. As such, despite the low volumes, the Exchange believes that the Program satisfied the twin goals of attracting retail order flow to the Exchange and allowing such order flow to receive potential price improvement. Moreover, the Exchange believes that the data collected during the Program supports the conclusion that the Program's overall impact on market quality and structure was not negative. Although the results of the Program highlight the substantial advantages that broker-dealers retain when managing the benefits of retail order flow, the Exchange believes that the level of price improvement guaranteed by the Program justifies making the Program permanent. The Exchange accordingly believes that the pilot Program's rules, as amended, should be made permanent.
The Exchange notes that the proposed change is not otherwise intended to address any other issues and the Exchange is not aware of any problems that member organizations would have in complying with the proposed rule change.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the
The Exchange believes the proposal is consistent with these principles because it seeks to make permanent a pilot and associated rule changes that were previously approved by the Commission as a pilot for which the Exchange has subsequently provided data and analysis to the Commission, and that this data and analysis, as well as the further analysis in this filing, shows that the Program has operated as intended and is consistent with the Act. The Exchange also believes that the proposed rule change is consistent with these principles because it would increase competition among execution venues, encourage additional liquidity, and offer the potential for price improvement to retail investors. Furthermore, as noted, similar programs instituted by NYSE and Nasdaq BX have recently been approved by the Commission to operate on a permanent basis.
The Exchange also believes the proposed rule change is designed to facilitate transactions in securities and to remove impediments to, and perfect the mechanisms of, a free and open market and a national market system because making the Program permanent would attract retail order flow to a public exchange and allow such order flow to receive potential price improvement. The data provided by the Exchange to the Commission staff demonstrates that the Program provided tangible price improvement to retail investors through a competitive pricing process unavailable in non-exchange venues and otherwise had an insignificant impact on the marketplace. The Exchange believes that making the Program permanent would encourage the additional utilization of, and interaction with, the NYSE and provide retail customers with an additional venue for price discovery, liquidity, competitive quotes, and price improvement. For the same reasons, the Exchange believes that making the Program permanent would promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market.
Additionally, the Exchange believes the proposed rule change is designed to facilitate transactions in securities and to remove impediments to, and perfect the mechanisms of, a free and open market and a national market system because the competition promoted by the Program facilitates the price discovery process and potentially generates additional investor interest in trading securities. Making the Program permanent will allow the Exchange to continue to provide the Program's benefits to retail investors on a permanent basis and maintain the improvements to public price discovery and the broader market structure. The data provided to the Commission demonstrates that the Program provided tangible price improvement and transparency to retail investors through a competitive pricing process.
For the reasons stated above, the Exchange believes that making the Program permanent would promote just and equitable principles of trade and remove impediments to and perfect the mechanism of a free and open market.
Finally, as described further below in the Exchange's statement regarding the burden on competition, the Exchange also believes that it is subject to significant competitive forces and it would increase competition among execution venues, encourage additional liquidity, and offer the potential for price improvement to retail investors.
For all of these reasons, the Exchange believes that the proposal is consistent with the Act.
The Exchange does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange believes that making the Program permanent would continue to promote competition for retail order flow among execution venues. The Exchange also believes that making the Program permanent will promote competition between execution venues operating their own retail liquidity programs, including competition between the Program and similar programs currently operated by NYSE and Nasdaq BX on a permanent basis pursuant to a recently approved rule changes. Such competition will lead to innovation within the marketplace, thereby increasing the quality of the national market system and allowing national securities exchanges to compete both with each other and with off-exchange venues for order flow. Such competition ultimately benefits investors, and in this case specifically retail investors by providing multiple potential trading venues for the execution of their order flow, consistent with the principles of Regulation NMS, which was premised on promoting fair competition among markets. Finally, the Exchange notes that it operates in a highly competitive market in which market participants can easily direct their orders to competing venues, including off-exchange venues. In such an environment, the Exchange must continually review, and consider adjusting the services it offers and the requirements it imposes to remain competitive with other U.S. equity exchanges.
For the reasons described above, the Exchange believes that the proposed rule change reflects this competitive environment.
No written comments were solicited or received with respect to the proposed rule change.
After careful review, the Commission finds that the Exchange's proposal, as modified by Amendment No.1, to make permanent the Retail Liquidity Program Pilot, Rule 7.44-E, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.
As noted above, the Commission approved the Program on a pilot basis to allow the Exchange and market participants to gain valuable practical experience with the Program during the pilot period, and to allow the Commission to determine whether modifications to the Program were necessary or appropriate prior to any Commission decision to approve the Program on a permanent basis.
Although the pilot period was originally scheduled to end on April 14, 2015, the Exchange filed to extend the operation of the pilot on several occasions.
To assess the Program's impact on market quality, the the Exchange undertook a DID stastical analysis. Using the methodology explained above, the Exchange produced DID analyses that the Commission believes are useful to assess the Program's impact on market quality, as measured by a variety of market quality statistics including: (1) Time-weighted NYSE Arca quoted spread in basis points; (2) time-weighted NYSE Arca quoted spread in dollars and cents; (3) time-weighted consolidated quoted spread in basis points; (4) time-weighted consolidated quoted spread in dollars and cents; (5) Trade Reporting Facilities (“TRF”) share of volume during regular trading hours, excluding auctions; (6) TRF share of volume, full day, including auctions; (7) NYSE Arca share of volume during regular trading hours, excluding auctions; (8) NYSE Arca share of volume, full day, including auctions; and (9) Trade-to-trade price changes in basis points. In its DID analyses, the Exchange studies stocks that had a CADV of at least 500,000 shares during both a pre-treatment period and a treatment period. For these stocks, the Exchange compares changes in market quality statistics between the pre-treatment period and treatment period for the treatment group and the control group stocks. The Exchange conducts this study using two different treatment periods: Examining market quality statistics for (i) the period November 2013-April 2013 compared to the period from June 2014-November 2014; and (ii) the period November 2013-April 2013, compared to the period 2017-2018.
During the first treatment period studied (June 2014-November 2014), the Exchange states that total price improvement provided to retail investors under the Program was $1.6 million. As shown in Table 10 above, for this period, the Exchange also finds that there were no statistically significant differences between treatment and control group stocks for changes in time-weighted NYSE Arca or time-weighted consolidated spreads.
During the second treatment period studied (2017-2018), the Exchange states that total price improvement provided to retail investors under the Program was $6.2 million, with per share price improvement ranging from $0.0015 to $0.0055. With respect to the 2017-2018 treatment period, when comparing changes between the pre-treatment period and the 2017-2018 treatment period, the Exchange observes a slight increase in average spreads in basis points, both for the treatment and control securities, which could suggest a negative effect of the Program. The Exchange explains, however, that further analysis reveals that the treatment stocks for the 2017-2018 treatment period saw an average price increase in control securities of 42%, compared to an average drop of 14% for the treated stocks; the Exchange states that this resulted in small drop in dollar spreads and an increase in spreads in basis points for the treated stocks while the control stocks saw a small increase in percentage spreads and a larger rise in dollar spreads.
In Amendment No.1 the Exchange provides futher analysis regarding the above-mentioned increases in basis points spreads. The Exchange explains that while average spreads in basis points did increase slightly, the DID analysis resulted in a favorable regression for the treatment stocks compared to the control stocks. Referencing Table 14, the Exchange notes that dollar spreads for the treatment stocks fell from $0.018 to $0.017 as VWAP dropped to $34.48 from $40.05; control stock VWAPs rose to $4.25 from $38.32, which the Exchange believes caused dollar spreads to rise to $0.030 from $0.019. The Exchange further concludes that the
After careful consideration, the Commission believes that the data and analyisis provided by the Exchange, including the results of the Exchange's DID analysis and additional analysis provided in Amendment No. 1, support the Exchange's conclusion that the Program provides tangible price improvement to retail investors on a regulated exchange venue and has not demonstrably caused harm to the broader market. Accordingly, the Commission finds that the proposed rule change, as modified by Amendment No. 1, is consistent with the requirements of the Exchange Act.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether Amendment No. 1 to the proposed rule change is consistent with the Exchange 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.
The Commission finds good cause to approve the proposed rule change, as modified by Amendment No. 1, prior to the 30th day after the date of publication of notice of Amendment No. 1 in the
Pursuant to its authority under Rule 612(c) of Regulation NMS,
When the Commission adopted the Sub-Penny Rule in 2005, the Commission identified a variety of problems caused by sub-pennies that the Sub-Penny Rule was designed to address:
• If investors' limit orders lose execution priority for a nominal amount, investors may over time decline to use them, thus depriving the markets of liquidity.
• When market participants can gain execution priority for a nominal amount, important customer protection rules such as exchange priority rules and the Manning Rule
• Flickering quotations that can result from widespread sub-penny pricing could make it more difficult for broker-dealers to satisfy their best execution obligations and other regulatory responsibilities.
• Widespread sub-penny quoting could decrease market depth and lead to higher transaction costs.
• Decreasing depth at the inside could cause institutions to rely more on execution alternatives away from the exchanges, potentially increasing fragmentation in the securities markets.
The Commission believes that the limited exemption granted today should continue to promote competition between exchanges and OTC market
Furthermore, the Commission does not believe that granting this limited exemption and approving the proposal would reduce incentives for market participants to display limit orders. As noted in the RLP Approval Order, the vast majority of marketable retail orders were internalized by OTC market makers that offered sub-penny executions,
This permanent and limited exemption from the Sub-Penny Rule is limited solely to the operation of the Program by the Exchange. This exemption does
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 extend the current pilot program related to Nasdaq Rule 11890, Clearly Erroneous Transactions six months, to the close of business on April 20, 2020.
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 purpose of the proposed rule change is to extend the current pilot program related to Rule 11890, Clearly Erroneous Transactions, to the close of business on April 20, 2020. This change is being proposed to allow the Exchange to further consider a permanent proposal for clearly erroneous execution reviews.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 11890 that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (a)(2)(C), (c)(1), (b)(i), and (b)(ii) shall be in effect, and the provisions of paragraphs (g) through (i) shall be null and void.
The Exchange does not propose any additional changes to Rule 11890. The Exchange believes the benefits to market participants from the more objective clearly erroneous executions rule should continue on a limited six month pilot basis after the current expiration date to allow the Exchange to continue to assess whether additional changes should also be made to the operation of the clearly erroneous execution rules. Extending the effectiveness of Rule 11890 for an additional six months should provide the Exchange, other national securities exchanges and FINRA additional time to consider further amendments to the clearly erroneous execution rules.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning review of transactions as clearly erroneous. The Exchange believes that extending the clearly erroneous execution pilot under Rule 11890 for an additional six months would help assure that the determination of whether a clearly erroneous trade has occurred will be based on clear and objective criteria, and that the resolution of the incident will occur promptly through a transparent process. The proposed rule change would also help assure consistent results in handling erroneous trades across the U.S. equities markets, thus furthering fair and orderly markets, the protection of investors and the public interest. Based on the foregoing, the Exchange believes the amended Clearly Erroneous Transactions rule should continue to be in effect on a pilot basis while the Exchange, other national securities exchanges and FINRA consider a permanent proposal for clearly erroneous execution reviews.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange, other national securities exchanges and FINRA consider further amendments to these rules. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were either solicited or received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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 extend the current pilot program related to BX Rule 11890, Clearly Erroneous Transactions six months, to the close of business on April 20, 2020.
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 purpose of the proposed rule change is to extend the current pilot program related to Rule 11890, Clearly Erroneous Transactions, to the close of business on April 20, 2020. This change is being proposed to allow the Exchange to further consider a permanent proposal for clearly erroneous execution reviews.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 11890 that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (a)(2)(C), (c)(1), (b)(i), and (b)(ii) shall be in effect, and the
The Exchange does not propose any additional changes to Rule 11890. The Exchange believes the benefits to market participants from the more objective clearly erroneous executions rule should continue on a limited six month pilot basis after the current expiration date to allow the Exchange to continue to assess whether additional changes should also be made to the operation of the clearly erroneous execution rules. Extending the effectiveness of Rule 11890 for an additional six months should provide the Exchange, other national securities exchanges and FINRA additional time to consider further amendments to the clearly erroneous execution rules.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning review of transactions as clearly erroneous. The Exchange believes that extending the clearly erroneous execution pilot under Rule 11890 for an additional six months would help assure that the determination of whether a clearly erroneous trade has occurred will be based on clear and objective criteria, and that the resolution of the incident will occur promptly through a transparent process. The proposed rule change would also help assure consistent results in handling erroneous trades across the U.S. equities markets, thus furthering fair and orderly markets, the protection of investors and the public interest. Based on the foregoing, the Exchange believes the amended Clearly Erroneous Transactions rule should continue to be in effect on a pilot basis while the Exchange, other national securities exchanges and FINRA consider a permanent proposal for clearly erroneous execution reviews.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange, other national securities exchanges and FINRA consider further amendments to these rules. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were either solicited or received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule change should be approved or disapproved.
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 extend the current pilot program related to Phlx Rule 3312, Clearly Erroneous Transactions six months, to the close of business on April 20, 2020.
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 purpose of the proposed rule change is to extend the current pilot program related to Rule 3312, Clearly Erroneous Transactions, to the close of business on April 20, 2020. This change is being proposed to allow the Exchange to further consider a permanent proposal for clearly erroneous execution reviews.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 3312 that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (a)(2)(C), (c)(1), (b)(i), and (b)(ii) shall be in effect, and the provisions of paragraphs (g) through (i) shall be null and void.
The Exchange does not propose any additional changes to Rule 3312. The Exchange believes the benefits to market participants from the more objective clearly erroneous executions rule should continue on a limited six month pilot basis after the current expiration date to allow the Exchange to continue to assess whether additional changes should also be made to the operation of the clearly erroneous execution rules. Extending the effectiveness of Rule 3312 for an additional six months should provide the Exchange, other national securities exchanges and FINRA additional time to consider further amendments to the clearly erroneous execution rules.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange believes that the proposed rule change promotes just and equitable principles of trade in that it promotes transparency and uniformity across markets concerning review of transactions as clearly erroneous. The Exchange believes that extending the clearly erroneous execution pilot under Rule 3312 for an additional six months would help assure that the determination of whether a clearly erroneous trade has occurred will be based on clear and objective criteria, and that the resolution of the incident will occur promptly through a transparent process. The proposed rule change would also help assure consistent results in handling erroneous trades across the U.S. equities markets, thus furthering fair and orderly markets, the protection of investors and the public interest. Based on the foregoing, the Exchange believes the amended Clearly Erroneous Transactions rule should continue to be in effect on a pilot basis while the Exchange, other national securities exchanges and FINRA consider a permanent proposal for clearly erroneous execution reviews.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange, other national securities exchanges and FINRA consider further amendments to these rules. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were either solicited or received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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 the provisions of Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”)
The Exchange is filing a proposal to amend Exchange Rule 521, Nullification and Adjustment of Options Transactions Including Obvious Errors, Interpretation and Policy .01, and Exchange Rule 530, Limit Up-Limit Down, to make permanent certain options market rules that are linked to the equity market Plan to Address Extraordinary Market Volatility.
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 purpose of the proposed rule change is to make permanent certain options market rules in connection with the equity market Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or the “Plan”). This change is being proposed in connection with the recently approved amendment to the Limit Up-Limit Down Plan that allows the Plan to continue to operate on a permanent basis (“Amendment 18”).
In an attempt to address extraordinary market volatility in NMS Stock, and, in particular, events like the severe volatility on May 6, 2010, U.S. national securities exchanges and the Financial Industry Regulatory Authority, Inc. (collectively, “Participants”) drafted the Plan pursuant to Rule 608 of Regulation NMS and under the Act.
The Exchange adopted the Options Pilots to protect investors because when an underlying security is in a limit or straddle state, there will not be a reliable price for the security to serve as a benchmark for the price of the option. Specifically, the Exchange adopted Exchange Rule 521, Interpretation and Policy .01, because the application of the obvious and catastrophic error rules would be impracticable given the potential for lack of a reliable NBBO in the options market during limit and straddle states. When adjusting or busting a trade pursuant to the obvious error rule, the determination of theoretical value of a trade generally references the NBB (for erroneous sell transactions) or NBO (for erroneous buy transactions) just prior to the trade in question, and is therefore not reliable when at least one side of the NBBO is priced at a non-tradeable level, as is the case in limit and straddle states. In such a situation, determining theoretical value may often times be a very subjective rather than an objective determination and could give rise to additional uncertainty and confusion for investors. As a result, application of the obvious and catastrophic error rules would be impracticable given the lack of a reliable NBBO in the options market during limit and straddle states, and may produce undesirable effects or unanticipated consequences.
The Exchange adopted additional measures via other Options Pilot rules that are designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
In connection with the order approving the establishment of the obvious error pilot, as well as the extensions of the obvious error pilot, the Exchange committed to submit monthly data regarding the program and to submit an overall analysis of the obvious error pilot in conjunction with the data submitted under the Plan and any other data as requested by the Commission. Pursuant to the Exchange's Form 1 Application for approval as a national securities exchange, approved by the Commission on December 13, 2016, each month since February of 2017, the Exchange committed to provide the Commission, and the public, a dataset containing the data for each straddle and limit state in optionable stocks that had at least one trade on the Exchange.
The Commission recently approved the Plan on a permanent basis (Amendment 18).
The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Since the Commission's approval of Amendment 18 allowing the Plan to operate on a permanent basis, the Exchange and other national securities exchanges have determined that no further amendments should be made to the Options Pilots;
The Exchange also proposes to amend Exchange Rule 530 to remove the following sentence from the first paragraph: “The Exchange will provide the Commission with data and analysis during the duration of this pilot as requested.” The purpose of this proposed change is to further align the Exchange's Limit Up-Limit Down rules with competing options exchanges that have proposed rules consistent with this proposal. For example, Cboe Exchange, Inc. (“Cboe”) removed a similar provision in a 2015 rule filing
Additionally, the proposed changes would align the Exchange's rules with the similar rule by Cboe.
MIAX PEARL 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.
In particular, the Exchange believes that the proposed rule changes support the objectives of perfecting the mechanism of a free and open market and the national market system because they promote transparency and uniformity across markets concerning rules for options markets adopted to coincide with the Plan. The Exchange believes that eliminating the pilot basis for the Options Pilots and making such rules permanent facilitates compliance with the Plan by adding certainty to the markets during periods of market volatility, which has been approved and found by the Commission to be reasonably designed to prevent potentially harmful price volatility in NMS Stocks. It has been determined by the Commission that the Plan benefits markets and market participants by helping to ensure orderly markets, and, based on the data made available to the public and the Commission during the pilot period for Exchange Rule 521, Interpretation and Policy .01, the Plan does not negatively impact options market quality during normal market conditions. Rather, the Plan, as it is implemented under the obvious error pilot, functions to protect against any unanticipated consequences in the options markets during a limit or straddle state and add certainty on the options markets. During a limit or straddle state, determining theoretical value of an option may be a subjective rather than an objective determination given the lack of a reliable NBBO, which may create an unreasonable adverse selection opportunity and discourage participants from providing liquidity during limit and straddle states. Therefore, the Exchange believes eliminating obvious error review in such states would, in turn, eliminate uncertainty and confusion for investors and benefit investors by encouraging more participation in light of the changes associated with the Plan. As stated, the Exchange believes the other Options Pilots rules provide additional measures designed to protect investors during limit and straddle states. For example, the Exchange will reject market orders and not elect stop orders
Further, the Exchange believes that the proposed rule change to remove text in the first paragraph of Exchange Rule 530 regarding the Exchange providing the Commission with data and analysis during the duration of the pilot as requested supports the objectives of perfecting the mechanism of a free and open market and the national market system because it furthers aligns the Exchange's Limit Up-Limit Down rules with competing options exchanges.
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is necessary to reflect that the Plan no longer operates as a pilot and has been approved to operate on a permanent basis by the Commission. As such, Exchange Rule 521, Interpretation and Policy .01 and Exchange Rule 530, which implement protections in connection with the Plan, should be amended to operate on a permanent basis. The Exchange understands that the other national securities exchanges will also file similar proposals to make permanent their respective pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
Written comments were neither solicited nor received.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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)
The Exchange proposes to extend the current pilot program related to Rule 7.10E (Clearly Erroneous Executions) to the close of business on April 20, 2020. The proposed rule change is available on the Exchange's website at
In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements.
The purpose of the proposed rule change is to extend the current pilot program related to Rule 7.10E (Clearly Erroneous Executions) to the close of business on April 20, 2020. The pilot program is currently due to expire on October 18, 2019.
On September 10, 2010, the Commission approved, on a pilot basis, changes to Rule 7.10E that, among other things: (i) Provided for uniform treatment of clearly erroneous execution reviews in multi-stock events involving twenty or more securities; and (ii) reduced the ability of the Exchange to deviate from the objective standards set forth in the rule.
These changes were originally scheduled to operate for a pilot period to coincide with the pilot period for the Plan to Address Extraordinary Market Volatility (the “Limit Up-Limit Down Plan” or “LULD Plan”),
The Exchange now proposes to amend Rule 7.10E to extend the pilot's effectiveness for a further six months until the close of business on April 20, 2020. If the pilot period is not either extended, replaced or approved as permanent, the prior versions of paragraphs (c), (e)(2), (f), and (g) shall be in effect, and the provisions of paragraphs (i) through (k) shall be null and void.
The Exchange does not propose any additional changes to Rule 7.10E. Extending the effectiveness of Rule 7.10E for an additional six months will provide the Exchange and other self-regulatory organizations additional time to consider whether further amendments to the clearly erroneous execution rules are appropriate.
The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b) of the Act,
The Exchange does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposal would ensure the continued, uninterrupted operation of harmonized clearly erroneous execution rules across the U.S. equities markets while the Exchange and other self-regulatory organizations consider whether further amendments to these rules are appropriate. The Exchange understands that the other national securities exchanges and FINRA will also file similar proposals to extend their respective clearly erroneous execution pilot programs. Thus, the proposed rule change will help to ensure consistency across market centers without implicating any competitive issues.
No written comments were solicited or received with respect to the proposed rule change.
Because the foregoing proposed rule change does not: (i) Significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act
A proposed rule change filed under Rule 19b-4(f)(6)
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is: (i) Necessary or appropriate in the public interest; (ii) for the protection of investors; or (iii) otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
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.
U.S. Small Business Administration.
Amendment 1.
This is an amendment of the Presidential declaration of a major disaster for the State of MISSISSIPPI (FEMA-4429-DR), dated 09/20/2019.
Issued on 10/16/2019.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
The notice of the President's major disaster declaration for the State of MISSISSIPPI, dated 09/20/2019, is hereby amended to re-establish the incident period for this disaster as beginning 02/22/2019 and continuing through 08/23/2019.
All other information in the original declaration remains unchanged.
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 December 23, 2019.
Send all comments to Mary Frias, Loan Specialist, Office of Financial Assistance, Small Business Administration, 409 3rd Street SW, Washington, DC 20416.
Mary Frias, Loan Specialist, Office of Financial Assistance,
This information collection consists of SBA Form 2233 and SBA Form 2234, Parts A, B, and C. A statutory change on December 22, 2015 in the Consolidated Appropriations Act, 2016, made debt refinance a permanent part of the 504 loan program. Slight revisions to the currently approved forms are required to reinstate the debt refinance program requirements that were previously removed due to the expiration of the authority for that program in 2012.
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.
Small Business Administration.
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) of 1995 requires federal agencies to publish a notice in the
Submit comments on or before December 23, 2019.
Send all comments to Cynthia Pitts, Director, Office of Disaster Assistance, Small Business Administration, 409 3rd Street, 6th Floor, Washington, DC 20416.
Cynthia Pitts, Director, Office of Disaster Assistance, Disaster Assistance,
Small Business Administration Form 700 provides a record of interviews conducted by SBA personnel with small business owners, homeowners and renters (disaster victims) who seek financial assistance to help in the recovery from physical or economic disasters. The basic information collected helps the Agency to make preliminary eligibility assessment.
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.
U.S. Small Business Administration.
Amendment 5.
This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Mississippi (FEMA-4429-DR), dated 04/23/2019.
Issued on 10/16/2019.
Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155.
A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
The notice of the President's major disaster declaration for Private Non-Profit organizations in the State of Mississippi, dated 04/23/2019, is hereby amended to re-establish the incident period for this disaster as beginning 02/22/2019 and continuing through 08/23/2019.
All other information in the original declaration remains unchanged.
Notice of request for public comment.
The Department of State (“Department”) is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB.
The Department will accept comments from the public up to December 23, 2019.
You may submit comments by any of the following methods:
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You must include the DS form number (if applicable), information collection title, and the OMB control number in any correspondence.
Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents to Megan Herndon, who may be reached over telephone at (202) 485-7586 or email at
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We are soliciting public comments that assist the Department in:
• Evaluating whether the proposed information collection is necessary for the proper functions of the Department;
• Evaluating the accuracy of our estimate of the time and cost burden of this proposed collection, including the validity of the methodology and assumptions used;
• Enhancing the quality, utility, and clarity of the information to be collected; and,
• Minimizing the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
The Department seeks to better ensure that aliens subject to the public charge inadmissibility ground are self-sufficient and will not rely on public resources to meet their needs, but rather, will rely on their own capabilities, as well as the resources of sponsors. Through the DS-5540, the Department will collect information in a standardized format regarding applicants' ability to financially support themselves following entry into the United States, without depending on government assistance. Fields primarily pertain to the applicant's health, family status, assets, resources, financial status, education, skills, health insurance coverage, and tax history. The DS-5540 would also require applicants to provide information on whether they have received certain specified public benefits from a U.S. Federal, state, local or tribal government entity on or after October 15, 2019. Consular officers will use the completed forms in assessing whether an applicant is likely to become a public charge, and is thus ineligible for a visa under section 212(a)(4)(A) of the Immigration and Nationality Act (“INA”). This collection is consistent with the burden of proof on applicants
Sponsors of immigrant visa applicants must currently provide information regarding their ability to financially support the applicant on an I-864, Affidavit of Support, which consular officers use in considering whether the applicant is likely to depend on certain forms of government assistance. Visa applicants provide limited optional input on the I-864 regarding their assets. The DS-5540 will be used to collect more detailed information on an applicant's ability to support himself or herself. Consular officers will use the information to assess whether the applicant is likely to become a public charge, based on the totality of the circumstances.
Applicants for immigrant visas, including diversity visas, will be required to complete the DS-5540, except for categories of applicants that are exempt from the public charge ground of inadmissibility. The exempted categories are listed in 8 CFR 212.23(a). Exempted categories include applicants seeking immigrant visas based on qualified service to the U.S. government as an interpreter in Afghanistan or Iraq, visas based on a self-petition under the Violence Against Women Act, and visas for special immigrant juveniles. Additionally, a consular officer has discretion to require a nonimmigrant visa applicant to complete the DS-5540, when the officer determines the information is needed, for example, if the officer is not satisfied, based on other available information, that the applicant would be self-sufficient during his or her period of stay. A consular officer may also request any immigrant visa applicant not subject to public charge, but subject to
The DS-5540 will be available online in fillable PDF format. Immigrant visa applicants will download the completed form and then upload and submit the completed DS-5540 and other supporting documentation as a part of their immigrant visa application through the Consular Electronic Application Center (CEAC). Nonimmigrant visa applicants who are required to submit this form will be able to do so via email or in hard copy.
Notice is hereby given of the following determinations: I hereby determine that a certain object to be exhibited in the exhibition “Raphael and the Pope's Librarian”, imported from abroad for temporary exhibition within the United States, is of cultural significance. The object is imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit object at the Isabella Stewart Gardner Museum, Boston, Massachusetts, from on or about October 31, 2019, until on or about January 30, 2020, and at possible additional exhibitions or venues yet to be determined, is in the national interest. I have ordered that Public Notice of these determinations be published in the
Chi D. Tran, Paralegal Specialist, Office of the Legal Adviser, U.S. Department of State (telephone: 202-632-6471; email:
The foregoing determinations were made pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
On October 4, 2019, Union Pacific Railroad Company (UP) and Jackson County, Mo. (the County) (collectively, Petitioners), jointly filed with the Board a petition under 49 U.S.C. 10502 for exemption from the prior approval requirements of 49 U.S.C. 10903 to abandon the railroad line extending between milepost 288.3 and milepost 270.6 in Jackson County, Mo. (the Line). The Line traverses U.S. Postal Service Zip Codes 64063, 64081, 64082, 64086, 64129, 64133, 64138, and 64139.
According to Petitioners, based on information in their possession, the Line does not contain federally granted rights-of-way. Petitioners further state that any documentation in the County's or UP's possession will be made available promptly to those requesting it.
In 2016, the County received authority through the Board's class exemption process at 49 CFR 1150.31 to acquire from UP and operate the Line. Recently, however, the Board revoked the County's acquisition and operation exemption.
The County and UP indicate that they intend to enter into an interim trail use/rail banking agreement pursuant to the National Trails System Act, 16 U.S.C. 1247(d). If a NITU
The interest of railroad employees will be protected by the conditions set forth in
By issuing this notice, the Board is instituting an exemption proceeding pursuant to 49 U.S.C. 10502(b). A final
Any offer of financial assistance (OFA) under 49 CFR 1152.27(b)(2) will be due no later than 120 days after the filing of the petition for exemption, or 10 days after service of a decision granting the petition for exemption, whichever occurs sooner. Persons interested in submitting an OFA must first file a formal expression of intent to file an offer by November 4, 2019, indicating the type of financial assistance they wish to provide (
Following authorization for abandonment, the Line may be suitable for other public use, including interim trail use. Any request for a public use condition under 49 CFR 1152.28 or for interim trail use/rail banking under 49 CFR 1152.29 will be due no later than November 13, 2019.
All pleadings, referring to Docket No. AB 33 (Sub-No. 342X), must be filed with the Surface Transportation Board either via e-filing or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, a copy of each pleading must be served on UP's representative, Jeremy M. Berman, Union Pacific Railroad Company, 1400 Douglas St., Stop 1580, Omaha, NE 68179, and the County's representative, Carolyn G. Kraska, Hogan Lovells US LLP, 555 13th St. NW, Washington, DC 20004. Replies to the petition are due on or before November 13, 2019.
Persons seeking further information concerning abandonment procedures may contact the Board's Office of Public Assistance, Governmental Affairs, and Compliance at (202) 245-0238 or refer to the full abandonment regulations at 49 CFR part 1152. Questions concerning environmental issues may be directed to the Board's Office of Environmental Analysis (OEA) at (202) 245-0305. Assistance for the hearing impaired is available through the Federal Relay Service at (800) 877-8339.
An environmental assessment (EA) (or environmental impact statement (EIS), if necessary) prepared by OEA will be served upon all parties of record and upon any agencies or other persons who comment during its preparation. Other interested persons may contact OEA to obtain a copy of the EA (or EIS). EAs in abandonment proceedings normally will be made available within 60 days of the filing of the petition. The deadline for submission of comments on the EA generally will be within 30 days of its service.
Board decisions and notices are available at
By the Board, Allison C. Davis, Director, Office of Proceedings.
Surface Transportation Board.
Notice of Rail Energy Transportation Advisory Committee meeting.
Notice is hereby given of a meeting of the Rail Energy Transportation Advisory Committee (RETAC), pursuant to the Federal Advisory Committee Act.
The meeting will be held on Thursday, November 14, 2019, at 8:00 a.m. C.S.T.
The meeting will be held at the Paducah & Louisville Railway headquarters at 200 Clark Street, Paducah, KY 42003.
Kristen Nunnally at (202) 245-0312 or
RETAC was formed in 2007 to provide advice and guidance to the Board, and to serve as a forum for discussion of emerging issues related to the transportation of energy resources by rail, including coal, ethanol, and other biofuels.
The meeting, which is open to the public, will be conducted in accordance with the Federal Advisory Committee Act, 5 U.S.C. app. 2; Federal Advisory Committee Management regulations, 41 CFR pt. 102-3; RETAC's charter; and Board procedures. Further communications about this meeting may be announced through the Board's website at
Written Comments: Members of the public may submit written comments to RETAC at any time. Comments should be addressed to RETAC, c/o Kristen Nunnally, Surface Transportation Board, 395 E Street SW, Washington, DC 20423-0001 or
49 U.S.C. 1321, 49 U.S.C. 11101; 49 U.S.C. 11121.
By the Board, Allison C. Davis, Director, Office of Proceedings.
Office of the United States Trade Representative.
Notice and request for comments.
In a notice published on August 20, 2019, the U.S. Trade Representative announced that the Office of the U.S. Trade Representative (USTR) would establish a process by which U.S. stakeholders may request an exclusion from additional duties of particular products classified within a tariff subheading covered by the August 2019 action. This notice announces that USTR will open an electronic portal for submission of exclusion requests on October 31, 2019 for products covered by Annex A of the August 2019 action, and sets out the specific procedures for submitting requests.
Responses to individual exclusion requests are due 14 days after USTR
You must submit all requests, responses to requests, and replies to responses through the online portal:
For questions about the product exclusion process, contact Assistant General Counsels Philip Butler or Megan Grimball at (202) 395-5725. For questions on customs classification or implementation of additional duties, contact
For background on the proceedings in this investigation, please see the prior notices issued in the investigation, including 82 FR 40213 (August 24, 2017), 83 FR 14906 (April 6, 2018), and 84 FR 22564 (May 17, 2019).
In a notice published on August 20, 2019, the U.S. Trade Representative, at the direction of the President, announced a determination to modify the action being taken in the Section 301 investigation by imposing an additional 10 percent
USTR invites interested persons, including trade associations, to submit requests for exclusion from the additional duties for products covered by List 1 of the August 2019 action. As explained in more detail below, each request specifically must identify a particular product, and provide supporting data and the rationale for the requested exclusion. USTR will evaluate each request on a case-by-case basis, taking into account the asserted rationale for the exclusion, whether the exclusion would undermine the objective of the Section 301 investigation, and whether the request defines the product with sufficient precision. Any exclusion will be effective for one year, starting from the September 1, 2019 effective date for Annex A of the August 20, 2019 notice. USTR will periodically announce decisions on pending requests.
To submit an exclusion request, requesters must first register on the portal at
Fields on the exclusion request form marked with an asterisk (*) are required fields. Fields with a green (Public) notation will be publicly available. Fields with a gray (BCI) notation are for Business Confidential Information and the information entered will not be publicly available. Additionally, parties will be able to upload documents and indicate whether the documents are BCI or public. Requesters will be able to review the public version of their submission before the submission is posted.
In order to facilitate preparation of requests prior to the October 31 opening of the web portal, a facsimile of the exclusion request form to be used on the portal is attached as an annex to this notice. Please note that the color-coding of public fields and BCI fields is not visible on the attached facsimile, but will be apparent on the actual form used on the portal.
Set out below is a summary of the information to be entered on the exclusion request form.
Each requester must provide contact information, including the full legal name of the organization making the request, whether the requester is a third party (law firm, trade association, or customs broker) submitting on behalf of an organization or industry, and the primary point of contact (requester and/or third party submitter). The requester may report whether the requester's business satisfies the Small Business Administration's size standards for a small business, which are identified by North American Industry Classification Systems Codes and are found in 13 CFR 121.201.
With regard to product identification, any request for exclusion must include the following information:
• The 10-digit subheading of the HTSUS applicable to the particular product requested for exclusion. If no 10-digit subheading is available (
• Product name and a detailed description of the product. A detailed description of the product includes, but is not limited to, its physical characteristics (
• The product's function, application (
• Whether the product is currently subject to an antidumping or countervailing duty order issued by the U.S. Department of Commerce.
Requesters must provide their relationship to the product (Importer, U.S. Producer, Purchaser, Industry Association, Other) and provide specific data on the annual quantity and value of the Chinese-origin product, domestic product, and third-country product the requester purchased, in 2017, 2018, and the first half of 2019.
Requesters must provide information regarding their gross revenues for 2018 and the first half of 2019.
For imports sold as final products, requesters must provide the percentage of their total gross sales in 2018 that sales of the Chinese-origin product accounted for.
For imports used in the production of final products, requesters must provide the percentage of the total cost of producing the final product(s) the Chinese-origin input accounts for and the percentage of their total gross sales
As noted in the attached facsimile, required information regarding the requester's purchases and gross sales and revenue is BCI and the information entered will not be publicly available.
With regard to the rationale for the requested exclusion, each requester will be asked to address the following:
• Whether the particular product is available only from China and whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries. The requester must provide an explanation if the product is not available outside of China or the requester is not sure of the product availability.
• Whether the requester has attempted to source the product from the United States or third countries.
• Whether the imposition of additional duties on the particular product will cause severe economic harm to the requester or other U.S. interests.
• Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
In addressing each factor, the requester should provide support for their assertions. To provide information about the possible cumulative effects of the Section 301 tariff actions, requesters also may submit information about any exclusion requests submitted by the requester under the initial $34 billion tariff action (Docket ID: USTR-2018-0025), the additional $16 billion tariff action (Docket ID: USTR-2018-0032), or the additional $200 billion tariff action (Docket ID: USTR-2019-0005) and the value of the requester's imports covered by the previous tariff actions. Requesters also may provide any other information or data that they consider relevant to an evaluation of the request.
After a request for exclusion of a particular product is posted on USTR's online portal, interested persons will have
After a response is posted on USTR's online portal, the requester will have the opportunity to reply to the response using the same portal. Any reply must be submitted within the later of
As noted above, interested persons must submit requests for exclusions in the period between the opening of the portal on October 31, 2019, and January 31, 2020. Any responses to those requests must be submitted within 14 days after the requests are posted. Any reply to a response must be submitted within the later of 7 days after the close of the 14-day response period, or 7 days after the posting of a response. Interested persons seeking to exclude two or more products must submit a separate request for each product,
By submitting an exclusion request, a response, or a reply, the submitter certifies that the information provided is complete and correct to the best of his or her knowledge.
In accordance with the requirements of the Paperwork Reduction Act of 1995 (PRA) and its implementing regulations, USTR submitted a request to the Office of Management and Budget (OMB) for emergency review and clearance of this information collection request (ICR) titled
Office of the United States Trade Representative.
Invitation for applications.
The North American Free Trade Agreement (NAFTA) provides for the establishment of a roster of individuals to serve on binational panels convened to review final determinations in antidumping or countervailing duty (AD/CVD) proceedings and amendments to AD/CVD statutes of a NAFTA Party. The United States annually renews its selections for the roster. The Office of the United States Trade Representative (USTR) invites applications from eligible individuals wishing to be included on the roster for the period April 1, 2020, through March 31, 2021.
USTR must receive your application by November 29, 2019.
You should submit your application through the Federal eRulemaking Portal:
Philip Butler, Assistant General Counsel,
Article 1904 of the NAFTA provides that a party involved in an AD/CVD proceeding may obtain review by a binational panel of a final AD/CVD determination of one NAFTA Party with respect to the products of another NAFTA Party. Binational panels decide whether AD/CVD determinations are in accordance with the domestic laws of the importing NAFTA Party using the standard of review that would have been applied by a domestic court of the importing NAFTA Party. A panel may uphold the AD/CVD determination, or may remand it to the national administering authority for action not inconsistent with the panel's decision. Panel decisions may be reviewed in specific circumstances by a three-member extraordinary challenge committee, selected from a separate roster composed of 15 current or former judges.
Article 1903 of the NAFTA provides that a NAFTA Party may refer an amendment to the AD/CVD statutes of another NAFTA Party to a binational panel for a declaratory opinion as to whether the amendment is inconsistent with the General Agreement on Tariffs and Trade (GATT), the GATT Antidumping or Subsidies Codes, successor agreements, or the object and purpose of the NAFTA with regard to the establishment of fair and predictable conditions for the liberalization of trade. If the panel finds that the amendment is inconsistent, the two NAFTA Parties must consult and seek to achieve a mutually satisfactory solution.
Annex 1901.2 of the NAFTA provides for the maintenance of a roster of at least 75 individuals for service on Chapter 19 binational panels, with each NAFTA Party selecting at least 25 individuals. A separate five-person panel is formed for each review of a final AD/CVD determination or statutory amendment. To form a panel, the two NAFTA Parties involved each appoint two panelists, normally by drawing upon individuals from the roster. If the Parties cannot agree upon the fifth panelist, one of the Parties, decided by lot, selects the fifth panelist from the roster. The majority of individuals on each panel must consist of lawyers in good standing, and the chair of the panel must be a lawyer.
When there is a request to establish a panel, roster members from the two involved NAFTA Parties will complete a disclosure form that is used to identify possible conflicts of interest or appearances thereof. The disclosure form requests information regarding financial interests and affiliations, including information regarding the identity of clients of the roster member and, if applicable, clients of the roster member's firm.
Section 402 of the NAFTA Implementation Act (Pub. L. 103-182, as amended (19 U.S.C. 3432)) (Section 402) provides that selections by the United States of individuals for inclusion on the Chapter 19 roster are to be based on the eligibility criteria set out in Annex 1901.2 of the NAFTA, and without regard to political affiliation. Annex 1901.2 provides that Chapter 19 roster members must be citizens of a NAFTA Party, must be of good character and of high standing and repute, and are to be chosen strictly on the basis of their objectivity, reliability, sound judgment, and general familiarity with international trade law. Aside from judges, roster members may not be affiliated with any of the three NAFTA Parties. Section 402 also provides that, to the fullest extent practicable, judges and former judges who meet the eligibility requirements should be selected.
The “Code of Conduct for Dispute Settlement Procedures Under Chapters 19 and 20” (
Section 402 establishes procedures for the selection by USTR of the individuals chosen by the United States for inclusion on the Chapter 19 roster. The roster is renewed annually, and applies during the one-year period beginning April 1st of each calendar year.
Under Section 402, an interagency committee chaired by USTR prepares a preliminary list of candidates eligible for inclusion on the Chapter 19 roster. After consultation with the Senate Committee on Finance and the House Committee on Ways and Means, the United States Trade Representative selects the final list of individuals chosen by the United States for inclusion on the Chapter 19 roster.
Roster members selected for service on a Chapter 19 binational panel will be remunerated at the rate of 800 Canadian dollars per day.
Eligible individuals who wish to be included on the Chapter 19 roster for the period April 1, 2020, through March 31, 2021, are invited to submit applications. In order to be assured of consideration, USTR must receive your application by November 29, 2019. Applications may be submitted electronically to
In order to ensure the timely receipt and consideration of applications, USTR strongly encourages applicants to make on-line submissions, using the
The
Applications must be typewritten, and should be headed “Application for Inclusion on NAFTA Chapter 19 Roster.” Applications should include the following information, and each section of the application should be numbered as indicated:
1. Name of the applicant.
2. Business address, telephone number, fax number, and email address.
3. Citizenship(s).
4. Current employment, including title, description of responsibility, and name and address of employer.
5. Relevant education and professional training.
6. Spanish language fluency, written and spoken.
7. Post-education employment history, including the dates and addresses of each prior position and a summary of responsibilities.
8. Relevant professional affiliations and certifications, including, if any, current bar memberships in good standing.
9. A list and copies of publications, testimony, and speeches, if any, concerning AD/CVD law. Judges or former judges should list relevant judicial decisions. Only one copy of publications, testimony, speeches, and decisions need be submitted.
10. Summary of any current and past employment by, or consulting or other work for, the Governments of the United States, Canada, or Mexico.
11. The names and nationalities of all foreign principals for whom the applicant is currently or has previously been registered pursuant to the Foreign Agents Registration Act, 22 U.S.C. 611
12. List of proceedings brought under U.S., Canadian, or Mexican AD/CVD law regarding imports of U.S., Canadian, or Mexican products in which the applicant advised or represented (for example, as consultant or attorney) any U.S., Canadian, or Mexican party to such proceeding and, for each such proceeding listed, the name and country of incorporation of such party.
13. A short statement of qualifications and availability for service on Chapter 19 panels, including information relevant to the applicant's familiarity with international trade law and willingness and ability to make time commitments necessary for service on panels.
14. On a separate page, the names, addresses, telephone and fax numbers of three individuals willing to provide information concerning the applicant's qualifications for service, including the applicant's character, reputation, reliability, judgment, and familiarity with international trade law.
Current members of the Chapter 19 roster who remain interested in inclusion on the Chapter 19 roster only need to indicate that they are reapplying and submit updates (if any) to their applications on file. Current members do not need to resubmit their applications. Individuals who have previously applied but have not been selected must submit new applications to reapply. If an applicant, including a current or former roster member, has previously submitted materials referred to in item 9, such materials need not be resubmitted.
Applications are covered by a Privacy Act System of Records Notice and are not subject to public disclosure and will not be posted publicly on
Pursuant to section 402(c)(5) of the NAFTA Implementation Act, false statements by applicants regarding their personal or professional qualifications, or financial or other relevant interests
Federal Aviation Administration (FAA), Department of Transportation (DOT).
Notice.
This notice contains a summary of a petition seeking relief from specified requirements of Federal Aviation Regulations. The purpose of this notice is to improve the public's awareness of, and participation in, the FAA's exemption process. Neither publication of this notice nor the inclusion or omission of information in the summary is intended to affect the legal status of the petition or its final disposition.
Comments on this petition must identify the petition docket number and must be received on or before November 13, 2019.
Send comments identified by docket number FAA-2019-0658 using any of the following methods:
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Linda Lane (202) 267-7280, Office of Rulemaking, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591.
This notice is published pursuant to 14 CFR 11.85.
Federal Aviation Administration (FAA), Department of Transportation (DOT).
Notice.
This notice contains a summary of a petition seeking relief from specified requirements of Federal Aviation Regulations. The purpose of this notice is to improve the public's awareness of, and participation in, the FAA's exemption process. Neither publication of this notice nor the inclusion or omission of information in the summary is intended to affect the legal status of the petition or its final disposition.
Comments on this petition must identify the petition docket number and must be received on or before November 13, 2019.
Send comments identified by docket number FAA-2019-0798 using any of the following methods:
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Keira Jones, (202) 267-9677, Office of Rulemaking, Federal Aviation Administration, 800 Independence Avenue SW, Washington, DC 20591.
This notice is published pursuant to 14 CFR 11.85.
Federal Motor Carrier Safety Administration (FMCSA), DOT.
Notice of application for exemption; request for comments.
FMCSA announces that Teupen North America, Inc. (Teupen) has requested an exemption from the commercial driver's license (CDL) requirement for Mr. Martin Borutta, a Lead Engineer for Teupen, who holds a valid German commercial license and wants to transport Teupen's aerial lift product to various sites in the U.S. for testing. Teupen believes the requirements for a German commercial license ensure that operation under the exemption will likely achieve a level of safety equivalent to or greater than the level that would be obtained in the absence of the exemption. FMCSA requests public comments on Teupen's application for exemption.
Comments must be received on or before November 25, 2019.
You may submit comments bearing the Federal Docket Management System (FDMS) Docket ID FMCSA-2019-0131 using any of the following methods:
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Each submission must include the Agency name and the docket number for this notice. Note that DOT posts all comments received without change to
Mr. Richard Clemente, FMCSA Driver and Carrier Operations Division; Office of Carrier, Driver and Vehicle Safety Standards; Telephone: 202 366-4325. Email:
FMCSA encourages your participation by submitting comments and related materials.
If you submit a comment, please include the docket number for this notice (FMCSA-2019-0131), indicate the specific section of this document to which the comment applies, and provide a reason for suggestions or recommendations. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so the Agency can contact you if it has questions regarding your submission.
To submit your comment online, go to
FMCSA has authority under 49 U.S.C. 31136(e) and 31315 to grant exemptions from the Federal Motor Carrier Safety Regulations. FMCSA must publish a notice of each exemption request in the
The Agency reviews the safety analyses and the public comments, and determines whether granting the exemption would likely achieve a level of safety equivalent to, or greater than, the level that would be achieved by the current regulation (49 CFR 381.305).
Teupen has applied for an exemption for Martin Borutta from 49 CFR 383.23, which prescribes licensing requirements for drivers operating commercial motor vehicles (CMVs) in interstate or intrastate commerce. Mr. Borutta, holds a valid German commercial license but is unable to obtain a CDL because he is not a U.S. resident. A copy of the application is in Docket No. FMCSA-2019-0131.
The exemption would allow Mr. Borutta to operate CMVs in interstate or intrastate commerce to transport Teupen's aerial lift product—also called a mobile elevated work platform (MEWP)—to various locations to test its operational safety. Mr. Borutta would typically drive for no more than 5 hours per day for one to two days. The driving would typically be done on interstate highways, and would consist of no more than 200 miles per day. In all cases, he would be accompanied by a U.S. CDL holder who is familiar with the routes to be traveled. Teupen requests that the exemption be allowed for a duration of six months.
Mr. Borutta holds a valid German commercial license and, as explained by Teupen in its exemption request, the requirements for that license ensure that the same level of safety would be met or exceeded as if this driver had a U.S. CDL
FMCSA has determined previously that the process for obtaining a German commercial license is comparable to, or as effective as, the requirements of part 383, and adequately assesses the driver's ability to operate CMVs in the U.S. Since 2015, FMCSA has granted similar exemptions to drivers for Daimler, another German company: [March 27, 2015 (80 FR 16511); October 5, 2015 (80 FR 60220); December 7, 2015 (80 FR 76059); December 21, 2015 (80 FR 79410)]; July 12, 2016 (81 FR 45217); July 25, 2016 (81 FR 48496); August 17, 2017 (82 FR 39151); September 10, 2018 (83 FR 45742).]
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Receipt of petition.
Automobili Lamborghini has determined that certain 2019-2020 Lamborghini Urus motor vehicles do not fully comply with Federal Motor Vehicle Safety Standard (FMVSS) No. 110,
The closing date for comments on the petition is November 25, 2019.
Interested persons are invited to submit written data, views, and arguments on this petition. Comments must refer to the docket number cited in the title of this notice and may be submitted by any of the following methods:
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• Comments may also be faxed to (202) 493-2251.
Comments must be written in the English language, and be no greater than 15 pages in length, although there is no limit to the length of necessary attachments to the comments. If comments are submitted in hard copy form, please ensure that two copies are provided. If you wish to receive confirmation that comments you have submitted by mail were received, please enclose a stamped, self-addressed postcard with the comments. Note that all comments received will be posted without change to
All comments and supporting materials received before the close of business on the closing date indicated above will be filed in the docket and will be considered. All comments and supporting materials received after the closing date will also be filed and will be considered to the fullest extent possible.
When the petition is granted or denied, notice of the decision will also be published in the
All comments, background documentation, and supporting materials submitted to the docket may be viewed by anyone at the address and times given above. The documents may also be viewed on the internet at
DOT's complete Privacy Act Statement is available for review in a
I.
This notice of receipt of Automobili Lamborghini's petition is published under 49 U.S.C. 30118 and 30120 and does not represent any agency decision or other exercises of judgment concerning the merits of the petition.
Accordingly, approximately 595 MY 2019-2020 Lamborghini Urus motor vehicles, manufactured between August 30, 2018, and April 10, 2019, are potentially involved.
In support of its petition, Automobili Lamborghini submitted the following reasoning:
1. The “DOT” marking signifies that the manufacturer of the rim has certified that the rim complies with all applicable FMVSSs. So, because “DOT” is a “certification,” it is a violation of 49 U.S.C. 30115 (“Certification”), which does not require notification and remedy (see 74 FR 69377).
2. The designation symbol under S4.4.2(a) is not considered a “certification” and indicates the source of the rim's published nominal dimensions. Thus, because a noncompliance under (a) is not a certification issue, which would implicate 49 U.S.C. 30115, Automobili Lamborghini has submitted a report pursuant to 49 CFR part 573.
3. Automobili Lamborghini states that the subject rims contain all information required within FMVSS § 571.110 and that the omission of the correct designation symbol “E,” required under S4.4.2(a), and the certification symbol “DOT,” required under S4.4.2(c), will not prevent tires and rims from properly matching in the case of worn-out tires.
4. Automobili Lamborghini says that the owner's manual and the tire placard, both contain the correct and complete size of rims installed on the subject vehicles. Automobili Lamborghini stated their belief that this matter will not affect the ability to clearly identify the subject rims in case of a parts recall and that this matter does not have any effect on motor vehicle safety.
5. Automobili Lamborghini says that they are unaware of any accidents, injuries or customer complaints related to the lack of these markings. The missing markings do not affect the performance of the wheels or the tire and wheel assemblies.
Automobili Lamborghini concluded by expressing the belief that the subject noncompliance is inconsequential as it relates to motor vehicle safety, and that its petition to be exempted from providing notification of the noncompliance, as required by 49 U.S.C. 30118, and a remedy for the noncompliance, as required by 49 U.S.C. 30120, should be granted.
NHTSA notes that the statutory provisions (49 U.S.C. 30118(d) and 30120(h)) that permit manufacturers to file petitions for a determination of inconsequentiality allow NHTSA to exempt manufacturers only from the duties found in sections 30118 and 30120, respectively, to notify owners, purchasers, and dealers of a defect or noncompliance and to remedy the defect or noncompliance. Therefore, any decision on this petition only applies to the subject vehicles that Automobili Lamborghini no longer controlled at the time it determined that the noncompliance existed. However, any decision on this petition does not relieve vehicle distributors and dealers of the prohibitions on the sale, offer for sale, or introduction or delivery for introduction into interstate commerce of the noncompliant vehicles under their control after Automobili Lamborghini notified them that the subject noncompliance existed.
(49 U.S.C. 30118, 30120: delegations of authority at 49 CFR 1.95 and 501.8)
National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT).
Notice and request for comments on an extension of a previously-approved information collection.
In compliance with the Paperwork Reduction Act of 1995, this notice announces that the Information Collection Request (ICR) abstracted below is being forwarded to the Office of Management and Budget (OMB) for review, and requests comments on the ICR. A
Comments must be submitted on or before November 25, 2019.
Send comments regarding the burden estimate, including suggestions for reducing the burden, to the Office of Management and Budget, Attention: Desk Officer for the Office of the Secretary of Transportation, 725-17th Street NW, Washington, DC 20503.
For additional information or access to background documents, contact Jonae Anderson, NHTSA, 1200 New Jersey Avenue SE, W53-470, NSA-210, Washington, DC 20590. Mrs. Anderson's telephone number is (202) 366-1028. Please identify the relevant collection of
Before a Federal agency can collect certain information from the public, it must receive approval from the Office of Management and Budget (OMB). In compliance with these requirements, this notice announces that the following information collection request has been forwarded to OMB.
A
NHTSA is committed to collecting and analyzing traffic safety data to identify trends and develop effective countermeasures to make our nation's roads safer for all users. The agency leverages a variety of specialized technology and personnel resources to manage its data collection systems, CRSS included, and works continually to improve its collection and analytical capabilities. Results of these efforts can be seen in the annual data files NHTSA publishes, which are critical resources for all engaged in highway safety research. Additionally, NHTSA provides analytical and statistical support to the public, as well publishing the annual Traffic Safety Facts report, which provides descriptive statistics regarding the current year's traffic crashes. Historical annual reports are also available and located here:
NHTSA has concluded that current crash data collection and analysis efforts adequately reflect the intent of this comment and it is not necessary to make any changes to information collection procedures based on this comment.
CRSS obtains data from a nationally representative probability sample selected from police-reported motor vehicle traffic crashes. Specifically, the CRSS data set includes crashes involving at least one motor vehicle in transport on a trafficway that result in property damage, injury, or a fatality. The crash reports sampled are chosen from selected areas that reflect the geography, population, miles driven, and the number of crashes in the United States. No additional data beyond the selected crash reports is collected. Additionally, the CRSS program neither collects nor publishes any personally identifiable information. Once the crash reports are received they are coded and the data is entered into the CRSS database.
CRSS acquires national information on fatalities, injuries, and property damage directly from existing State police crash reports. The user population includes Federal and State agencies, automobile manufacturers, insurance companies, and the private sector.
Respondents include a combination of State agencies that maintain crash data report databases and local police jurisdictions that investigate crashes and complete crash reports.
Per the below table, burden hours are calculated differently based on the data collection method. The revised burden estimates in the below table describe the burden for each data collection methods. These estimates are based upon observation and review of the individual PSU's area documentation, which describes the data collection protocols in detail.
The Paperwork Reduction Act of 1995; 44 U.S.C. Chapter 35, as amended; 49 CFR 1.49; and DOT Order 1351.29.
Department of the Treasury.
Notice of availability; request for comments.
The Board of Trustees of the Carpenters Pension Trust Fund—Detroit and Vicinity Pension Plan (Fund), a multiemployer pension plan, has submitted an application to reduce benefits under the plan in accordance with the Multiemployer Pension Reform Act of 2014 (MPRA). The purpose of this notice is to announce that the application submitted by the Board of Trustees of the Fund has been published on the website of the Department of the Treasury (Treasury), and to request public comments on the application from interested parties, including participants and beneficiaries, employee organizations, and contributing employers of the Fund.
Comments must be received by December 9, 2019.
You may submit comments electronically through the Federal eRulemaking Portal at
Comments may also be mailed to the Department of the Treasury, MPRA Office, 1500 Pennsylvania Avenue NW, Room 1224, Washington, DC 20220, Attn: Danielle Norris. Comments sent via facsimile or email will not be accepted.
For information regarding the application from the Fund, please contact Treasury at (202) 622-1534 (not a toll-free number).
MPRA amended the Internal Revenue Code to permit a multiemployer plan that is projected to have insufficient funds to reduce pension benefits payable to participants and beneficiaries if certain conditions are satisfied. In order to reduce benefits, the plan sponsor is required to submit an application to the Secretary of the Treasury, which must be approved or denied in consultation with the Pension Benefit Guaranty Corporation (PBGC) and the Department of Labor.
On September 23, 2019, the Board of Trustees of the Fund submitted an application for approval to reduce benefits under the plan. As required by MPRA, that application has been published on Treasury's website at
Comments are requested from interested parties, including participants and beneficiaries, employee organizations, and contributing employers of the Fund. Consideration will be given to any comments that are timely received by Treasury.
Departmental Offices, Treasury.
Notice and request for comments.
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 revisions to an existing information collection, as required by the Paperwork Reduction Act of 1995. The Office of the Fiscal Assistant Secretary, within the Department of the Treasury, is soliciting comments concerning the application, reports, and recordkeeping for the Direct Component and the Centers of Excellence Research Grants Programs under the Resources and Ecosystems Sustainability, Tourist Opportunities, and Revived Economies of the Gulf Coast States Act of 2012 (RESTORE Act). Additionally, Treasury published a final rule in the
Written comments should be received on or before December 23, 2019 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestions for reducing the burden, by electronic mail to
Requests for additional information should be directed to Laurie McGilvray at 202-622-7340 in the Office of Gulf Coast Restoration or by electronic mail to
The revised application and reporting forms, supplemental information, and new questions from the Treasury Office of Civil Rights and Diversity concerning data collection for civil rights compliance and enforcement purposes under Title VI of the Civil Rights Act of 1964, and similar statutes applicable to Federal financial assistance, may be obtained on Treasury's RESTORE Act website at
44 U.S.C. 3501
Securities and Exchange Commission.
Final rule.
The Securities and Exchange Commission (the “Commission”) is adopting a new rule under the Investment Company Act of 1940 (the “Investment Company Act” or the “Act”) that will permit exchange-traded funds (“ETFs”) that satisfy certain conditions to operate without the expense and delay of obtaining an exemptive order. In connection with the final rule, the Commission will rescind certain exemptive relief that has been granted to ETFs and their sponsors. The Commission also is adopting certain disclosure amendments to Form N-1A and Form N-8B-2 to provide investors who purchase and sell ETF shares on the secondary market with additional information regarding ETF trading and associated costs, regardless of whether such ETFs are structured as registered open-end management investment companies (“open-end funds”) or unit investment trusts (“UITs”). Finally, the Commission is adopting related amendments to Form N-CEN. The final rule and form amendments are designed to create a consistent, transparent, and efficient regulatory framework for ETFs that are organized as open-end funds and to facilitate greater competition and innovation among ETFs. The Commission also is adopting technical amendments to Form N-CSR, Form N-1A, Form N-8B-2, Form N-PORT, and Regulation S-X.
Joel Cavanaugh (Senior Counsel), John Foley (Senior Counsel), J. Matthew DeLesDernier (Senior Counsel), Jacob D. Krawitz (Branch Chief), Melissa S. Gainor (Assistant Director), and Brian McLaughlin Johnson (Assistant Director), Investment Company Regulation Office, at (202) 551-6792, Kay-Mario Vobis (Senior Counsel), Daniele Marchesani (Assistant Chief Counsel), Chief Counsel's Office, at (202) 551-6825, Division of Investment Management, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.
The Commission is adopting 17 CFR 270.6c-11 (new rule 6c-11) under the Investment Company Act [15 U.S.C. 80a-1
The Commission is adopting rule 6c-11 under the Investment Company Act to permit ETFs that satisfy certain conditions to operate without the
The Commission approved the first ETF in 1992. Since then, ETFs registered with the Commission have grown to $3.32 trillion in total net assets.
On June 28, 2018, we proposed new rule 6c-11 under the Investment Company Act, which would simplify this regulatory framework by eliminating conditions included within our exemptive orders that we no longer believe are necessary for our exemptive relief and removing historical distinctions between actively managed and index-based ETFs.
We received more than 85 comment letters on the proposal.
After consideration of the comments we received, we are adopting rule 6c-11 and the proposed form amendments with several modifications that are designed to reduce the operational challenges that commenters identified, while maintaining protections for investors and providing investors with useful information regarding ETFs. As proposed, we also are rescinding the exemptive relief that we have issued to ETFs that fall within the scope of rule 6c-11, while retaining the exemptive relief granted to ETFs outside the scope of the rule. In addition, we are retaining the exemptive relief allowing ETFs to enter into fund of funds arrangements. We believe that the resulting regulatory framework will level the playing field
The Commission will continue to monitor this large, diverse and important market. We welcome continued engagement with ETF sponsors, investors and other market participants on matters related to the ETF market, including with regard to ETFs that do not fall within the scope of rule 6c-11 and ETFs that may not function in a manner consistent with the expectations embodied in our regulatory framework.
ETFs are a type of exchange-traded product (“ETP”).
As discussed above, ETFs have become an increasingly popular investment vehicle over the last 27 years, providing investors with a diverse set of investment options.
Investors can buy and hold shares of ETFs (sometimes as a core component of a portfolio) or trade them frequently as part of an active trading or hedging strategy.
An ETF issues shares that can be bought or sold throughout the day in the secondary market at a market-determined price. Like other investment companies, an ETF pools the assets of multiple investors and invests those assets according to its investment objective and principal investment strategies. Each share of an ETF represents an undivided interest in the underlying assets of the ETF. Similar to mutual funds, ETFs continuously offer their shares for sale.
Unlike mutual funds, however, ETFs do not sell or redeem individual shares. Instead, “authorized participants” that have contractual arrangements with the ETF (or its distributor) purchase and redeem ETF shares directly from the ETF in blocks called “creation units.”
An authorized participant that purchases a creation unit of ETF shares directly from the ETF deposits with the ETF a “basket” of securities and other assets identified by the ETF that day, and then receives the creation unit of ETF shares in return for those assets.
The combination of the creation and redemption process with secondary market trading in ETF shares and underlying securities provides arbitrage opportunities that are designed to help keep the market price of ETF shares at or close to the NAV per share of the ETF.
Market participants also can engage in arbitrage activity without using the creation or redemption processes. For example, if a market participant believes that an ETF is overvalued relative to its underlying or reference assets (
The arbitrage mechanism is important because it provides a means to maintain a close tie between market price and NAV per share of the ETF, thereby helping to ensure ETF investors are treated equitably when buying and selling fund shares. In granting relief under section 6(c) of the Act for ETFs to operate, the Commission has relied on this close tie between what retail investors pay (or receive) in the secondary market and the ETF's approximate NAV to find that the required exemptions are necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act.
Given the growth in the ETF market, ETFs' popularity among retail and institutional investors, and our long experience regulating this investment vehicle, we believe that it is appropriate to adopt a rule that will allow most ETFs to operate without first obtaining
As adopted, rule 6c-11 will exempt ETFs organized as open-end funds from certain provisions of the Act and our rules. The exemptions will permit an ETF to: (i) Redeem shares only in creation unit aggregations; (ii) permit ETF shares to be purchased and sold at market prices, rather than NAV; (iii) engage in in-kind transactions with certain affiliates; and (iv) in certain limited circumstances, pay authorized participants the proceeds from the redemption of shares in more than seven days.
These exemptions are subject to several conditions designed to address the concerns underlying the relevant statutory provisions and to support a Commission finding that the exemptions necessary to allow ETFs to operate are in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. The conditions are based upon existing exemptive relief for ETFs, which we believe has served to support an efficient arbitrage mechanism, but reflect several modifications based on our experience regulating this product and commenters' input on the proposed rule.
• First, rule 6c-11 will require an ETF to disclose portfolio holdings each business day on its website before the opening of trading on the ETF's primary listing exchange in a standardized manner. The rule also will require daily website disclosure of the ETF's NAV, market price, premium or discount, and the extent and frequency of an ETF's premiums and discounts. These disclosures are designed to promote an effective arbitrage mechanism and inform investors about the risks of deviation between market price and NAV when deciding whether to invest in ETFs generally or in a particular ETF.
• In addition, the rule will require daily website disclosure of the ETF's median bid-ask spread over the last thirty calendar days. This requirement is designed to provide investors with additional information regarding potential costs associated with buying and selling ETF shares.
• With respect to baskets, the rule will require an ETF to adopt and implement written policies and procedures that govern the construction of baskets and the process that will be used for the acceptance of baskets. The rule will allow ETFs to use “custom baskets” if their basket policies and procedures: (i) Set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interest of the ETF and its shareholders, including the process for any revisions to, or deviations from, those parameters; and (ii) specify the titles or roles of the employees of the ETF's investment adviser who are required to review each custom basket for compliance with those parameters. As discussed below, these conditions will provide ETFs with additional basket flexibility, which we believe could benefit investors through more efficient arbitrage and narrower bid-ask spreads, subject to protections designed to address the risks that such flexibility may present.
• Rule 6c-11 also will include a condition that excludes an ETF that seeks, directly or indirectly, to provide investment returns over a predetermined period of time that: (i) Correspond to the performance of a market index by a specified multiple; or (ii) have an inverse relationship to the performance of a market index (including by an inverse multiple) (“leveraged/inverse ETFs”).
• An ETF also must retain certain records under rule 6c-11, including information regarding each basket exchanged with an authorized participant.
In order to harmonize the regulation of most ETFs, we are rescinding, one year after the effective date of rule 6c-11, those portions of our prior ETF exemptive orders that grant relief related to the formation and operation of an ETF, including certain master-feeder relief.
Finally, we are adopting amendments to Forms N-1A and N-8B-2 to eliminate certain disclosures that we believe are no longer necessary and to require ETFs that do not rely on rule 6c-11 to provide secondary market investors with disclosures regarding certain ETF trading and associated costs. For example, the form amendments will require such an ETF to provide median bid-ask spread information either on its website or in its prospectus. We believe these amendments will provide investors who purchase ETF shares in secondary market transactions with information to better understand the total costs of investing in an ETF.
As proposed, rule 6c-11 will define an ETF as a registered open-end management investment company that: (i) Issues (and redeems) creation units to (and from) authorized participants in exchange for a basket and a cash balancing amount (if any); and (ii) issues shares that are listed on a national securities exchange and traded at market-determined prices.
Unlike the exemptive relief we have granted to certain ETFs organized as open-end funds (
We understand that most ETF sponsors prefer the open-end fund structure over the UIT structure given the increased investment flexibility the open-end structure affords.
Commenters addressing this aspect of the proposal generally supported excluding UIT ETFs from the scope of rule 6c-11. These commenters stated that the structural and operational nuances associated with UIT ETFs would make their inclusion in rule 6c-11 impractical.
After considering comments, we continue to believe that rule 6c-11 should apply only to ETFs organized as open-end funds, while UIT ETFs should continue to rely on their existing exemptive orders.
In addition, even if we were to include UIT ETFs within the scope of the rule, the unique structural and operational aspects of UIT ETFs noted by commenters would necessitate a regulatory framework that differs from the structure we are adopting for open-end ETFs. We believe that the unmanaged nature of the UIT structure, in particular, would require conditions that differ from the conditions applicable to open-end ETFs. For example, rule 6c-11 will allow ETFs the flexibility to use baskets that differ from a
To the extent that ETF sponsors develop novel UIT ETFs, we believe that the Commission should review such products as part of its exemptive process to determine whether the relief is necessary or appropriate in the public interest and consistent with the protection of investors. We also believe that the Commission's exemptive process is well-suited to handle requests to modify existing UIT ETF exemptive relief.
Consistent with the proposal, we are not rescinding existing exemptive orders that allow UIT ETFs to operate. Two commenters addressing the exclusion of UIT ETFs from the rule urged the Commission to clarify that UIT ETFs operating pursuant to their exemptive orders can nevertheless continue marketing themselves as “ETFs.”
Consistent with the proposal, rule 6c-11 will provide exemptions for both index-based ETFs and actively managed ETFs, but will not by its terms establish different requirements based on whether an ETF's investment objective is to seek returns that correspond to the returns of an index. Index-based and actively managed ETFs that comply with the rule's conditions function similarly with respect to operational matters, despite different investment objectives or strategies. For example, both index-based and actively managed ETFs register under the Act, issue and redeem shares in creation unit sizes in exchange for baskets of assets, list on national securities exchanges, and allow investors to trade ETF shares throughout the day at market-determined prices in the secondary market.
The distinction between index-based ETFs and actively managed ETFs in our current exemptive orders is largely a product of ETFs' historical evolution.
Commenters that addressed this aspect of the proposal supported the rule's elimination of the historical distinction between index-based and actively managed ETFs.
We also received 43 comment letters requesting that the Commission approve an ETP with an investment objective that seeks results that correspond to the performance of bitcoins or other digital assets.
We continue to believe that index-based and actively managed ETFs do not present significantly different concerns under the provisions of the Act from which the rule grants relief because they function similarly with respect to operational matters. As noted below, the arbitrage mechanism for existing actively managed ETFs has worked effectively with small deviations between market price and NAV per share.
Furthermore, we believe that it would be unreasonable to create a meaningful distinction within the rule between index-based and actively managed ETFs given the proliferation of highly customized, often methodologically complicated indexes. Commenters agreed that the proliferation of these indexes has blurred the distinction between index-based and actively managed ETFs, while ETF industry practices in areas such as portfolio transparency generally do not vary between these types of funds.
In addition, consistent with our proposal, rule 6c-11 does not include additional conditions relating to index-based ETFs with affiliated index providers (“self-indexed ETFs”). Commenters generally agreed with the proposal's approach to self-indexed ETFs, indicating that existing securities laws adequately address any special concerns presented by these ETFs.
We agree with the commenters who stated that the existing federal securities laws adequately address any special concerns that self-indexed ETFs present, including the potential ability of an affiliated index provider to manipulate an underlying index to the benefit or detriment of a self-indexed ETF.
As proposed, rule 6c-11 includes a condition that excludes leveraged/inverse ETFs.
For example, as a result of compounding, a leveraged/inverse ETF can outperform a simple multiple of its index's returns over several days of consistently positive returns, or underperform a simple multiple of its index's returns over several days of volatile returns.
Leveraged/inverse ETFs' use of derivatives also raises issues under section 18 of the Act, which limits a fund's ability to obtain leverage.
Most commenters who addressed this aspect of the proposal agreed that leveraged/inverse ETFs present issues and concerns that should be addressed outside the context of rule 6c-11.
Other commenters were less specific as to whether the Commission should regulate leveraged/inverse ETFs under exemptive orders or through a separate rule, but stated that leveraged/inverse ETFs should be regulated by means other than rule 6c-11.
Sponsors of leveraged/inverse ETFs, however, advocated that the rule should not exclude leveraged/inverse ETFs. They asserted that leveraged/inverse ETF investors understand the special concerns related to these products, accept the products' risks, and utilize the products appropriately.
Another commenter did not object to excluding leveraged/inverse ETFs from rule 6c-11, but opined that the proposed rule's condition excluding leveraged/inverse ETFs was overly broad, potentially capturing ETFs that have an inverse relationship to the performance of a market index or ETFs that use other hedging strategies to reduce risk.
After considering these comments, we have determined to include a condition that prevents leveraged/inverse ETFs from relying on the rule.
Given that rule 6c-11 is intended to help create a consistent regulatory framework for ETFs and a level playing field among ETF sponsors, we acknowledge that excluding leveraged/inverse ETFs from the rule's scope and permitting existing leveraged/inverse ETFs to continue to operate pursuant to their exemptive orders at this time delays, in part, achieving those goals. However, because leveraged/inverse ETFs raise policy considerations that are different from those we seek to address in the rule, we believe rule 6c-11 should exclude leveraged/inverse ETFs.
As adopted, rule 6c-11 will exclude ETFs that seek to provide leveraged or inverse investment returns over a predetermined period of time. The periodic reset that such strategies necessitate distinguish leveraged/inverse ETFs from other types of ETFs that may use leverage. In the proposal we did not specify the period of time over which an ETF had to seek to deliver a leveraged or inverse return of an index to be covered by the proposed rule's leveraged/inverse ETF exclusion, and we similarly decline to specify a period of time here.
In addition, while the rule uses the term “multiple,” leveraged/inverse ETFs with strategies that seek directionally leveraged or inverse returns of an index present the investor protection concerns discussed above regardless of whether the amplification factor or inverse factor is evenly divisible by 100 (
We also continue to believe that it is important to specify that an ETF relying on the rule may not
Finally, we are not adopting enhanced website or other disclosure requirements for leveraged/inverse ETFs at this time as some commenters had recommended. We believe all registered funds that pursue leveraged or inverse strategies raise similar disclosure issues. We therefore believe that the Commission should address any such potential disclosure issues separately for all leveraged/inverse registered funds.
Rule 6c-11 will provide ETFs that fall within the scope of the rule exemptive relief from certain provisions of the Act that are necessary to allow ETFs to operate. These exemptions are consistent with the relief we have given to ETFs under our exemptive orders.
Consistent with our proposal, ETFs relying on rule 6c-11 will be considered to issue a “redeemable security” within the meaning of section 2(a)(32) of the Act.
Unlike our exemptive orders, which have provided exemptions from the definitions of “redeemable security” in section 2(a)(32) and “open-end company” in section 5(a)(1), rule 6c-11 will not provide exemptions from these definitions. Instead, we believe that it is more appropriate for the rule to address these questions of status by classifying ETF shares as “redeemable securities.” Thus, any ETF that relies on the rule's conditions and requirements will be subject to requirements imposed under the Act and our rules that apply to open-end funds.
In addition, the rules under the Exchange Act that apply to transactions in redeemable securities issued by an open-end fund will apply to ETFs relying on rule 6c-11.
Many commenters supported our proposed classification of ETF shares as “redeemable securities.”
Commenters also supported the resulting eligibility for the redeemable securities exceptions and the registered open-end investment company exemption under the Exchange Act
After considering comments, we are clarifying that we view securities of all ETFs, including those that do not rely on rule 6c-11, as eligible for the redeemable securities exceptions in rules 101(c)(4) and 102(d)(4) of Regulation M and rule 10b-17(c) under the Exchange Act in connection with secondary market transactions in ETF shares and the creation or redemption of creation units and the exemption in rule 11d1-2 under the Exchange Act for securities issued by a registered open-end investment company or unit investment trust. We believe that securities issued by ETFs that are exempt from the definitions of “redeemable security” in section 2(a)(32) and “open-end company” in section 5(a)(1) of the Investment Company Act pursuant to their orders do not raise different concerns with respect to these Exchange Act provisions than those issued by ETFs relying on rule 6c-11.
Several commenters recommended further harmonization between rule 6c-11 and certain other Exchange Act relief that ETFs must currently seek in order to operate.
We agree that complementary exemptive relief under the Exchange Act could further reduce regulatory complexity, administrative delay, and eliminate potential inconsistencies between rule 6c-11 and the related Exchange Act relief that ETFs must obtain to operate. Accordingly, the Commission is issuing an order granting exemptive relief to ETFs operating in reliance on rule 6c-11 from the requirements of section 11(d)(1) of the Exchange Act and rules 10b-10, 15c1-5, 15c1-6, and 14e-5 under the Exchange Act for ETFs, where certain conditions are met.
Finally, commenters asked that we exempt ETF insiders and large shareholders from certain section 13(d) and section 16 reporting requirements under the Exchange Act beyond the conditions in several staff no-action letters.
As discussed above, the exemptions we are providing today under rule 6c-11 are based on the existence of a close tie between market price and NAV per share. Expanding on the existing staff no-action letters by providing exemptions from the reporting requirements in sections 13(d) and 16 even when there is a material deviation between market price and NAV would be inconsistent with the exemptions in rule 6c-11. We therefore refrain from taking additional action concerning the conditions outlined in our existing staff no-action letters.
Rule 6c-11 will provide exemptions from section 22(d) and rule 22c-1 to permit secondary market trading of ETF shares at market-determined prices as proposed. Section 22(d) of the Act, among other things, prohibits investment companies, their principal underwriters, and dealers from selling a redeemable security to the public except at a current public offering price described in the prospectus.
As discussed above, only authorized participants can purchase and redeem shares directly from an ETF at NAV per share and only in creation unit aggregations. Because authorized participants (and other market participants transacting through an authorized participant) can take advantage of disparities between the market price of ETF shares and NAV per share, they may be in a different position than investors who buy and sell individual ETF shares only on the secondary market.
The arbitrage mechanism is the foundation for why retail and other secondary market investors generally can buy and sell ETF shares at prices that are at or close to the prices at which authorized participants are able to buy and redeem shares directly from the ETF at NAV. In the Commission's experience, the deviation between the market price of ETFs and NAV per share has generally been relatively small.
Moreover, to the extent that there are instances where bid-ask spreads widen, or premiums and discounts persist, the final rule and disclosure amendments will require ETFs to disclose certain information on their website.
Commenters generally agreed that rule 6c-11 should provide the proposed exemptions from section 22(d) and rule 22c-1.
As proposed, rule 6c-11 will provide exemptions from sections 17(a)(1) and (a)(2) of the Act with regard to the deposit and receipt of baskets by a person who is an affiliated person of an ETF (or who is an affiliated person of such a person) solely by reason of: (i) Holding with the power to vote 5% or more of an ETF's shares; or (ii) holding with the power to vote 5% or more of any investment company that is an affiliated person of the ETF.
Section 17(a) of the Act generally prohibits an affiliated person of a registered investment company, or an affiliated person of such person, from knowingly selling any security or other
Commenters expressed support for our proposed exemptions from sections 17(a)(1) and (a)(2), concurring with our view that this relief is necessary to facilitate the efficient functioning of the arbitrage mechanism.
We continue to believe that this relief is appropriate to facilitate the efficient functioning of the arbitrage mechanism after considering comments. As noted above, all purchases and redemptions of creation units with such an affiliated person are at an ETF's next-calculated NAV, and an ETF would value the securities deposited or delivered upon redemption in the same manner, using the same standards, as the ETF values those securities for purposes of calculating the ETF's NAV. We do not believe that these transactions will give rise to the policy concerns that section 17(a) is designed to prevent.
Several commenters asked us to confirm that the section 17(a) relief in rule 6c-11 would extend to entities that are affiliated with the ETF by virtue of holding more than 25% of the ETF's shares or more than 25% of any investment company that is an affiliated person of the ETF (“25% holders”), consistent with the terms of our existing exemptive orders.
A number of commenters also recommended expanding the relief to cover additional types of affiliated relationships, such as exempting broker-dealers that are affiliated with the ETF's adviser,
While permitting additional types of affiliated entities to transact with the ETF could provide additional benefits to an ETF, expanding the scope of affiliated persons covered by the exemption would constitute novel section 17(a) relief. To date, our exemptive orders have been narrowly tailored to permit in-kind purchases and redemptions between an ETF and certain affiliates to facilitate efficient arbitrage. Expanding this relief would raise novel affiliation issues that would require a careful consideration of whether the current protections embedded in our relief sufficiently address any risks posed by such transactions with additional categories of affiliates. This would be especially the case if the exemption were expanded to include affiliated entities such as the ETF's sponsor and other service providers that typically have greater ability to influence an ETF. Given that rule 6c-11 is generally intended to codify existing relief for ETFs, we therefore do not believe that it is appropriate to expand the scope of affiliated persons covered by the exemption as part of this rulemaking, although such exemptions may be considered within our regular exemptive applications process.
We are adopting, largely as proposed, an exemption from section 22(e) to permit an ETF to delay satisfaction of a redemption request in the case of certain foreign investments for which a local market holiday or the extended delivery cycles of another jurisdiction make timely delivery unfeasible. Section 22(e) of the Act generally prohibits a registered open-end management investment company from postponing the date of satisfaction of redemption requests for more than seven days after the tender of a security for redemption.
Section 22(e) was designed to prevent unreasonable delays in the actual payment of redemption proceeds.
Under this exemption, an ETF must deliver foreign investments as soon as practicable, but in no event later than 15 days after the tender to the ETF. The exemption therefore will permit a delay only to the extent that additional time for settlement is actually required, when a local market holiday, or series of consecutive holidays, or the extended delivery cycles for transferring foreign investments to redeeming authorized participants prevents timely delivery of the foreign investment included in the ETF's basket.
Commenters generally supported our proposed exemption from section 22(e).
Proposed rule 6c-11 would have included a ten-year sunset provision in light of the continued movement toward shorter settlement times in markets around the world.
The rule will define “foreign investment” as any security, asset or other position of the ETF issued by a foreign issuer (as defined by rule 3b-4 under the Exchange Act), and that is traded on a trading market outside of the U.S.
Unlike our proposal, we are not defining “foreign investment” as an investment for which there is no “established U.S. public trading market.”
The proposed definition of foreign investment was designed to make relief from section 22(e) unavailable to an ETF that included a foreign issuer's U.S.-traded investment in its basket, thereby avoiding the settlement delay that is the basis for the relief.
Rule 6c-11 requires ETFs to comply with certain conditions designed to protect investors and to be consistent with the purposes fairly intended by the policy and provisions of the Act in order to operate within the scope of the Act. These conditions generally are consistent with the conditions in our exemptive orders, which we believe have effectively accommodated the unique structural and operational features of ETFs while maintaining appropriate protections for ETF investors. The conditions also reflect certain modifications that, based on our experience regulating ETFs and comments we received on the proposal, we believe will improve the overall regulatory framework for these products.
As proposed, the definition of exchange-traded fund under rule 6c-11 will require that an ETF issue (and redeem) creation units to (and from) authorized participants in exchange for baskets and a cash balancing amount (if any).
Rule 6c-11 will define an authorized participant to mean a member or participant of a clearing agency registered with the Commission that has a written agreement with the ETF or one of its service providers that allows the authorized participant to place orders for the purchase and redemption of creation units, as proposed.
Several commenters expressed support for the proposed definition of authorized participant.
We also received several comments on issues relating to authorized participants more generally. One commenter, for example, suggested that the Commission confirm that authorized participants who buy and sell ETF shares in creation units are not considered, for that reason alone, “principal underwriters” under the Investment Company Act.
Another commenter suggested that the Commission require an ETF to have a minimum number of authorized participants (
As proposed, rule 6c-11 will define “creation unit,” to mean a specified number of ETF shares that the ETF will issue to (or redeem from) an authorized participant in exchange for the deposit (or delivery) of a basket and a cash balancing amount (if any).
An ETF generally would issue and redeem shares in creation unit size aggregations, rather than as individual shares, under the rule. We proposed to permit an ETF to sell or redeem individual shares on the day of consummation of a reorganization, merger, conversion, or liquidation.
Commenters also addressed the Commission's proposed guidance concerning the extent to which an ETF may directly or indirectly suspend the issuance or redemption of ETF shares.
With respect to redemptions, an ETF may suspend the redemption of creation units only in accordance with section 22(e) of the Act,
As discussed above, we believe that ETFs should be regulated as open-end funds and that ETF shares are most appropriately classified as redeemable securities under the relevant provisions of the Act. In adopting the 2% limit on redemption fees under rule 22c-2, we stated that higher redemption fees would impose an undue restriction on the redeemability of shares.
We also stated in the 2018 ETF Proposing Release that we believe that an ETF generally may suspend the issuance of creation units only for a limited time and only due to extraordinary circumstances, such as when the markets on which the ETF's portfolio holdings are traded are closed for a limited period of time.
As discussed above, however, the expected close tie between an ETF's market price and NAV per share provides a basis for our relief from section 22(d) and rule 22c-1 under rule 6c-11 (as well as our prior exemptive orders).
As proposed, rule 6c-11 will define an “exchange-traded fund,” in part, to mean a fund that issues shares that are listed on a national securities exchange and traded at market-determined prices.
Several commenters generally supported the requirement that an ETF list its shares on a national securities exchange.
As noted above, the listing requirement was designed to ensure that all ETF shares have an organized and ongoing secondary trading market to support an effective arbitrage mechanism. We therefore continue to believe that an ETF should no longer be
As proposed, rule 6c-11 will not require ETFs to disseminate an intraday estimate of their NAV per share (an “intraday indicative value” or “IIV”) as a condition for reliance on the rule. Our orders require the dissemination of an IIV, and ETFs have stated in their exemptive applications that an ETF's IIV is useful to investors because it allows them to determine (by comparing the IIV to the market value of the ETF's shares) whether and to what extent the ETF's shares are trading at a premium or discount on an intraday basis.
We did not propose, however, an IIV dissemination requirement under rule 6c-11 because of our concerns regarding the accuracy of IIV estimates for certain ETFs.
In addition, we understand that market makers and authorized participants no longer use IIV to evaluate arbitrage opportunities for ETFs that provide full portfolio transparency.
The majority of commenters that addressed IIV requirements supported our proposed approach. For example, commenters agreed that authorized participants and other market participants calculate their own intraday values based on other sources of information such as an ETF's published baskets and portfolio holdings.
Commenters also noted that under current regulatory requirements, IIV can be confusing or misleading to market participants. For example, one commenter stated that current requirements for IIV actually reduce ETF transparency, because the IIV does not reflect the true value of an ETF due to dissemination delays, stale pricing for underlying holdings, and inconsistent calculation methodologies.
Some commenters disagreed with this aspect of the proposal and encouraged the Commission to require ETFs to disseminate IIV as a requirement of the rule. These commenters generally asserted that IIV—despite its limitations—can be useful to retail investors.
Some of these commenters noted that an ETF's IIV may be the only source of pricing information publicly available to retail investors.
After considering these comments, we continue to believe that rule 6c-11 should not require ETFs to disseminate IIV as IIV is not necessary to support the arbitrage mechanism for ETFs that provide daily portfolio holdings disclosure. Instead, rule 6c-11's portfolio holdings disclosure will provide market participants with the relevant data to input into their internal algorithms and thus allow them to determine if arbitrage opportunities exist.
We also do not believe that IIV will provide a reliable metric for retail investors to assess all ETFs relying on rule 6c-11 given the breadth of asset classes that ETFs may hold (and the particular shortcomings of IIV when an ETF holds assets that do not trade contemporaneously with the ETF or are traded less frequently). Furthermore, retail investors do not have easy access to IIV through free, publicly available websites today even for those asset classes where an IIV may be more reliable. A staff review of the websites for the ten largest ETFs by assets under management found that none provides a real-time IIV on its website. Some of these ETFs disclose a specific ticker symbol for the ETF's IIV (as opposed to the ticker symbol for the ETF itself) on their websites, others provide the IIV with a delay of up to 45 minutes, while others provide no information about the ETF's IIV at all.
We considered whether to require an ETF to publicly disseminate a modified IIV on its website on a real time basis as a condition to rule 6c-11, requiring ETFs to calculate IIVs more frequently and in a more accessible manner. We also considered creating a methodology that takes into account circumstances when market prices for underlying assets are not available or should not be used to reflect the ETF's intraday value. However, we believe that these modifications are not necessary given that an ETF operating in reliance on rule 6c-11 will provide full portfolio transparency on its website.
We recognize that intraday information accurately reflecting the current value of an ETF's shares can be important to retail investors and encourage the ETF industry to undertake efforts to develop intraday value metrics targeted at these investors.
Since the first exemptive order for an ETF, the Commission has relied on the existence of an arbitrage mechanism to keep market prices of ETF shares at or close to the NAV per share of the ETF. One mechanism that facilitates the arbitrage mechanism is daily portfolio transparency.
We received numerous comments on this aspect of the proposal. Many commenters generally supported requiring full, daily portfolio holdings disclosure on the ETF's website as a condition for reliance on rule 6c-11.
On the other hand, one commenter did not support daily disclosure of an ETF's full portfolio, opining that an effective arbitrage mechanism is sufficiently supported by disclosure of well-constructed baskets with performance that closely tracks the performance of both the fund and its index.
One commenter supported requiring daily portfolio transparency for index-based ETFs, but opposed requiring it for actively managed ETFs, due to the risk of market participants using the portfolio holdings disclosures to front-run or piggyback on actively managed strategies.
We continue to believe ETFs relying on rule 6c-11 should provide full daily portfolio transparency in order to facilitate an efficient arbitrage process. Notably, we believe it is likely that all current ETFs that may rely on the rule already provide full portfolio transparency as a matter of market practice and this approach will eliminate regulatory distinctions between index-based and actively managed ETFs that rely on rule 6c-11. Moreover, although we recognize there are alternative approaches to facilitate efficient arbitrage, the Commission has limited experience with such approaches, which are new and continuing to evolve and we therefore believe that these alternatives should be considered within our exemptive applications process.
Accordingly, rule 6c-11 will require full, daily portfolio holdings disclosure for ETFs relying on the rule. As discussed below, however, the portfolio transparency requirement we are adopting includes several modifications from the proposed rule, including modifications regarding the required timing and presentation of the portfolio holdings disclosure.
Rule 6c-11 will require website disclosure of an ETF's portfolio holdings on each business day before the opening of regular trading on the primary listing exchange of the ETF's shares.
We received several comments on this aspect of the proposal, particularly on the proposed requirement that an ETF disclose its portfolio holdings before the ETF starts accepting orders on a given business day. Several commenters opposed the proposed timing requirement because it could prevent certain ETFs from accepting creation and redemption orders shortly after the US market closes (“T-1 orders”).
Several commenters discussed the benefits of permitting ETFs to accept T-1 orders. Commenters stated that T-1 orders allow market participants to align the execution time of underlying securities transactions with the NAV calculation of the order, and thus minimize costs and support effective arbitrage.
Commenters recommended alternatives to the proposed rule's timing requirements. Several commenters suggested we require portfolio holdings disclosure only before the opening of regular trading on the primary listing exchange.
After considering these comments, we are not adopting the proposed requirement that an ETF disclose its portfolio holdings before it starts accepting orders for the purchase or redemption of creation units. Instead, rule 6c-11 will require an ETF to disclose the portfolio holdings that will form the basis for the ETF's next calculation of NAV per share each business day before the opening of regular trading on the primary listing exchange of the exchange-traded fund shares.
The goal of our proposed timing requirement was to facilitate effective arbitrage by providing authorized participants and other market participants buying and selling ETF shares with portfolio holdings information at the time of the transaction. We believe that accommodating T-1 orders, but requiring disclosure before the opening of regular trading on the primary listing exchange of the ETF's shares, will nonetheless allow for effective arbitrage. Commenters stated that ETFs utilizing T-1 orders have shown relatively narrow bid-ask spreads and small premiums and discounts, and stated that precluding T-1 orders could have the unintended effect of actually widening bid-ask spreads and disrupting existing market practices.
We considered whether to impose other conditions for the acceptance of T-1 orders, such as disclosure of the last published portfolio holdings. However, given the information already available to market participants and the data demonstrating that existing market practices have led to effective arbitrage, we do not believe additional conditions are currently necessary to facilitate arbitrage for these orders.
Rule 6c-11 will require an ETF to disclose standardized information regarding each portfolio holding.
Commenters on this aspect of the proposal agreed that there currently is little consistency in the presentation of holdings information by ETFs,
Some commenters recommended alternative approaches. Several commenters, for example, suggested using disclosure requirements based on the generic listing standards for actively managed ETFs.
We proposed the Article 12 framework because ETFs are already required to comply with Article 12 for periodic financial reporting purposes and therefore we believed that it would provide an efficient way to standardize daily portfolio holdings disclosure. After considering comments, however, we believe that a more streamlined requirement will provide standardized portfolio holdings disclosure in a more efficient, less costly, and less burdensome format, while still providing market participants with relevant information. Accordingly, rule 6c-11 will require an ETF to post a subset of the information required by the listing exchanges' current generic listing standards for actively managed ETFs. Rule 6c-11 will require ETFs to disclose the following information for each portfolio holding on a daily basis: (1) Ticker symbol; (2) CUSIP or other identifier; (3) description of holding; (4) quantity of each security or other asset held; and (5) percentage weight of the holding in the portfolio.
As commenters suggested, to arbitrage an ETF's holdings, market participants generally must be able to identify the security or asset held, the quantity held, and percentage weighting of the holding in the ETF's portfolio.
We continue to believe that the ETF's website is the most effective location for the disclosure of portfolio holdings information. By posting the portfolio information on its website, free of charge, the ETF makes the information available to a broad range of investors, including retail investors, and other market participants.
As proposed, rule 6c-11 will require the portfolio holdings that form the basis for the ETF's NAV calculation to be the ETF's portfolio holdings as of the close of business on the prior business day.
Accordingly, rule 6c-11 will not require ETFs to disclose intraday changes in portfolio holdings because these changes would not affect the portfolio composition serving as a basis for NAV calculation until the next business day.
As proposed, rule 6c-11 will require an ETF relying on the rule to adopt and implement written policies and procedures governing the construction of baskets and the process that the ETF will use for the acceptance of baskets.
When an ETF uses in-kind creations and redemptions, the composition of the basket is an important aspect of the efficient functioning of the arbitrage mechanism. Basket composition affects the costs of assembling and delivering the baskets exchanged for creation units as well as the costs of liquidating basket securities when redeeming creation units.
The exemptive relief relating to baskets evolved over time. Early orders for ETFs organized as open-end funds included few explicit restrictions on baskets, and these orders did not expressly limit ETFs' baskets to a
The requirement that baskets correspond
Based on our experience with ETFs, however, we believe there are many circumstances, in addition to the specific circumstances enumerated in our orders, where allowing basket assets to differ from a
Moreover, certain exceptions to a
We therefore proposed to provide additional basket flexibility, subject to conditions designed to address concerns regarding the potential risk of overreaching. Specifically we proposed to require ETFs to adopt: (i) Policies and procedures governing the construction of baskets and the process that would be used for the acceptance of baskets generally; and (ii) heightened process requirements for ETFs using custom baskets, including policies and procedures specifically covering the use of custom baskets.
Commenters generally supported requiring ETFs to adopt policies and procedures governing the construction of baskets.
One commenter, however, asserted that the rule should not afford custom basket flexibility to all ETFs relying on it.
Some commenters, although generally supporting custom basket flexibility and the proposed heightened process requirements, requested that we modify or clarify certain aspects of the proposed condition.
We are adopting the basket conditions under rule 6c-11 as proposed. Rule 6c-11 therefore will require an ETF to adopt and implement written policies and procedures that govern the construction of baskets and the process that will be used for the acceptance of baskets as proposed.
Rule 6c-11 also will require the policies and procedures to (i) set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interests of the ETF and its shareholders, including the process for any revisions to, or deviations from, those parameters; and (ii) specify the titles or roles of the employees of the ETF's investment adviser who are required to review each custom basket for compliance with those parameters.
Effective custom basket policies and procedures should provide specific parameters regarding the methodology and process that the ETF would use to construct or accept each custom basket. They also should describe the ETF's approach for testing compliance with the custom basket policies and procedures and assessing (including through back testing or other periodic reviews) whether the parameters continue to result in custom baskets that are in the best interests of the ETF and its shareholders. An ETF should consistently apply the custom basket policies and procedures and must establish a process that the ETF will adhere to if it wishes to make any revisions to, or deviate from, the parameters. In addition, an ETF's custom basket policies and procedures should include reasonable controls designed to prevent inappropriate differential treatment among authorized participants.
We do not believe that the requirement for “detailed parameters” would prevent an ETF sponsor from developing policies and procedures to cover the wide range of circumstances that may arise relating to custom baskets.
Although one commenter opined that fixed-income ETFs present unique concerns, we believe that requiring fixed-income ETFs to establish detailed parameters for the construction and acceptance of custom baskets that are in the best interests of the ETF and its shareholders will address the risks associated with custom baskets. As discussed above, we also believe that fixed-income ETFs (and their shareholders) may experience the most pronounced benefits from basket flexibility.
One commenter stated that the Commission should confirm that the “best interests of the ETF and its shareholders” standard included in rule 6c-11(c)(3)(i) includes the ETF's shareholders generally rather than individually, on the basis that the adviser to an ETF owes a fiduciary duty only to the ETF, and that ETFs cannot evaluate the interests of individual shareholders.
As proposed, rule 6c-11 also will require an ETF, as part of its custom basket policies and procedures, to specify the titles or roles of employees of the ETF's investment adviser who are required to review each custom basket for compliance with the parameters set forth in those policies and procedures. Several commenters did not support this requirement as proposed.
In addition, several commenters did not support the statement in the 2018 ETF Proposing Release that an ETF may want to consider whether employees outside of portfolio management should review the components of custom baskets before approving a creation or redemption.
We continue to believe that the ETF's investment adviser is in the best position to design and administer the custom basket policies and procedures and to establish parameters that are in the best interests of the ETF and its shareholders.
To the extent that a particular ETF's investment adviser determines that its portfolio management employees are the appropriate employees to be responsible for compliance with the custom basket policies and procedures, we believe that the requirements of rule 38a-1 under the Act provide appropriate safeguards to address possible conflicts of interest that could arise from such an arrangement. For example, ETFs currently are required by rule 38a-1 under the Act to adopt, implement, and periodically review written policies and procedures reasonably designed to prevent violations of the federal securities laws.
As proposed, rule 6c-11 will define “custom baskets” to include two categories of baskets. First, a basket containing a non-representative selection of the ETF's portfolio holdings would constitute a custom basket.
Second, if different baskets are used in transactions on the same business day, each basket after the initial basket would constitute a custom basket. For example, if an ETF exchanges a basket with either the same or another authorized participant that reflects a representative sampling that differs from the initial basket, that basket (and any such subsequent baskets) would be a custom basket.
We received a number of comments on the proposed definition of custom basket. Several commenters asserted that baskets including cash substitutions should not be subject to the heightened policies and procedures requirement for custom baskets, and thus should be excluded from the definition of custom baskets.
After consideration of these comments, we are adopting the definition of “custom basket” as proposed. While we generally agree with commenters that cash substitutions may not raise the same concerns as securities substitutions, an ETF's use of cash substitutions may raise concerns regarding the potential for an authorized participant to overreach, particularly in connection with redemptions. For example, during periods of market stress, an authorized participant may demand cash from the ETF instead of less liquid securities in exchange for ETF shares, impacting the liquidity of the ETF's portfolio and the ability of the ETF to satisfy additional cash redemption requests from authorized participants.
We also considered excluding certain types of cash substitutions from the definition of custom baskets where authorized participant overreach is unlikely, consistent with the approach taken in our recent exemptive orders.
Proposed rule 6c-11 would have required an ETF to post information regarding one basket that it would exchange for orders to purchase or redeem creation units to be priced based on the ETF's next calculation of NAV per share (a “published basket”) on its website each business day.
Commenters generally did not support requiring disclosure of a published basket on the ETF's website.
After considering these comments, the Commission is not including in rule 6c-11 a requirement that an ETF post information regarding one published basket that it would exchange for orders to purchase or redeem creation units. We proposed this condition, in part, because we were concerned that certain market participants that needed access to basket information for arbitrage purposes would not have access to ETF portfolio composition files.
We requested comment on whether we should require an ETF to publish certain information regarding each basket used by the ETF to ameliorate some of the limitations associated with publication of a single basket each day and to serve as an additional check against overreaching by authorized participants.
There has been a significant increase in the use of the internet as a tool for disseminating information, and many investors obtain information regarding ETFs on ETF websites.
Specifically, under rule 6c-11 the following information must be disclosed publicly and prominently on the ETF's website:
• NAV per share, market price, and premium or discount, each as of the end of the prior business day;
• A table and chart showing the number of days the ETF's shares traded at a premium or discount during the most recently completed calendar year and calendar quarters of the current year;
• For ETFs whose premium or discount was greater than 2% for more than seven consecutive trading days, disclosure that the premium or discount was greater than 2%, along with a discussion of the factors that are reasonably believed to have materially contributed to the premium or discount; and
• Median bid-ask spread over the most recent thirty calendar days.
As proposed, rule 6c-11 will require an ETF to post on its website the ETF's current NAV per share, market price, and premium or discount, each as of the end of the prior business day.
Commenters generally supported this requirement, observing that the investors should have easy access to the required information.
We continue to believe that daily website disclosure of NAV per share and market price will promote transparency and alert investors to the relationship between NAV per share and market price. We also believe that this information will help investors better understand the risk that an ETF's market price may be higher or lower than the ETF's NAV per share and compare this information across ETFs. Daily premium/discount disclosures also will provide investors with useful information regarding ETFs that frequently trade at a premium or discount to NAV per share.
These disclosures are consistent with our exemptive orders except that rule 6c-11 includes a definition of “market price” that differs from the definition applicable to those orders. Rule 6c-11 defines “market price” as: (A) The official closing price of an ETF share; or (B) if it more accurately reflects the market value of an ETF share at the time as of which the ETF calculates current NAV per share, the price that is the midpoint of the national best bid and national best offer (“NBBO”) as of that time.
One commenter addressed our proposed definition of “market price” and asserted that the rule should permit ETFs to use the midpoint of the NBBO without evaluating whether it more accurately reflects the market value of the ETF's shares.
As proposed, rule 6c-11 will require an ETF to post on its website both a table and line graph showing the ETF's premiums and discounts for the most recently completed calendar year and the most recently completed calendar quarters of the current year.
Commenters were generally supportive of this requirement.
The rule will require historical premium/discount information for the most recently completed calendar year and the most recently completed calendar quarters of the current year as proposed. Some commenters recommended that we require ETFs to update this information on a daily basis or require ETFs to present intra-day premiums or discounts in certain circumstances.
As proposed, rule 6c-11 will require an ETF whose premium or discount was greater than 2% for more than seven consecutive trading days to post that information on its website,
One commenter supported this requirement, stating that daily premium and discount information is an important metric for investors.
We recognize that this disclosure requirement may affect certain categories of ETFs more than others. An ETF that invests in foreign securities, for example, may be more likely to experience a persistent deviation between market price and NAV per share given that many foreign markets are closed during the U.S. trading day. Such deviations may be pronounced if the market on which the ETF's underlying securities trade is closed for an extended period of time. We believe that this information could help to inform investors about the nature of these ETFs and the potential for frequent deviations.
However, we believe this requirement will affect a broader range of ETFs than just those investing in certain foreign markets. For example, we estimate that, out of a total 2,046 ETFs, 11 alternative ETFs, 20 international equity ETFs, 2 sector equity ETFs, 1 taxable bond ETF, and 15 U.S. equity ETFs would have triggered the 2% premium or discount disclosure requirement in 2018.
Other commenters expressed concern with the requirement that an ETF include a discussion of the factors that are reasonably believed to have contributed to the premium or discount.
Another commenter recommended that we shorten the time an ETF is required to maintain the disclosure on its website (to,
Finally, some commenters expressed concerns with the 2% threshold.
As shown above, a 10% threshold would not have required any ETFs to provide this information in 2018, and a 5% threshold, even over just a three-day period, would have only required disclosure by 12 ETFs. After considering the commenter's recommended modifications to the threshold, we believe that the proposed threshold of 2% over more than seven consecutive trading days will more effectively highlight those patterns of sustained premiums or discounts that will be informative to investors than will the recommended alternatives. We also believe that in this circumstance the objective 2% threshold will result in more consistent application of the disclosure requirement than would a more subjective materiality standard. Furthermore, deviations that do not meet the objective 2% threshold, but that would be material to an investment decision, must be disclosed.
Rule 6c-11 will require daily website disclosure of the ETF's median bid-ask spread calculated over the most recent 30-day period.
Comments on the proposed website disclosure of an ETF's bid-ask spread were mixed. Many commenters opposed this requirement, asserting that the proposed disclosures would require ETFs to bear costs and liability for data
While we recognize the costs for ETFs to collect and publish this bid-ask spread data, we believe that quantitative information regarding median bid-ask spreads will provide ETF investors with greater understanding of the costs associated with investing in ETFs. This will help investors make more informed investment decisions. We acknowledge that historical bid-ask spread data may reflect differences that result from varying methods of computing bid-ask spread. However, we have modified the proposal in several respects, such as using NBBO for computing the bid-ask spread, to make the computation more uniform. We therefore do not believe that the variance will be large enough to outweigh the importance of giving investors a greater understanding of these potential trading costs. We similarly understand that bid-ask spread may not reflect an individual investor's actual spread, as an individual's spread may depend on the execution strategies employed by an intermediary (such as mid-point pricing), the size of a particular order, or other factors. We nonetheless believe that the bid-ask spread is a helpful tool for investors making better informed trading decisions and that website disclosure can provide that information in a format that is easily accessible and relied upon by investors.
Based on comments we received, however, we are modifying certain of the bid-ask spread requirements to make the disclosure more cost-effective for ETFs, while maintaining or enhancing the utility for investors. First, the rule will require an ETF to disclose its median bid-ask spread only on its website, instead of requiring disclosure both on an ETF's website and in its prospectus as proposed.
Second, some commenters suggested shortening the look-back period for calculating the bid-ask spread metric, such as to a 30- or 45-day rolling period.
We agree that a bid-ask spread metric based on the more recent inputs from the last 30 days may provide a better representation of the costs that an investor may incur when trading ETF shares. Accordingly, we are shortening the look-back period for calculating the bid-ask spread from the most recent fiscal year to the most recent 30-day period on a rolling basis.
Finally, we are modifying the proposal to require that an ETF use the NBBO in calculating median bid-ask spreads.
We also proposed related amendments to Form N-1A that would have required an ETF to provide: (i) Examples in the ETF's prospectus showing how bid-ask spreads impact the return on a hypothetical investment for both buy-and-hold and frequent traders; and (ii) an interactive calculator in a clear and prominent format on the ETF's website that would allow an investor to customize the hypothetical bid-ask spread calculations to its specific investing situation.
Commenters generally opposed requiring bid-ask spread examples in the summary prospectus or summary section. For example, some commenters expressed concerns regarding the costs of obtaining the underlying bid-ask spread data from third parties.
Many commenters raised similar concerns regarding the proposed interactive calculator, including that varying data sources and calculation methodologies may result in an inconsistent investor experience across ETFs.
After considering comments, we are not adopting the proposed bid-ask spread examples or interactive calculator requirements. We are instead requiring ETFs relying on rule 6c-11 to provide more recent bid-ask spread information on their website. We believe that streamlining the required bid-ask spread disclosures will mitigate commenters' concerns that investors may fail to understand the relevance of the bid-ask spread information or the potential impact of bid-ask spreads on their specific trading situations. We are also persuaded by commenters that an interactive calculator focused solely on bid-ask spread costs may overemphasize those costs and thereby obscure the effect of other costs of investing in ETFs.
As proposed, rule 6c-11 will not include certain requirements related to ETF marketing, which were included in our exemptive orders. Specifically, rule 6c-11 will not require an ETF to: (i) Identify itself in its sales literature as an ETF that does not sell or redeem individual shares, and (ii) explain that investors may purchase or sell individual ETF shares through a broker via a national securities exchange.
The comments on this aspect of the proposal were mixed. Commenters who supported the proposal generally agreed that the market has developed a familiarity with ETFs and that retail investors generally understand that, unlike mutual funds, individual ETF shares may be purchased and sold only on secondary markets.
We continue to believe that ETF investors have grown familiar with ETFs and the fundamental distinctions between ETFs and mutual funds, and that this disclosure is now unnecessary. The disclosure requirements we are adopting also should provide ETF investors, including retail investors, with useful information regarding the exchange-traded nature of ETFs and ETF pricing, including the potential for market price to deviate from NAV per share.
We requested comment on whether the Commission should address possible investor confusion arising from the nomenclature that has developed for identifying ETPs, including confusion between ETFs and other types of ETPs that are not registered under the Act.
Several commenters generally supported a classification system for ETPs to assist investors in distinguishing among these different products.
One commenter asserted that Commission action relating to ETP naming is premature at the present time.
We agree that these issues need to be examined and discussed in more depth before the implementation of an ETP naming system. We will continue to consider the comments we received and, if appropriate, will take steps to address investor confusion relating to ETF and ETP nomenclature. At present, we believe that the term “ETF” is generally associated with ETPs regulated under the Investment Company Act. Leveraged/inverse ETFs, for example, are regulated under the Act and are structurally and operationally similar to ETFs that will rely on rule 6c-11. As a result, we do not believe it is appropriate to require leveraged/inverse ETFs to use a naming convention that does not include the term “ETF.” Similarly, because UIT ETFs are subject to a substantially similar regulatory regime as ETFs structured as open-end funds (and subject to similar regulatory safeguards), we do not find it appropriate to require UIT ETFs to utilize a naming convention that does not include the term “ETF.” We encourage ETP market participants to continue engaging with their investors, with each other, and with the Commission on these issues.
We are adopting, as proposed, an express requirement that ETFs relying on rule 6c-11 preserve and maintain copies of all written agreements between an authorized participant and the ETF (or one of the ETF's service providers) that allow the authorized participant to purchase or redeem creation units (“authorized participant agreements”).
After considering these comments, we believe it is appropriate for rule 6c-11 to specifically require that ETFs preserve and maintain authorized participant agreements. Authorized participants play a central role in the proper functioning of the ETF marketplace and authorized participant agreements are critical to understanding the relationship between an authorized participant and an ETF. Requiring the preservation of authorized participant agreements is designed to provide our examination staff with a basis to determine whether the relationship between the ETF and the authorized participant is in compliance with the requirements of rule 6c-11 and other provisions of the Act and rules thereunder, based on the specific terms of their written agreement. While we believe that most ETFs are currently preserving copies of their written authorized participant agreements pursuant to our current recordkeeping rules, for avoidance of doubt, we believe it is appropriate to expressly require that ETFs relying on rule 6c-11 preserve and maintain copies of all such agreements.
We also are adopting, largely as proposed, a requirement that ETFs maintain information regarding the baskets exchanged with authorized participants. Rule 6c-11 will require an ETF to maintain records setting forth the following information for each basket exchanged with an authorized participant: (i) Ticker symbol, CUSIP or other identifier, description of holding, quantity of each holding, and percentage weight of each holding composing the basket exchanged for creation units;
Commenters generally supported requiring ETFs to maintain records regarding baskets.
After considering these comments, we believe that requiring ETFs to maintain records regarding each basket exchanged with authorized participants will provide our examination staff with a basis to understand how baskets are being used by ETFs, particularly with respect to custom baskets. In order to provide our examination staff with detailed information regarding basket composition, however, we have modified rule 6c-11 to require the ticker symbol, CUSIP or other identifier, description of holding, quantity of each holding, and percentage weight of each holding composing the basket exchanged for creation units as part of the basket records, instead of the name and quantities of each position as proposed.
As proposed, the rule will require ETFs to maintain these records for at least five years, the first two years in an easily accessible place. The retention period is consistent with the period provided in rules 22e-4 and 38a-1(d) under the Act. Funds currently have compliance program-related recordkeeping procedures in place that incorporate this type of retention period and we believe consistency with that period will minimize any compliance burdens to ETFs subject to rule 6c-11. The commenter that addressed this aspect of the recordkeeping requirement supported the proposed retention period.
As proposed, rule 6c-11 does not provide relief from sections 18(f)(1) or 18(i) of the Act or expand the scope of 17 CFR 270.18f-3 (rule 18f-3) (the multiple class rule).
We recognize that the Commission has previously granted ETFs exemptive relief from the provisions of section 18 of the Act in the past, subject to various conditions.
Three commenters stated that it was unnecessary for rule 6c-11 to provide relief for share class ETFs.
Two other commenters, however, opined that rule 6c-11 (or a separate future rule) should provide relief for share class ETFs in order to create a more level ETF playing field.
Leveling the ETF playing field is a goal for rule 6c-11, and we acknowledge that our approach will result in there being a segment of ETF assets that are unable to rely on the rule. At the same time, we continue to believe that share class ETFs raise policy considerations that are different from those we seek to address in the rule. With such concerns unresolved, we do not believe it is appropriate to broadly grant relief from sections 18(f)(1) and 18(i) of the Act for share class ETFs at this time. Share class ETFs are structurally and operationally different from the other types of ETFs within the scope of rule 6c-11.
We also are adopting amendments to Form N-1A that will require share class ETFs to provide certain additional disclosures regarding ETF trading costs. As discussed in more detail below in section II.H., these disclosure amendments are designed to help ensure consistent disclosures to investors between ETFs relying on proposed rule 6c-11 and share class ETFs operating pursuant to individualized exemptive relief. The rule and form amendments require all ETFs that are subject to the Investment Company Act to provide similar disclosures in order to help investors compare products.
Many of our recent ETF orders allow ETFs to operate as feeder funds in a master-feeder structure.
Because the feeder ETF may, in the course of these transactions, temporarily hold the basket assets, it would not be able to rely on section 12(d)(1)(E) of the Act, which requires that a feeder fund hold no investment securities other than securities of the master fund.
The exemptive orders we have granted to master-feeder ETFs, however, do not include relief from section 18 under the Act inasmuch as investment by several feeder funds or by mutual fund and ETF feeder funds in the same class of securities issued by a master fund generally does not involve a senior security subject to section 18. We are concerned, as discussed above, that if an ETF feeder fund transacts with a master fund on an in-kind basis, but non-ETF feeder funds transact with the master fund on a cash basis, all feeder fund shareholders would bear costs associated with the cash transactions.
One commenter stated that it did not object to preventing the formation of new master-feeder arrangements and rescinding master-feeder relief (with the exception of master-feeder relief that funds actively relied on as of the date of the Proposing Release).
Other commenters set forth potential methods for mitigating such concerns. For example, one commenter indicated that the Commission could address its concerns regarding potential cross-subsidization by requiring master funds to impose certain transaction fees,
As discussed in the context of share class ETFs, leveling the ETF playing field is a goal for rule 6c-11, and we acknowledge that our approach will result in there being a segment of ETF assets that are unable to rely on the rule. Like share class ETFs, however, we continue to believe that master-feeder funds raise policy considerations that are different from those we seek to
Only one fund complex had established as of June 28, 2018 master-feeder arrangements involving ETF feeder funds, and each arrangement involves an ETF as the sole feeder fund. We understand that all but one of the complex's original ETF feeder funds has discontinued its use of a master-feeder structure.
As proposed, we have determined to exercise our authority under the Act to amend and rescind the exemptive relief we have issued to ETFs that will be permitted to operate in reliance on rule 6c-11.
Commenters generally supported the rescission of the exemptive relief granted to ETFs that fall within the scope of rule 6c-11,
After reviewing comments, we continue to believe that rescinding ETF exemptive relief in connection with rule 6c-11 will result in a consistent, transparent, and efficient framework for ETFs that operate in reliance on rule 6c-11, as those ETFs would no longer be subject to differing and sometimes inconsistent provisions of their exemptive relief. Moreover, investment companies that seek to operate an ETF under conditions that differ from those in rule 6c-11 are able to request exemptive relief from the Commission.
In addition, approximately 200 of our current ETF exemptive orders automatically expire on the effective date of any Commission rule that provides relief permitting the operation of ETFs.
We continue to believe that the one-year period for the termination of our ETF exemptive relief is sufficient to give ETFs that are operating under exemptive orders time to bring their operations into conformity with the requirements of rule 6c-11. We did not receive any comments on this aspect of the proposal. We also did not receive any comments stating that the need to comply with the requirements of rule 6c-11, as opposed to their exemptive relief, would significantly negatively affect the operations of existing ETFs.
Finally, we did not propose to rescind the fund of funds exemptive relief included in our ETF exemptive orders.
Commenters generally agreed that we should not rescind the fund of funds exemptive relief, but asserted that the Commission should include fund of funds relief in a final rule or provide such relief through other means.
In December 2018, we proposed new rule 12d1-4 under the Act to streamline and enhance the regulatory framework applicable to fund of funds arrangements for registered investment companies, including ETFs.
We agree with commenters, however, that new entrants to the ETF market would be at disadvantage to existing ETFs without fund of funds relief. Accordingly, ETFs relying on rule 6c-11 that do not have exemptive relief from sections 12(d)(1)(A) and (B) and section 17(a)(1) and (2) of the Act may enter into fund of funds arrangements as set forth in our recent ETF exemptive orders, provided that they satisfy the terms and conditions for fund of funds relief in those orders.
We are adopting several amendments to Form N-1A, the registration form used by open-end funds to register under the Act and to offer their securities under the Securities Act, that are designed to provide ETF investors with additional information regarding ETF trading and associated costs. Commenters generally supported providing additional information to investors regarding ETF trading, but many suggested specific modifications to the proposals.
• Adding the term “selling” to current narrative disclosure requirements to clarify that the fees and expenses reflected in the expense table may be higher for investors if they buy, hold,
• Streamlined narrative disclosures relating to ETF trading costs, including bid-ask spreads (
• Requiring ETFs that do not rely on rule 6c-11 to disclose median bid-ask spread information on their websites or in their prospectus (
• Excluding ETFs that provide premium/discount disclosures in accordance with rule 6c-11 from the premium and discount disclosure requirements in Form N-1A (
• Eliminating disclosures relating to creation unit size and disclosures applying only to ETFs with creation unit sizes of less than 25,000 shares (
As proposed, we are adopting a narrative disclosure that will specify that the fees and expenses reflected in the Item 3 expense table also may be higher for investors if they sell shares of the fund.
We also are adopting, as proposed, a requirement to include a statement that investors may be subject to other fees not reflected in the table, such as brokerage commissions and fees to financial intermediaries.
We are adopting amendments to Item 6 of Form N-1A that: (i) Will require an ETF to provide narrative disclosure identifying specific costs associated with buying and selling ETF shares and directing investors to its website for additional information; and (ii) allow an ETF that is not subject to rule 6c-11 the option to provide disclosure regarding the ETF's median bid-ask spread on its website or in its prospectus.
Secondary market investors in ETF shares are subject to trading costs when purchasing and selling ETF shares that ETFs are not currently required to disclose in their prospectuses. Trading costs, like all costs and expenses, affect investors' returns on their investment.
As a result, we proposed to require ETFs to include a series of questions and answers—or Q&As—in Item 3 that would have provided investors with narrative disclosure regarding ETF trading and associated costs, as well as quantitative disclosures regarding bid-ask spreads.
We continue to believe that investors could overlook certain trading costs when buying or selling ETF shares and that additional disclosure will help them better understand these costs. However, we agree with commenters that the extent of trading cost disclosures we proposed to require in Item 3 could obscure other key information regarding other fees and expenses and potentially give bid-ask spread disclosures undue prominence. We also agree that ETFs and their investors may benefit from flexibility in the manner of presenting the required information, especially if the proposed format would unduly distract from other key information. We therefore are permitting ETFs to use formats other than Q&As to present this information.
We also are streamlining several of the narrative disclosure requirements we proposed. First, we are adopting a requirement that the ETF's summary prospectus or summary section cross-reference the ETF's website.
Commenters did not specifically address this proposed requirement. However, in general, commenters expressed support for website disclosure requirements, including as a substitute for certain registration statement disclosure requirements.
We also are adopting a requirement to provide narrative disclosure regarding bid-ask spreads.
We continue to believe that narrative bid-ask spread disclosure will inform investors regarding the potential impact of spread costs and provide investors with additional context to understand that the costs attributable to the bid-ask spread may increase or decrease when certain market conditions exist or certain factors are present. However, streamlining this disclosure to provide investors with key information regarding bid-ask spreads will both aid investor understanding and eliminate some of the length associated with the proposed disclosure requirement. Accordingly, our amendments to Form N-1A will require an ETF to state that an investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase shares of the ETF (bid) and the lowest price a seller is willing to accept for shares of the ETF (ask) when buying or selling shares in the secondary market (“the bid-ask spread”).
Finally, Item 6 will continue to require ETFs to disclose: (i) That individual shares may only be purchased and sold on secondary markets through a broker-dealer; and (ii) the price of ETF shares is based on market price, and since ETFs trade at market prices rather than at net asset value, shares may trade at a price greater than net asset value (premium) or less than net asset value (discount).
Rule 6c-11 will require an ETF to provide website disclosure of median bid-ask spreads.
We proposed amendments to Form N-1A that would have required all open-end ETFs to disclose quantitative information about bid-ask spreads, both in an ETF's prospectus and on its website.
However, we continue to believe that all ETF investors should receive key information about bid-ask spread costs, and appreciate that ETFs that are not relying on rule 6c-11 may want the flexibility to provide more timely bid-ask spread information on their websites.
Although rule 6c-11 contemplates more current website disclosure for ETFs relying on rule 6c-11, we are adopting a lookback period of the ETF's most recent fiscal year for the prospectus bid-ask spread disclosure requirement. We are adopting this period for consistency with other disclosures in Form N-1A and to avoid establishing a requirement that would require more frequent updating of an ETF's prospectus. ETFs that opt to provide this information on their website, however, will provide median bid-ask spread information for the most recent thirty-day period on a rolling basis. Finally, newly launched ETFs subject to this prospectus requirement with less than a year of trading data will be required to provide a brief statement to the effect that the ETF does not have sufficient trading history to report trading information and related costs as proposed.
Rule 6c-11 will require ETFs to provide certain disclosures regarding premiums and discounts on their websites.
We proposed to eliminate existing disclosure requirements regarding premiums and discounts in Form N-1A since rule 6c-11 would require an ETF to provide more timely information on its website.
After considering comments, we are eliminating the premium and discount requirements in Items 11(g)(2) and 27(b)(7)(iv) for ETFs relying on rule 6c-11.
We acknowledge that the premium and discount disclosure requirements under rule 6c-11 are broader than what was required under Form N-1A.
We are adopting the removal of certain disclosure requirements from Form N-1A relating to ETFs. We are removing the requirement that an ETF specify the number of shares it will issue or redeem in exchange for the deposit or delivery of basket assets.
We also are eliminating several disclosure requirements in Items 6 and 11 that applied only to ETFs that issue or redeem shares in creation units of less than 25,000 shares.
Form N-8B-2 is the registration form under the Investment Company Act for UITs that are currently issuing securities, and it is used for registration of ETFs organized as UITs.
Although we are not including UIT ETFs within the scope of rule 6c-11, we believe that it is important for investors to receive consistent disclosures for ETF investments, regardless of the ETF's form of organization. Secondary market investors in UIT ETFs, like other ETFs, are subject to trading costs that unit holders could overlook. We believe that additional disclosure will help investors better understand the total costs of investing in a UIT ETF. We therefore proposed to amend Form N-8B-2 to require UIT ETFs to provide the same disclosures regarding ETF trading and the associated costs as ETFs organized
Commenters that addressed this proposed provision generally supported these changes,
Below, Table 3 summarizes the amendments to Form N-8B-2 and the corresponding requirements in Form N-1A.
Form N-CEN is a structured form that requires registered funds to provide census-type information to the Commission on an annual basis.
We also are changing the definition of “authorized participant” in Form N-CEN to conform the definition with rule 6c-11 by deleting a specific reference to an authorized participant's participation in DTC.
In October 2016, the Commission adopted new rules and forms and amended other rules and forms under the Investment Company Act to modernize the reporting and disclosure of information by registered investment companies.
• Correcting footnote 1 of 17 CFR 210.12-14 (rule 12-14 of Regulation S-X) by replacing a reference to Column E with a reference to Column F.
• Amending General Instruction B.4.(a) of Form N-1A to update outdated citation references to 17 CFR 230.400 through 230.498 (Regulation C) by replacing references to 17 CFR 230.497 (rule 497) with references to rule 498.
• Amending General Instruction B.4.(d) of Form N-1A to update outdated citation references to 17 CFR 232.10 through 232.903 (Regulation S-T) by replacing references to rule 903 with references to rule 501.
• Amending Instruction 4(b) to Item 13 of Form N-1A by deleting outdated instructions regarding changes in methodology for determining the ratio of expenses to average net assets.
• Amending Form N-1A to require money market funds to state in their annual and semi-annual reports that: (i) Their monthly portfolio holdings are available on Form N-MFP; (ii) the money market fund's reports on Form N-MFP are available on the Commission's website; and (iii) the money market fund makes portfolio holdings information available to shareholders on its website.
• Amending Form N-CSR to correct references to item numbers in General Instruction D and in the instruction to Item 13.
• Amending General Instruction F (Public Availability) of Form N-PORT to read “With the exception of the non-public information discussed below, the information reported on Form N-PORT for the third month of each Fund's fiscal quarter will be made publicly available upon filing.”
• Withdrawing Instruction 23 of Reporting Modernization Adopting Release, which would have amended 17 CFR 232.401 (rule 401 of Regulation S-T) to remove references to Form N-Q.
• Amending Item IX of Form N-8B-2 to clarify the required designation of exhibits and the use of incorporation by reference in order to conform to similar instructions in other Investment Company forms.
The Commission is providing for a transition period for the amendments to Forms N-1A, N-8B-2, and N-CEN. Specifically, we are adopting compliance dates for our amendments to Form N-1A, Form N-8B-2, and Form N-CEN of December 22, 2020, one year following the amendments' effective date. All registration statements, post-effective amendments, and reports on these forms filed on or after the compliance date must comply with the amendments. Based on the staff's experience, we believe that this will provide adequate time for ETFs and other funds to compile and review the information that must be disclosed.
Pursuant to the Congressional Review Act,
We are mindful of the costs imposed by, and the benefits obtained from, our rules. Section 2(c) of the Investment Company Act, section 2(b) of the Securities Act, and section 3(f) of the Exchange Act state that when the Commission is engaging in rulmaking under such titles and is required to consider or determine whether the action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, the Commission shall consider whether the action will promote efficiency, competition, and capital formation, in addition to the protection of investors. Further, section 23(a)(2) of the Exchange Act requires the Commission to consider, among other matters, the impact such rules would have on competition and states that the Commission shall not adopt any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. The following analysis considers, in detail, the potential economic effects that may result from the rule, including the benefits and costs to investors and other market participants as well as the broader implications of the rule for efficiency, competition, and capital formation.
ETFs currently need to obtain an order from the Commission that exempts them from certain provisions of the Act that otherwise would prohibit several features essential to the structure and operation of ETFs. Obtaining such exemptive relief typically has resulted in expenses and delays in forming new ETFs. In addition, the conditions in the exemptive orders issued by the Commission have evolved over time. As a result, some ETF sponsors may have a competitive advantage over other sponsors because some exemptive orders allow the sponsors to launch new funds under the terms and conditions of those orders, and because the terms in some of these orders may be more flexible than others.
Rule 6c-11 will allow ETFs that satisfy certain conditions to operate without obtaining an exemptive order from the Commission. The Commission also is rescinding the exemptive relief we have issued to ETFs that will be permitted to operate in reliance on the rule. However, we anticipate that ETFs whose exemptive relief will be rescinded under the rule generally will be able to rely on the rule without substantially changing their current operations, as the rule's conditions are similar to those contained in existing exemptive relief, consistent with existing market practice, or generally more flexible than those contained within existing exemptive relief.
We believe that rule 6c-11 will establish a regulatory framework that: (1) Reduces the expense and delay currently associated with forming and operating certain ETFs unable to rely on existing orders; and (2) creates a level playing field for ETFs that can rely on the rule. As such, the rule will enable increased product competition among certain ETF providers, which can lead to lower fees for investors, encourage financial innovation, and increase investor choice in the ETF market.
The increased basket flexibility the rule affords in particular may benefit ETFs and their shareholders. To the extent that ETFs are able to implement basket policies and procedures that better facilitate the arbitrage mechanism, these ETFs may reduce their bid-ask spreads and thereby lower transaction costs for their investors. In addition, certain ETFs may be able to use the increased basket flexibility to reduce trading costs the ETF incurs.
The amendments to Forms N-1A and N-8B-2 as well as the additional website disclosures required by the rule are intended to improve the information
The rule and amendments to Forms N-1A and N-8B-2 also may impact non-ETF products and market participants. To the extent that the rule will lead to lower investor search costs, lower fees, and increased product innovation and investor choice in the ETF market, investors may shift their investments towards ETFs and away from funds similar to ETFs, such as mutual funds. Such a shift in investor demand also may affect broker-dealers and investment advisers, whose customers and clients may show increased interest in and demand for ETFs. Moreover, because ETF shares are traded on the secondary market, the rule also can affect exchanges, alternative trading systems, facilities for OTC trading, broker-dealers, and clearing agencies to the extent that the rule causes changes in the ETF trading activity they support.
The ETF industry has experienced extensive growth since the first U.S. ETF began trading in 1993.
At the end of December 2018, there were 1,978 registered ETFs, totaling $3.3 trillion in net assets and spanning six broad investment style categories. ETFs are predominantly structured as open-end funds; however, eight UIT ETFs together represented 10.3% of ETF total net assets ($340.6 billion), and 68 share class ETFs together represented 25.6% of total net assets ($854.6 billion). The chart illustrates growth in ETF net assets by investment strategy beginning in 2000. It also tracks the percentage of net assets invested in actively managed ETFs.
Although indexing is still the most common ETF strategy, over time ETFs have evolved to offer, among other things, active management, leveraged and inverse investment strategies, and exposure to various types of foreign securities (in both index-based and actively managed ETFs). At the end of December 2018, there were 167 leveraged/inverse ETFs that were structured as open-end funds.
There were 257 actively managed ETFs with total net assets of $69.5 billion. The remaining 1,721 ETFs, with a combined $3.23 trillion in net assets, were index-based ETFs. Of these, 1,713 ETFs with total net assets of $2.892 trillion were structured as open-end funds and eight UIT ETFs had total net assets of $340.6 billion.
The majority of ETFs (1,615) held some foreign exposure in their portfolio according to Morningstar data. These ETFs had total net assets of $2.921 trillion. Of these funds, seven were UIT ETFs and had $320.6 billion in net assets. The remaining 1,608 ETFs accounting for $2.6 trillion in net assets were organized as open-end funds. On average, these ETFs reported foreign exposure of 40.15% (56.87% for UIT ETFs and 40.07% for ETFs structured as open-end funds).
ETFs seeking to operate as investment companies required exemptive relief from the Commission. Since the first exemptive order was granted in 1992, the Commission has issued approximately 300 exemptive orders to ETFs. The average number of approved exemptive orders between 1992 and 2006 was approximately 2.5 per year, which has increased to approximately 29 per year since 2007.
Based on our review of exemptive orders that granted relief for unleveraged ETFs between January 2007 and early April 2019, the median processing time from the filing of an initial application to the issuance of an order was 213 days, although there was considerable variation.
In addition to the processing time associated with applying for an exemptive order, Commission staff estimates that the direct cost of a typical fund's application for ETF relief (associated with, for example, legal fees) is approximately $100,000, which may vary considerably depending on the complexity of the prospective fund.
These exemptive orders permit ETFs to operate as investment companies under the Investment Company Act, subject to representations and conditions, some of which have changed over time.
ETFs' flexibility to use custom baskets also has evolved over time under our exemptive orders. From 1996 to 2006, exemptive orders for open-end ETFs did not expressly limit baskets to a
Many exemptive orders also have required ETFs to provide certain website disclosures on their website, free of charge.
Several non-ETF market participants may be affected by the rule, including fund sponsors, authorized participants, liquidity providers, trading venues, and institutional and retail investors.
Using data from Bloomberg, we estimate that there are 81 unique ETF sponsors with approximately 1,978 ETFs as of December 31, 2018. The median number of ETFs per sponsor is six and the mean is 24, suggesting that a small number of sponsors have a large share of the ETF market (in terms of number of ETFs). Indeed, the top five sponsors operate a combined 965 ETFs, whereas the bottom half of sponsors operate only a combined 118 ETFs.
An ETF (either directly or through a service provider) has contractual arrangements with authorized participants to purchase or redeem ETF shares in creation unit size aggregations in exchange for a basket of securities and other assets. Based on data from Form N-CEN as of July 26, 2019, the median ETF has 23 authorized participant agreements and 4 active authorized participants.
Some authorized participants also act as registered market makers in ETF shares. Other liquidity providers for ETF shares include market makers that are not authorized participants, hedge funds, and proprietary trading firms. According to a 2014 survey, the median number of liquidity providers for an ETF was 17, while the median number of authorized participants that are
ETF shares are mainly traded on national securities exchanges.
Both institutional and retail investors participate in the ETF secondary market. As shown in Table 5 below, from the first quarter of 2015 to the fourth quarter of 2017, we estimate that institutions own, on average, 43% of ETF shares, when calculating the average using equal weights for all ETFs, and 57% when calculating the average using total net assets (“TNA”)—based weights. The difference between the equal-weighted and TNA-weighted average institutional ownership numbers—43% vs. 57%—suggests that institutional investors tend to hold larger ETFs. In addition, there is considerable variation in the degree to which ETF shares are held by institutions, ranging from an average for the 5th percentile of 6% to an average for the 95th percentile of 90%.
Further analysis shows that institutional ownership varies considerably by the type of ETF. Using Morningstar Categories, for the fourth quarter of 2017, Table 6 below shows that ETFs' equal-weighted average institutional ownership ranges from 20% for alternative ETFs to 56% for taxable bond ETFs. We also find that
Unlike shares of open-end funds, ETF shares are traded in the secondary market at prices that may deviate from the ETF's NAV. As a result, ETF investors may trade shares at prices that do not necessarily reflect the NAV of the underlying ETF assets.
Using data from Bloomberg, we find that ETFs, on average, have closing prices slightly higher than the NAV per share (
Premiums and discounts to NAV per share also vary considerably by the types of assets held by the ETF.
When the ETF arbitrage mechanism functions effectively, ETFs also should trade at smaller bid-ask spreads.
Table 10 below reports bid-ask spreads for ETF shares by Morningstar Category. U.S. Equity ETFs have the smallest average bid-ask spread of 0.03%, whereas allocation ETFs—ETFs that seek to provide both income and capital appreciation by investing in multiple asset classes, including stocks, bonds, and cash strategy—have the largest average bid-ask spread of 0.21%.
The summary statistics presented thus far in this section suggest that the arbitrage mechanism generally functions effectively during normal market conditions. However, the Commission has observed periods of market stress during which the arbitrage mechanism has functioned less effectively and during which there were significant deviations for some ETFs between market price and NAV per share and when bid-ask spreads widened considerably. These conditions only persisted for very short periods of time for the periods of market stress we have observed, suggesting that the arbitrage mechanism recovered quickly.
The Commission is sensitive to the economic effects that can result from rule 6c-11 and amendments to Forms N-1A and N-8B-2, including benefits and costs. Where possible, the Commission quantifies the likely economic effects; however, the Commission is unable to quantify certain economic effects because it lacks the information necessary to provide estimates or ranges. In some cases, quantification is particularly challenging due to the difficulty of predicting how market participants will act under the conditions of the rule. Nevertheless, as described more fully below, the Commission is providing both a qualitative assessment and quantified estimate of the economic effects, including the initial and ongoing costs of the additional disclosure requirements, where feasible.
Rule 6c-11 will allow ETFs to operate in reliance on a rule rather than individual exemptive orders if they meet the requirements and conditions of the rule. In addition, we are rescinding all existing ETF exemptive orders, with the exception of: (i) The section 12(d)(1) relief included in those orders that permit certain fund of funds arrangements;
Rule 6c-11 will grant exemptive relief from the provisions of the Act that otherwise prohibit several features essential to the ETF structure. This section evaluates the overall effect of reducing the expense and delay of operating certain new ETFs by granting this exemptive relief as part of a rule rather than through the individual exemptive order process.
As the requirements and conditions of the rule are either similar to those contained in existing exemptive orders, consistent with market practice, or generally provide more flexibility, we anticipate that the rule and the related rescission of ETF exemptive relief will not require any existing ETFs whose exemptive relief will be rescinded to significantly change the way they operate. Conversely, some ETFs whose exemptive orders contain conditions that are more restrictive than those contained in the rule may decide to change the way they operate in order to make use of such increased flexibility.
Relative to the baseline, rule 6c-11 will eliminate the costs associated with applying to the Commission for an exemptive order to form and operate as an ETF for funds relying on the rule. Specifically, the process of forming new ETFs in reliance on the rule will be quicker, more predictable, less complex, and therefore less costly than obtaining an exemptive order as new ETFs that cannot rely on existing orders are currently required to do. ETFs that cannot rely on the rule will continue to be required to apply for an exemptive order to form and operate, unless they have an existing exemptive order that includes future fund relief.
As described above in section IV.B.2, we estimate that the cost for a typical unleveraged ETF of filing for exemptive relief is $100,000. In addition, based on our review of exemptive orders that granted relief for unleveraged ETFs between January 2007 and early April 2019, the median processing time from the filing of an initial application to the issuance of an order was 213 days, although there was considerable variation. Thus, any new ETF planning to operate within the parameters set forth by the rule will save this expected cost and avoid this delay. In addition, such ETFs would avoid the uncertainty about the length of the delay associated with the exemptive order process, allowing each sponsor to better control the timetable for launching a new ETF product in a way that maximizes benefits to its business. Conversely, funds that are not able to comply with the conditions of the rule will continue to need to apply for an exemptive order. Assuming that the number of new ETFs seeking to form and operate under the rule that would otherwise need to apply for exemptive relief is equal to the annual average number of ETFs that have applied for exemptive relief since 2007, these cost and time savings would accrue to approximately 29 ETFs per year.
By eliminating the need for ETFs that can rely on the rule to seek an exemptive order from the Commission, the rule will also eliminate certain indirect costs associated with the exemptive application process. Specifically, ETFs that apply for an order forgo potential market opportunities until they receive the order, while others forgo the market opportunity entirely rather than seek an exemptive order because they have concluded that the cost of seeking an exemptive order would exceed the anticipated benefit of the market opportunity.
In addition, we believe that the rule will make it easier for some fund complexes to ensure that each ETF in the complex is in compliance with regulations. Specifically, we anticipate that it will be easier, and thus less costly, for ETF complexes that today operate funds under multiple exemptive orders to ensure compliance with a single set of requirements and conditions contained in the rule rather than with multiple exemptive orders to the extent that the orders vary in the requirements and conditions they contain.
We acknowledge that fund complexes may initially incur costs associated with assessing the requirements of the rule. However, we believe that these costs will be relatively small.
We expect that the rule also will benefit ETF investors to the extent that it will remove a possible disincentive for sponsors to form and operate new ETFs that provide investors with additional investment choices if they currently do not have relief. As noted above, the direct and indirect costs of the exemptive application process may discourage potential sponsors, particularly sponsors interested in offering smaller, more narrowly focused ETFs that may serve the particular investment needs of certain investors.
As we discuss below in section IV.D.2, we believe that the rule could increase competition in the ETF market as a whole, which could also lead to lower fees. Any effect of increased
By eliminating the need for individual exemptive relief, we anticipate that the rule will, over time, increase the number of ETFs and thus reinforce the current growth trend in the ETF industry. In addition, the rule will increase demand for such ETFs, to the extent that such ETFs lower their fees to investors and investors are sensitive to fees.
Since ETFs are traded in the secondary market, an increase in total assets of ETFs will likely coincide with larger trade volumes for the exchanges where ETFs are traded, as well as for the clearing agencies and broker-dealers involved in these trades. To the extent that these market participants are compensated by volume, the rule will thus benefit them by leading to an increase in revenues.
In addition, we expect the rule to reduce the number of applications for ETF exemptive relief. This will allow Commission staff more time to review applications for exemptive relief from registered investment companies, including those for more complex or novel ETFs that will continue to require exemptive relief. To the extent that this speeds up the processing time for these remaining applications, the rule may reduce the indirect costs of forming and operating for ETFs that seek to operate outside its parameters and for other registered investment companies that require exemptive relief to operate and, as a result, may promote innovation among these types of funds.
Rule 6c-11 contains several conditions that are designed to facilitate an effective arbitrage mechanism, reduce costs, and inform and protect investors. Beyond the general impact of reducing the expense and delay of new ETFs, many of the conditions in rule 6c-11 do not offer additional benefits or costs when measured against the baseline, as they are generally codifications of the current regulatory practice. However, some conditions are departures from current exemptive orders or current market practice and we discuss the effects of these departures in more detail below.
Arbitrage is the practice of buying and selling equivalent or similar assets (or portfolios of assets) in different markets to take advantage of a price difference.
There are several factors that are important for arbitrageurs to consider in order to determine the existence of arbitrage opportunities and execute an arbitrage strategy effectively. First, when the assets involved in the arbitrage are similar but not the same, as is the case for ETFs, arbitrage will be more effective the more closely the prices of the two assets track each other and the more transparency arbitrageurs have into any factors that may cause price differences between the two assets. In addition, arbitrage requires that arbitrageurs have the ability to enter into the trades necessary to execute the arbitrage strategy, and arbitrage is more effective the smaller and more predictable the associated trading costs are.
The rule will require ETFs relying on the rule to adopt and implement written policies and procedures that govern the construction of basket assets and the process that will be used for the acceptance of basket assets, including policies and procedures specific to the creation of custom baskets if the ETF uses custom baskets.
Although current exemptive orders contain varying provisions for basket flexibility, we do not believe that the rule will require existing ETFs to change how they construct baskets. Instead, the
We believe that fixed-income, international, and actively managed ETFs will particularly benefit from the increased basket flexibility under the rule if they currently operate under exemptive orders that do not allow custom baskets. For example, the increased basket flexibility should allow fixed-income ETFs to avoid losing hard-to-find bonds when meeting redemptions or to use sampling techniques to construct baskets that are composed of fewer individual bonds, thus reducing trading costs for authorized participants. Similarly, international ETFs will be able to tailor their creation and redemption baskets to accommodate difficulties in transacting in certain international securities. In addition, actively managed ETFs will, in certain instances, be able to use the increased basket flexibility to acquire or dispose of securities by adjusting the composition of the creation or redemption basket rather than by directly purchasing or selling the securities. In these instances, actively managed funds will be able to reduce certain transaction costs, such as those associated with bid-ask spreads.
For these reasons, we believe that, to the extent that ETFs are able to implement procedures that facilitate the arbitrage mechanism or reduce costs for those ETFs, the rule will benefit ETFs that use the increased basket flexibility the rule affords and will ultimately benefit their investors. One commenter submitted results from an empirical analysis that supported this assessment.
To the extent that existing ETFs do not already have policies and procedures governing basket assets in place or that existing policies and procedures are not consistent with the requirements of the rule, ETFs will incur costs associated with developing and implementing such policies and procedures. However, such costs may be partially or totally offset by the basket flexibility discussed above. We estimate that an average ETF will incur an initial cost of $10,718
Finally, although the rule's custom basket policies and procedures requirements are designed to reduce the potential for cherry-picking, dumping, and other potential abuses, we acknowledge that this principles-based approach may not be effective at preventing all such abuses. However, ETFs will be required to maintain records related to the custom baskets used, which will allow the Commission to examine for potential abuses.
As proposed, the rule also will require an ETF to disclose prominently on its website the portfolio holdings that will form the basis for the next calculation of NAV per share. This information allows authorized participants and other arbitrageurs to identify arbitrage opportunities and execute arbitrage trades that reduce premiums and discounts to NAV per share, ultimately benefiting all investors. In addition, we agree with a commenter who stated that portfolio transparency helps investors to better discern differences between ETFs that track similar indexes or have similar investment objectives.
The requirements for portfolio transparency in existing exemptive orders have varied. However, based on a staff review of ETFs' websites, we understand that all ETFs that can rely on the rule currently provide daily full portfolio transparency. Thus, ETFs that can rely on the rule already bear the ongoing costs associated with maintaining such disclosures.
Some commenters raised concerns that providing daily portfolio information on an ETF's website could expose the fund and its investors to
As proposed, rule 6c-11 would have required that an ETF's portfolio holdings disclosure be made on each business day: (1) Before the opening of regular trading on the primary listing exchange of the ETF's shares; and (2) before the ETF starts accepting orders for the purchase or redemption of creation units. The rule will omit the second requirement in order to accommodate the current industry practice of T-1 creation and redemption orders.
Compared to the proposal, the rule will require ETFs to present enumerated information regarding each portfolio holding (which are a more limited set of the disclosures currently required by the listing exchanges' generic listing standards for actively managed ETFs), rather than the description, amount, value, and unrealized gain/loss of each position in the manner prescribed by Article 12 of Regulation S-X. As discussed above in section II.C.4.b, we believe that this information will focus the disclosure on the pieces of information that are most relevant to investors while reducing the burden for ETFs of complying with the disclosure requirement. As a result, we believe that the disclosure format under the rule will provide similar benefits to investors at lower costs to ETFs.
Under the terms of the exemptive orders, ETFs are required to disclose in their registration statement that redemptions may be postponed for foreign holidays. Rule 6c-11 does not contain such a requirement and will thus eliminate the cost of preparing and updating this disclosure for existing ETFs. This information is already covered by the agreement between the ETF and the authorized participant.
The terms of the exemptive orders also require an ETF to identify itself in any sales literature as an ETF that does not sell or redeem individual shares and explain that investors may purchase or sell individual ETF shares through a broker via a national securities exchange. The rule will not include such a requirement, as we no longer believe that it is necessary given that markets have become familiar with ETFs in the multiple decades they have been available. The omission of such a requirement will lead to cost savings for existing and future ETFs associated with preparing and reviewing this disclosure for sales literature.
The rule will not require an ETF to disseminate its IIV, as is currently required under all exemptive orders and current exchange listing standards. To the extent that current exchange listing standards require IIV to be disseminated, the rule's omission of such a requirement will not represent a change from the baseline and will not result in any costs or benefits to market participants.
We believe, and commenters agreed, that many sophisticated institutional market participants do not rely on the IIV to value an ETF's assets, as discussed above in section II.C.3. In addition, the IIV may not reflect the intrinsic value of certain ETFs' assets (
Some commenters stated that retail investors relying on IIV could see their ability to evaluate ETFs reduced without this metric.
Rule 6c-11 will require an ETF to disclose certain information prominently on its website.
Our exemptive orders have not included requirements for line graph and tabular historical information regarding premiums and discounts. While Form N-1A contains tabular website disclosures related to historical premiums/discounts in Items 11(g)(2) and 27(b)(7)(iv), which we are eliminating for ETFs that will rely on rule 6c-11, we anticipate that all existing ETFs that fall within the scope of the rule will still incur some additional costs associated with these disclosures.
Our exemptive orders have not included a requirement for ETFs to provide disclosure if an ETF's premium or discount is greater than 2% for more than seven consecutive trading days and the factors that materially contributed to a premium or discount, if known. As a result, under the rule those ETFs that experience such a premium or discount will incur additional costs associated with determining what factors contributed to the premiums or discounts and drafting and uploading a discussion to their website.
Based on a staff analysis of historical data on ETF premiums and discounts from 2008 to 2018 using Bloomberg data, we believe that, on average, 4.5% of ETFs that can rely on the rule will trigger this disclosure requirement each year.
The rule also will require additional disclosure by the ETF of the median bid-ask spread for the most recent 30-day period on its website. This requirement is modified from the proposal, which would have required an ETF to disclose the median bid-ask spread for the ETF's most recent fiscal year on its website and in its prospectus.
We believe that the rule's disclosure requirement will further inform investors about the expected cost of trading an ETF and facilitate comparison of transaction costs across ETFs. As such, the disclosure of median bid-ask spreads could reduce investors' uncertainty about the trading environment. We agree with commenters that actual bid-ask spreads paid by ETF investors can be influenced by a variety of factors, including order size, market conditions, as well as the broker-dealer used.
Existing exemptive orders do not require ETFs to disclose median bid-ask spreads. As a result, we assume that all ETFs operating under the final rule will have to implement processes and systems to compute the median bid-ask spreads and will have to accommodate a new data point on their web page to report this information.
The requirement of disclosures on ETFs' websites we are adopting will enable investors to more readily obtain certain key information for individual ETFs, potentially resulting in better informed trading decisions.
The rule will require ETFs to preserve and maintain copies of all written authorized participant agreements for at least five years, the first two years in an easily accessible place. This requirement will provide Commission examination staff with a basis to evaluate whether the authorized participant agreement is in compliance with the rule and other provisions of the Investment Company Act and the rules thereunder, and also will promote internal supervision and compliance.
We also are requiring ETFs to maintain information regarding the baskets exchanged with authorized participants on each business day, including a record identifying any custom basket and stating that the custom basket complies with the ETF's custom basket policies and procedures. We believe that these records will help our examination staff understand how baskets are being used by ETFs, evaluate compliance with the rule and other provisions of the Act and rules thereunder and other applicable law, and examine for potential overreach by ETFs in connection with the use of custom baskets or transactions with affiliates.
Existing exemptive orders have not required ETFs to preserve and maintain copies of authorized participant agreements or information about basket composition, or to prepare and maintain a record identifying each custom basket and stating that custom baskets comply with the custom basket policies and procedures. However, we believe that most ETFs, as a matter of established business practice, already preserve and maintain copies of authorized participant agreements as well as data on baskets used.
As discussed below in section V.B.2, we estimate the average annual cost for an ETF to comply with these recordkeeping requirements is $393 per year.
We will rescind the master-feeder relief granted to ETFs, with the exception of master-feeder relief that funds relied on as of the date of the 2018 ETF Proposing Release (June 28, 2018). We are rescinding such relief because there generally is a lack of industry interest in ETF master-feeder arrangements, and certain master-feeder arrangements raise policy concerns, as discussed above in section II.F. While there are currently many exemptive orders that contain the master-feeder relief, it is our understanding that only one fund complex currently relies on this relief to structure master-feeder arrangements with one master and one feeder fund each.
The amendments to Forms N-1A and N-8B-2 are designed to provide investors with tailored information regarding the costs associated with investing in ETFs.
We are amending Forms N-1A and N-8B-2 to include information on ETF trading and associated costs that we anticipate will help investors better understand costs specific to ETFs, such as bid-ask spreads.
ETFs will incur costs associated with these new disclosures on Forms N-1A and N-8B-2.
As proposed, we are amending Form N-CEN to require identification of ETFs that are relying on rule 6c-11.
This section evaluates the impact of rule 6c-11 and the amendments to Forms N-1A, N-8B-2, and N-CEN on efficiency, competition, and capital formation. However, as discussed in further detail below, the Commission is unable to quantify the effects on efficiency, competition and capital formation either because they are inherently difficult to quantify or because it lacks the information necessary to provide a reasonable estimate.
The rule will likely increase total assets of ETFs, as a result of reducing the expense and delay of forming and operating new ETFs organized as open-end funds, reducing the cost for certain ETFs to monitor their own compliance with regulations, and increasing competition among ETFs as discussed below. At the same time, the rule could
The literature also suggests that a shift in stock ownership towards ETFs may somewhat improve certain dimensions of price efficiency while possibly attenuating price efficiency along other dimensions. Specifically, the results in one paper suggest that stock prices incorporate systematic information more quickly when they are held in ETF portfolios.
To a limited extent, the rule could decrease the liquidity of stocks held by ETFs, as one study finds that higher ownership of a stock by U.S. equity ETFs is associated with somewhat lower liquidity as measured by market impact.
A shift in stock ownership towards ETFs could also have an effect on the co-movement of liquidity for stocks held by ETFs. Specifically, one paper observes that the liquidity of a stock with high ETF ownership co-moves with the liquidity of other stocks that also have high ETF ownership.
Since we do not know the degree to which the rule will increase ETF ownership of stocks and bonds, we are unable to quantify the rule's effects on price efficiency and liquidity. However, the effects documented in the literature surveyed above are generally small, so that we do not anticipate that the rule would have a significant effect on the price efficiency or liquidity of assets held by ETFs.
As a result of the rule's allowance of increased basket flexibility, some ETFs that did not already have this flexibility in their baskets may choose to increase the weight of more liquid securities and decrease the weight of less liquid securities in their baskets compared to their portfolios.
Finally, the amendments to Forms N-1A and N-8B-2 as well as the additional website disclosures required by rule 6c-11 we are adopting will allow investors and other market participants to better understand and compare ETFs using more relevant and standardized disclosure. For example, the amendments to Item 6 of Form N-1A will add a requirement for ETFs to include a statement that ETF investors may be subject to other expenses that are specific to ETF trading, including
The rule will likely increase competition among ETFs that can rely on the rule. The first channel through which the rule will likely foster competition is by reducing the costs for ETF sponsors to form new ETFs that comply with the conditions set by the rule. This cost reduction will lower the barriers to entering the ETF market, which will likely lead to increased competition among ETFs that can rely on the rule.
In addition, new ETFs that enter the market in reliance on the rule, as well as those existing ETFs that will have their exemptive relief rescinded and replaced by the rule, will no longer be subject to requirements that vary among exemptive orders.
Furthermore, the new website disclosures and amendments to Forms N-1A and N-8B-2 will allow investors to better compare ETFs and mutual funds, which can further foster competition among these types of funds as well as between these types of funds and other types of funds that investors may perceive to be substitutes for ETFs and mutual funds, such as closed-end funds and certain ETPs.
Increased competition will likely lead to lower fees for investors, encourage financial innovation, and increase consumer choice in the markets for ETFs, mutual funds, and other types of funds that investors may perceive to be substitutes.
To the extent the rule will increase the number and total assets of ETFs, more authorized participants or other market participants that engage in ETF arbitrage, such as hedge funds and principal trading firms, may enter the market. This may lead to increased competition among authorized participants or other market participants and result in authorized participants or other market participants exploiting arbitrage opportunities sooner (
The rule may lead to increased capital formation. Specifically, an increase in the demand for ETFs, to the extent that it increases demand for intermediated assets as a whole, will likely spill over into primary markets for equity and debt securities. As a consequence, companies may be able to issue new debt and equity at higher prices in light of the increased demand for these assets in secondary markets created by ETFs and the cost of capital for firms could fall, facilitating capital formation.
The conclusion that an increase in the demand for ETFs may lower the firm's cost of capital is further supported by a paper
Rule 6c-11 does not include a basket publication requirement. As an alternative, we considered requiring an ETF to post on its website one “published” basket each business day before the opening of trading of the ETF's shares, as we proposed. This disclosure would allow smaller institutional investors and retail investors that are not NSCC members and do not currently have access to basket information to compare the ETF's “published basket” with its portfolio holdings.
We also considered requiring an ETF to publish information regarding every custom basket used by the ETF after the close of trading on each business day. This information could reveal whether an authorized participant has pressured an ETF into accepting illiquid securities in exchange for liquid ETF shares (
However, the rule contains conditions for basket policies and procedures, which seek to prevent overreaching. Moreover, the rule will require an ETF to maintain records regarding the baskets used, which will allow Commission staff to examine an ETF's use of basket flexibility. We also agree with commenters that requiring publication of all baskets could disadvantage an ETF and its shareholders by allowing market participants to front-run trades by authorized participants (or other arbitrageurs that use an authorized participant as an agent) in basket securities, particularly for those ETFs that have more frequent primary market transactions.
Consequently, we believe that the risk for abusive practices under the rule will be low while, at the same time, the rule will avoid additional operational and compliance costs for ETFs to post and review the information as well as potential costs associated with front-running trades in basket securities under the alternative.
As proposed, the rule will require any ETF whose premium or discount was greater than 2% for more than seven consecutive trading days to post that information on its website, along with a discussion of the factors that are reasonably believed to have materially contributed to the premium or discount. One commenter suggested that we raise the threshold for the size of the premiums or discounts to five or ten percent while shortening the period over which the premium or discount has to be sustained for the requirement to trigger.
Under both the rule and the alternative, ETFs with premiums or discounts greater than five percent for more than seven consecutive trading days would provide the disclosure. The disclosure threshold under the rule will also capture ETFs with premiums or discounts greater than two and up to five percent for more than seven consecutive trading days, which would not be captured under the alternative. Conversely, the disclosure threshold under the alternative would also capture ETFs with premiums or discounts greater than five percent for between three and six consecutive trading days, which will not be captured under the rule.
We estimate that 1.7 percent of those ETFs that can rely on the rule would trigger the alternative disclosure threshold per year, compared to 4.5 percent under the rule. From 2008 and 2018, the percentage of ETFs that would have triggered the requirement would have been largest in 2008. In that year, 4.6 percent of ETFs that could have relied on the rule would have triggered the alternative threshold, compared to 10 percent under the rule.
The lower incidence of reporting under the alternative would decrease the costs incurred by ETFs associated with making the disclosure,
Another commenter suggested that we adopt a materiality standard rather than a fixed numerical threshold to trigger the reporting requirement.
Rule 6c-11 will require an ETF to disclose the median bid-ask spread calculated over the most recent 30-day period on its website.
We agree with commenters that computing the median bid-ask spread over a 30-day rolling period, rather than over the proposed 1-year lookback period, may provide a more accurate predictor of trading costs for newly launched ETFs whose bid-ask spreads may tighten as the ETFs mature.
We considered amending Forms N-1A and N-8B-2 to require an ETF to provide: (1) Examples in the ETF's prospectus showing how bid-ask spreads impact the return on a hypothetical investment for both buy-and-hold and frequent traders; and (2) an interactive calculator on the ETF's website that would allow an investor to customize the hypothetical bid-ask spread calculations to its specific investing situation, as proposed. Some investors may find the additional disclosures under this alternative useful to understand the effect of transaction costs resulting from bid-ask spreads on their investments; however, we agree with commenters that this benefit could be diminished by over-concentrating investor focus on bid-ask spreads, thereby potentially obscuring the importance of other components of ETF transaction costs (
As proposed, rule 6c-11 will not require ETFs to disseminate IIV as a condition for reliance on the rule. As an alternative, we considered requiring an ETF to publicly disseminate a modified IIV on its website on a real time basis as a condition to rule 6c-11, requiring ETFs to calculate IIVs more frequently and in a more accessible manner. We also considered creating a methodology that takes into account circumstances when market prices for underlying assets are not available or should not be used to reflect the ETF's intraday value. As we discussed above in section II.C.3, such a modified IIV would benefit retail and less sophisticated institutional investors by allowing them to better evaluate the value of an ETF intra-day. However, we are concerned that these modifications would not cure the shortcomings of IIV for ETFs in a uniform manner. We encourage the ETF industry to undertake efforts to develop intraday value metrics targeted at these investors as we believe that ETFs are in a position to consider and develop tailored metrics for ETFs holding different asset classes in a format that is useful for retail investors.
The rule will require ETFs to post on their websites certain disclosures to enable investors to more readily obtain certain key metrics for individual ETFs. As an alternative, we considered requiring ETFs to post the disclosures in a structured format on their websites. Structured disclosures are made machine-readable by having reported disclosure items labeled (tagged) using a markup language that can be processed by software for analysis.
The structured data requirement could impose a cost on ETFs of tagging the information in a structured format, particularly to the extent that ETFs do not otherwise structure this data in this manner for their own purposes.
As another alternative, we considered requiring ETFs to make the additional website disclosures available in a centralized repository in a structured format, such as by filing them on EDGAR.
Rule 6c-11 will require ETFs relying on the rule to adopt and implement written policies and procedures that govern the construction of basket assets and the process that will be used for the acceptance of basket assets. As an alternative, we considered requiring that an ETF's basket generally correspond
The requirement included in these orders was designed to address the risk that an authorized participant or other market participant could take advantage of its relationship with the ETF (
As proposed, we will rescind the exemptive relief we have issued to ETFs that will be permitted to rely on the rule. As an alternative, we considered allowing ETFs with existing exemptive relief in orders that do not contain a self-termination clause to continue operating under their relief rather than requiring them to operate in reliance on the rule.
The Commission believes that allowing ETFs to continue operating under their existing relief would create differences in the conditions under which funds that would otherwise be subject to rule 6c-11 operate. Specifically, some ETFs that determine they do not need the additional flexibility (
Measured against the baseline, the alternative would thus have smaller benefits arising from improved disclosure. For example, an ETF that chose to continue to operate under its existing exemptive relief would not be required to present its portfolio holdings in the standardized format prescribed by rule 6c-11. As discussed in section IV.C.1.b.i above, we believe that this requirement will benefit investors of ETFs that are subject to rule 6c-11 by allowing them to more easily identify arbitrage opportunities and compare ETFs that have similar investment objectives. In addition, the alternative would not level the playing field among ETFs subject to rule 6c-11 with regard to these conditions and thus not be as effective at promoting product competition as the rule. One commenter agreed, stating that the rescission of the orders will further the Commission's regulatory goal of creating a consistent regulatory framework for ETFs.
Rule 6c-11 will be available only to ETFs that are organized as open-end funds.
In addition, as ETFs have greater investment flexibility under the open-end fund structure than the UIT structure, we believe that most new ETFs entering into the market will prefer to operate under the open-end fund structure rather than the UIT structure. No new UIT ETFs have come to market in recent years, and we do not think that there would be significant economic benefits to including UITs in the scope of the rule.
As discussed in section II.A.3 above, leveraged/inverse ETFs will not be able to rely on final rule 6c-11. As an alternative, we considered permitting leveraged/inverse ETFs to rely on the rule, while maintaining the status quo of existing exemptive orders with respect to the amount of leveraged market exposure that leveraged/inverse ETFs may obtain (
This alternative could benefit competition among leveraged/inverse ETFs as compared to the baseline, as fund sponsors that currently do not have an exemptive order permitting them to operate this type of ETF could enter the market. As a result, fees for leveraged/inverse ETFs would likely decrease and their assets could increase.
Rule 6c-11 will result in new “collection of information” requirements within the meaning of the Paperwork Reduction Act of 1995 (“PRA”).
The titles for the existing collections of information are: “Form N-1A under the Securities Act of 1933 and under the Investment Company Act of 1940, Registration Statement for Open-End Management Companies” (OMB No. 3235-0307); “Form N-8B-2 under the Investment Company Act of 1940, Registration Statement of Unit Investment Trusts Which are Currently Issuing Securities” (OMB No. 3235-0186); “Form S-6 [17 CFR 239.19], for registration under the Securities Act of 1933 of Unit Investment Trusts registered on Form N-8B-2” (OMB Control No. 3235-0184); “Form N-CEN” (OMB Control No. 3235-0730); and “Rule 0-2 under the Investment Company Act of 1940, General Requirements of Papers and Applications” (OMB Control No. 3235-0636). The title for the new collection of information would be: “Rule 6c-11 under the Investment Company Act of 1940, `Exchange-traded funds.' ” The Commission is submitting these collections of information to the Office of Management and Budget (“OMB”) for review in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. 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.
We published notice soliciting comments on the collection of information requirements in the 2018 ETF Proposing Release and submitted the proposed collections of information to OMB for review and approval in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11. We received no comments on the collection of information requirements. We discuss below the collection of information burdens associated with rule 6c-11 and its impact on rule 0-2 as well as the amendments to Forms N-1A, N-8B-2, S-6 and N-CEN.
Rule 6c-11 will permit ETFs that satisfy certain conditions to operate without first obtaining an exemptive order from the Commission. The rule is designed to create a consistent, transparent, and efficient regulatory framework for such ETFs and facilitate greater competition and innovation among ETFs. The rule attempts to eliminate historical distinctions and conditions that we no longer believe are necessary and thus appropriately level the playing field for open-end ETFs that pursue the same or similar investment strategies.
Rule 6c-11 will require an ETF to disclose certain information on its website, to maintain certain records, and to adopt and implement written policies and procedures governing its constructions of baskets, as well as written policies and procedures that set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interests of the ETF and its shareholders. These requirements are collections of information under the PRA.
The respondents to rule 6c-11 will be ETFs registered as open-end management investment companies other than share class ETFs, leveraged/inverse ETFs, or non-transparent ETFs. This collection will not be mandatory, but will be necessary for those ETFs seeking to operate without individual exemptive orders, including all ETFs whose existing exemptive orders will be rescinded. In the 2018 ETF Proposing Release, we estimated that 1,635 ETFs would likely rely on rule 6c-11.
Rule 6c-11 will require an ETF to disclose on its website, each business day, the portfolio holdings that will form the basis for each calculation of NAV per share.
Rule 6c-11(c)(1)(vi) also will require any ETF whose premium or discount was greater than 2% for more than seven consecutive trading days to post that information on its website, along with a discussion of the factors that are reasonably believed to have materially contributed to the premium or discount.
Table 11 above summarizes the proposed PRA estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated with the website disclosures in rule 6c-11.
Rule 6c-11 will require an ETF to preserve and maintain copies of all written authorized participant agreements.
Table 12 above summarizes the proposed PRA estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated with the recordkeeping requirements in rule 6c-11.
As proposed, rule 6c-11 will require ETFs relying on the rule to adopt and implement written policies and procedures that govern the construction of baskets and the process that will be used for the acceptance of basket assets.
Table 13 above summarizes the proposed PRA estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated with the policies and procedures requirements in rule 6c-11.
As summarized in Table 14 above, we estimate that the total hour burdens and time costs associated with rule 6c-11, including the burden associated with website disclosure, recordkeeping, and developing policies and procedures will result in an average aggregate annual burden of 74,466.2 hours and an average aggregate time cost of $24,771,740.10. We also estimate that there are external costs of $1,735,000 associated with this collection of information. Therefore,
Section 6(c) of the Act provides the Commission with authority to conditionally or unconditionally exempt persons, securities or transactions from any provision of the Act if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Rule 0-2 under the Act, entitled “General Requirements of Papers and Applications,” prescribes general instructions for filing an application seeking exemptive relief with the Commission.
As discussed above, rule 6c-11 will permit ETFs that satisfy the conditions of the rule to operate without the need to obtain an exemptive order from the Commission under the Act. Therefore, rule 6c-11 will alleviate some of the burdens associated with rule 0-2 because it will reduce the number of entities that require exemptive relief in order to operate.
Table 15 above summarizes the proposed estimates included in the 2018 ETF Proposing Release.
Form N-1A is the registration form used by open-end management investment companies. The respondents to the amendments to Form N-1A are open-end management investment companies registered or registering with the Commission. Compliance with the disclosure requirements of Form N-1A is mandatory for open-end funds (to the extent applicable) including all ETFs organized as open-end funds. Responses to the disclosure requirements are not confidential. We currently estimate for Form N-1A a total hour burden of 1,642,490 burden hours and external cost of $131,139,208.
We are adopting amendments to Form N-1A designed to provide investors who purchase open-end ETF shares in secondary market transactions with tailored information regarding ETFs, including information regarding purchasing and selling shares of ETFs.
Form N-1A generally imposes two types of reporting burdens on investment companies: (i) The burden of preparing and filing the initial registration statement; and (ii) the burden of preparing and filing post-effective amendments to a previously effective registration statement (including post-effective amendments filed pursuant to rule 485(a) or 485(b) under the Securities Act, as applicable).
Table 16 above summarizes the proposed PRA estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated Form N-1A as amended.
As summarized in Table 16 above, we estimate that the total hour burdens and time costs associated with the amendments to Form N-1A will result in an average aggregate annual burden of 19,700 hours at an average aggregate time cost of $6,860,170.40. We do not estimate any change in external cost. Therefore the revised aggregate estimates for Form N-1A, including the new amendments, are 1,662,190 hours and $131,338,208 in external costs.
Form N-8B-2 is used by UITs to initially register under the Investment Company Act pursuant to section 8 thereof.
To assist investors with better understanding the total costs of investing in a UIT ETF, we are adopting disclosure requirements in Form N-8B-2 that mirror those disclosures we are adopting for Form N-1A.
Table 17 and Table 18 above summarize the proposed PRA estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated with Forms S-6 and N-8B-2, respectively.
As summarized in Table 17 above, we estimate that the total hour burdens and time costs associated with the amendments to Form S-6 will result in an average aggregate annual burden of 114 hours at an average aggregate time cost of $50,112. We do not estimate any change in external cost. Therefore, the revised aggregate estimates for Form S-6, including the new amendments, are 107,359 hours and $68,108,956 in external costs.
As summarized in Table 18 above, we estimate that the total hour burdens and time costs associated with the amendments affecting Form N-8B-2 will result in an average aggregate annual burden of 18 hours at an average aggregate time cost of $6,264. We do not estimate any change in external cost. Therefore, the revised aggregate estimates for Form N-8B-2, including the new amendments, are 28 hours and $10,000 in external costs.
As discussed above, Form N-CEN is a structured form that requires registered funds to provide census-type information to the Commission on an annual basis.
Table 19 above summarizes the proposed estimates included in the 2018 ETF Proposing Release and the final PRA estimates associated with Form N-CEN as amended.
The Commission has prepared the following Final Regulatory Flexibility Analysis (“FRFA”) in accordance with section 4(a) of the Regulatory Flexibility Act (“RFA”),
As described more fully above, rule 6c-11 will allow ETFs that meet the conditions of the rule to form and operate without the expense and delay of obtaining an exemptive order from the Commission. The Commission's objective is to create a consistent, transparent and efficient regulatory framework for ETFs and to facilitate greater competition and innovation among ETFs. The Commission also believes the amendments to Forms N-1A and N-8B-2 will provide useful information to investors who purchase and sell ETF shares in secondary markets. Finally, the Commission believes the amendments to Form N-CEN will allow the Commission to better monitor reliance on rule 6c-11 and will assist the Commission with its accounting, auditing and oversight functions.
All of these requirements are discussed in detail in section II above. The costs and burdens of these requirements on small ETFs are discussed below as well as above in our Economic Analysis and Paperwork Reduction Act Analysis, which discuss the costs and burdens on all ETFs.
In the 2018 ETF Proposing Release, we requested comment on every aspect of the IRFA, including the number of small entities that would be affected by the proposed rule and amendments, the existence or nature of the potential impact of the proposals on small entities discussed in the analysis and how to quantify the impact of the proposed rule and amendments. We also requested comment on the broader impact of the proposed rule and amendments on all relevant entities, regardless of size. After consideration of the comments we received on the proposed rule and amendments, we are adopting the rule and amendments with several modifications that are designed to reduce certain operational challenges that commenters identified, while maintaining protections for investors and providing investors with useful information regarding ETFs. However, none of the modifications were significant to the small-entity cost burden estimates discussed below. Revisions to the estimates are instead based on updated figures regarding the number of small entities impacted by the new rule and amendments and updated estimated wage rates.
An investment company is a small entity if, together with other investment companies in the same group of related investment companies, it has net assets of $50 million or less as of the end of its most recent fiscal year.
The new rule and amendments will impact current reporting, recordkeeping and other compliance requirements for ETFs considered small entities.
Rule 6c-11 will require an ETF to disclose on its website: (i) Portfolio holding information each business day; (ii) the ETF's current NAV per share, market price, and premium or discount, each as of the end of the prior business day; (iii) if an ETF's premium or discount is greater than 2% for more than seven consecutive trading days, to post that information and a discussion of the factors that are reasonably believed to have materially contributed to the premium or discount; (iv) a table and line graph showing the ETF's premiums and discounts; and (v) the ETF's median bid-ask spread over the last thirty calendar days.
We estimate that approximately 9 ETFs are small entities that will comply with rule 6c-11, and we do not believe that their costs would differ from other ETFs. As discussed above, we estimate that an ETF will incur an annual burden of approximately 36.97 hours, at an average time cost of approximately $11,758.97, and an external cost of $1,000.00.
As we discuss in greater detail in section IV.C.1 above, we expect rule 6c-11 to have other, generally unquantifiable economic effects. For example, by eliminating the need for ETFs that can rely on the rule to seek an exemptive order from the Commission, the rule will also eliminate certain indirect costs associated with the exemptive application process.
The amendments to Form N-1A and Form N-8B-2 are designed to provide investors who purchase ETF shares in secondary market transactions with tailored information regarding ETFs, including information regarding costs associated with an investment in ETFs. Specifically, the amendments to Form N-1A will: (i) Require new disclosure regarding ETF trading and associated costs; (ii) require ETFs that are not subject to rule 6c-11 to disclose median bid-ask spread information on their websites or in their prospectuses; and (iii) exclude ETFs that provide premium/discount disclosures in accordance with rule 6c-11 from the premium and discount disclosure requirements in the form.
All ETFs (including ETFs that do not rely on rule 6c-11) will be subject to the amended Form N-1A or Form N-8B-2 (depending on the ETF's structure as an open-end fund or UIT), and Form N-CEN disclosure and reporting requirements, including ETFs that are small entities. We estimate that 9 ETFs are small entities that will be required to comply with the requirements on Form N-1A and Form N-CEN.
As we discuss in greater detail in section IV.C.2 above, we expect the new disclosure amendments to have other, generally unquantifiable economic effects. For example, we believe that the new disclosures will benefit investors by helping them better understand and compare specific funds, potentially resulting in more informed investment decisions, more efficient allocation of investor capital, and greater competition for investor capital among funds.
The RFA directs the Commission to consider significant alternatives that would accomplish our stated objectives, while minimizing any significant economic impact on small entities. We considered the following alternatives for small entities in relation to the adopted regulations:
• Exempting ETFs that are small entities from the disclosure, reporting or recordkeeping requirements, to account for resources available to small entities;
• establishing different disclosure, reporting or recordkeeping requirements or different frequency of these requirements, to account for resources available to small entities;
• clarifying, consolidating, or simplifying the compliance requirements under the amendments for small entities; and
• using performance rather than design standards.
We do not believe that exempting any subset of ETFs, including small entities, from rule 6c-11 or the related form amendments will permit us to achieve our stated objectives. Nor do we believe establishing different disclosure, reporting or recordkeeping requirements or different frequency of these requirements for small entities would permit us to achieve our stated objectives. Similarly, we do not believe that we can establish simplified or consolidated compliance requirements for small entities under the rule without compromising our objectives. As discussed above, the conditions necessary to rely on rule 6c-11 and the reporting, recordkeeping and disclosure requirements are designed to provide investor protection benefits, including, among other things, tailored information regarding ETFs, including information regarding costs associated with an investment in ETFs. These benefits should apply to investors in smaller funds as well as investors in larger funds. Similarly, we do not believe it would be in the interest of investors to exempt small ETFs from the disclosure and reporting requirements or to exempt small ETFs from the recordkeeping requirements. We believe that all ETF investors, including investors in small ETFs, will benefit from disclosure and reporting requirements that permit them to make investment choices that better match their risk tolerances. Additionally, the current disclosure requirements for reports on Form N-1A and Form N-8B-2 do not distinguish between small entities and other funds.
Finally, we believe that rule 6c-11 and related disclosure and reporting requirements appropriately use a combination of performance and design standards. Rule 6c-11 provides ETFs that satisfy the requirements of the rule with exemptions from certain provisions of the Act necessary for ETFs to operate. Because the provisions of the Act from which ETFs would be exempt provide important investor and market protections, the conditions of the rule must be specifically designed to ensure that these investor and market protections are maintained. However, where we believe that flexibility is beneficial, we adopted performance-based standards that provide a regulatory framework, rather than prescriptive requirements, to give funds the opportunity to adopt policies and procedures tailored to their specific needs without raising investor or market protection concerns.
The Commission is adopting new rule 6c-11 pursuant to the authority set forth in sections 6(c), 22(c), and 38(a) of the Investment Company Act [15 U.S.C. 80a-6(c), 80a-22(c), and 80a-37(a)]. The Commission is adopting amendments to registration Forms N-1A and N-CSR under the authority set forth in sections 6, 7(a), 10 and 19(a) of the Securities Act of 1933 [15 U.S.C. 77f, 77g(a), 77j, 77s(a)], and sections 8(b), 24(a), and 30 of the Investment Company Act [15 U.S.C. 80a-8(b), 80a-24(a), and 80a-29]. The Commission is adopting amendments to registration Form N-8B-2 under the authority set forth in section 8(b) and 38(a) of the Investment Company Act [15 U.S.C. 80a-8(b) and 80a-37(a)]. The Commission is adopting amendments to Form N-CEN and Form N-PORT under the authority set forth sections 8(b), 30(a), and 38(a) of the Investment Company Act [15 U.S.C. 80a-8(b), 80a-29(a), and 80a-37(a)]. The Commission is adopting amendments to Regulation S-X under the authority set forth in sections 7, 8, 10, and 19 of the Securities Act [15 U.S.C. 77g, 77h, 77j, 77s], and sections 8(b), 30(a), 31, and 38(a) of the Investment Company Act [15 U.S.C. 80a-8(b), 80a-29(a), 80a-30, and 80a-37(a)]. The Commission is providing relief in Section II.G, permitting ETFs relying on rule 6c-11 to enter into fund of funds arrangements, pursuant to the authority set forth in sections 6(c), 12(d)(1)(J) and 17(b).
Accounting, Investment companies, Reporting and recordkeeping requirements, Securities.
Reporting and recordkeeping requirements, Securities.
Investment companies, Reporting and recordkeeping requirements, Securities.
On page 82019, in the second column, remove amendatory instruction 23 for § 232.401, which was to be effective August 1, 2019, but was delayed until May 1, 2020, in a rule published on December 14, 2017 (82 FR 58731).
For reasons set out in the preamble, title 17, chapter II of the Code of Federal Regulations is amended as follows:
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26), 77nn(25), 77nn(26), 78c, 78j-1, 78l, 78m, 78n, 78o(d), 78q, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-20, 80a-29, 80a-30, 80a-31, 80a-37(a), 80b-3, 80b-11, 7202 and 7262, and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012), unless otherwise noted.
15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 77sss, 78c, 78
15 U.S.C. 80a-1
Section 270.6c-11 is also issued under 15 U.S.C. 80a-6(c) and 80a-37(a).
(a)
(A) A basket that is composed of a non-representative selection of the exchange-traded fund's portfolio holdings; or
(B) A representative basket that is different from the initial basket used in transactions on the same business day.
(A) That issues (and redeems) creation units to (and from) authorized participants in exchange for a basket and a cash balancing amount if any; and
(B) Whose shares are listed on a national securities exchange and traded at market-determined prices.
(A) The official closing price of an exchange-traded fund share; or
(B) If it more accurately reflects the market value of an exchange-traded fund share at the time as of which the exchange-traded fund calculates current net asset value per share, the price that is the midpoint between the national best bid and national best offer as of that time.
(2) Notwithstanding the definition of exchange-traded fund in paragraph (a)(1) of this section, an exchange-traded fund is not prohibited from selling (or redeeming) individual shares on the day of consummation of a reorganization, merger, conversion or liquidation, and is not limited to transactions with authorized participants under these circumstances.
(b)
(1)
(2)
(3)
(i) Holding with the power to vote 5% or more of the exchange-traded fund's shares; or
(ii) Holding with the power to vote 5% or more of any investment company that is an affiliated person of the exchange-traded fund.
(4)
(c)
(i) Before the opening of regular trading on the primary listing exchange of the exchange-traded fund shares, the following information (as applicable) for each portfolio holding that will form the basis of the next calculation of current net asset value per share:
(A) Ticker symbol;
(B) CUSIP or other identifier;
(C) Description of holding;
(D) Quantity of each security or other asset held; and
(E) Percentage weight of the holding in the portfolio;
(ii) The exchange-traded fund's current net asset value per share, market price, and premium or discount, each as of the end of the prior business day;
(iii) A table showing the number of days the exchange-traded fund's shares traded at a premium or discount during the most recently completed calendar year and the most recently completed calendar quarters since that year (or the life of the exchange-traded fund, if shorter);
(iv) A line graph showing exchange-traded fund share premiums or discounts for the most recently completed calendar year and the most recently completed calendar quarters since that year (or the life of the exchange-traded fund, if shorter);
(v) The exchange-traded fund's median bid-ask spread, expressed as a percentage rounded to the nearest hundredth, computed by:
(A) Identifying the exchange-traded fund's national best bid and national best offer as of the end of each 10 second interval during each trading day of the last 30 calendar days;
(B) Dividing the difference between each such bid and offer by the midpoint of the national best bid and national best offer; and
(C) Identifying the median of those values; and
(vi) If the exchange-traded fund's premium or discount is greater than 2% for more than seven consecutive trading days, a statement that the exchange-traded fund's premium or discount, as applicable, was greater than 2% and a discussion of the factors that are reasonably believed to have materially contributed to the premium or discount, which must be maintained on the website for at least one year thereafter.
(2) The portfolio holdings that form the basis for the exchange-traded fund's next calculation of current net asset value per share must be the ETF's portfolio holdings as of the close of business on the prior business day.
(3) An exchange-traded fund must adopt and implement written policies and procedures that govern the construction of baskets and the process that will be used for the acceptance of baskets;
(i) Set forth detailed parameters for the construction and acceptance of custom baskets that are in the best interests of the exchange-traded fund and its shareholders, including the process for any revisions to, or deviations from, those parameters; and
(ii) Specify the titles or roles of the employees of the exchange-traded fund's investment adviser who are required to review each custom basket for compliance with those parameters.
(4) The exchange-traded fund may not seek, directly or indirectly, to provide investment returns that correspond to the performance of a market index by a specified multiple, or to provide investment returns that have an inverse relationship to the performance of a market index, over a predetermined period of time.
(d)
(1) All written agreements (or copies thereof) between an authorized participant and the exchange-traded fund or one of its service providers that allows the authorized participant to place orders for the purchase or redemption of creation units;
(2) For each basket exchanged with an authorized participant, records setting forth:
(i) The ticker symbol, CUSIP or other identifier, description of holding, quantity of each holding, and percentage weight of each holding composing the basket exchanged for creation units;
(ii) If applicable, identification of the basket as a custom basket and a record stating that the custom basket complies with policies and procedures that the exchange-traded fund adopted pursuant to paragraph (c)(3) of this section;
(iii) Cash balancing amount (if any); and
(iv) Identity of authorized participant transacting with the exchange-traded fund.
15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
The additions and revisions read as follows:
The text of Form N-1A does not, and this amendment will not, appear in the
GENERAL INSTRUCTIONS
“Exchange-Traded Fund” means a Fund or Class, the shares of which are listed and traded on a national securities exchange, and that has formed and operates under an exemptive order granted by the Commission or in reliance on rule 6c-11 [17 CFR 270.6c-11] under the Investment Company Act.
“Market Price” has the same meaning as in rule 6c-11 [17 CFR 270.6c-11] under the Investment Company Act.
This table describes the fees and expenses that you may pay if you buy, hold, and sell shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $[ ] in [name of fund family] funds. More information about these and other discounts is available from your financial intermediary and in [identify section heading and page number] of the Fund's prospectus and [identify section heading and page number] of the Fund's statement of additional information.
1.
(e) If the Fund is an Exchange-Traded Fund, exclude any fees charged for the purchase and redemption of the Fund's creation units.
(c)
(1) That Individual Fund shares may only be bought and sold in the secondary market through a broker or dealer at a market price;
(2) That because ETF shares trade at market prices rather than net asset value, shares may trade at a price greater than net asset value (premium) or less than net asset value (discount);
(3) That an investor may incur costs attributable to the difference between the highest price a buyer is willing to pay to purchase shares of the Fund (bid) and the lowest price a seller is willing to accept for shares of the Fund (ask) when buying or selling shares in the secondary market (the “bid-ask spread”);
(4) If applicable, how to access recent information, including information on the Fund's net asset value, Market Price, premiums and discounts, and bid-ask spreads, on the Exchange-Traded Fund's website; and
(5) The median bid-ask spread for the Fund's most recent fiscal year.
1. A Fund may omit the information required by paragraph (c)(5) of this Item if it satisfies the requirements of paragraph (c)(1)(v) of Rule 6c-11 [17 CFR 270.6c-11(c)(1)(v)] under the Investment Company Act.
2. An Exchange-Traded Fund that had its initial listing on a national securities exchange at or before the beginning of the most recently completed fiscal year must include the median bid-ask spread for the Fund's most recent fiscal year. For an Exchange-Traded Fund that had an initial listing after the beginning of the most recently completed fiscal year, explain that the Exchange-Traded Fund did not have a sufficient trading history to report trading information and related costs. Information should be based on the most recently completed fiscal year end.
3. Bid-Ask Spread (Median). Calculate the median bid-ask spread by dividing the difference between the national best bid and national best offer by the mid-point of the national best bid and national best offer as of the end of each ten-second interval throughout each trading day of the Exchange-Traded Fund's most recent fiscal year. Once the bid-ask spread for each ten-second interval throughout the fiscal year is determined, sort the spreads from lowest to highest. If there is an odd number of spread intervals, then the median is the middle number. If there is an even number of spread intervals, then the median is the average between the two middle numbers. Express the spread as a percentage, rounded to the nearest hundredth percent.
4. A Fund may combine the information required by Item 6(c)(4) into the information required by Item 1(b)(1) and Rule 498(b)(1)(v) [17 CFR 230.498(b)(1)(v)] under the Securities Act.
Item 11. Shareholder Information
(a)
(1) An explanation that the price of Fund shares is based on the Fund's net asset value and the method used to value Fund shares (market price, fair value, or amortized cost); except that if the Fund is an Exchange-Traded Fund, an explanation that the price of Fund shares is based on a market price.
(g)
(1) The Fund may omit from the prospectus the information required by Items 11(a)(2), (b), and (c).
(2) Provide a table showing the number of days the Market Price of the Fund shares was greater than the Fund's net asset value and the number of days it was less than the Fund's net asset value (
Item 27. Financial Statements
(b) * * *
(7) * * *
(iv) Provide a table showing the number of days the Market Price of the Fund shares was greater than the Fund's net asset value and the number of days it was less than the Fund's net asset value (
(d) * * *
(1) * * *
1.
(e) If the fund is an Exchange-Traded Fund:
(ii) Exclude any fees charged for the purchase and redemption of the Fund's creation units.
(3) * * *
A Money Market Fund will omit the statement required by Item 27(d)(3) and instead provide a statement that (i) the Money Market Fund files its complete schedule of portfolio holdings with the Commission each month on Form N-MFP; (ii) the Money Market Fund's reports on Form N-MFP are available on the Commission's website at
The additions and revisions read as follows:
The text of Form N-8B-2 does not, and this amendment will not, appear in the
(h) If the trust is an Exchange-Traded Fund, furnish an explanation indicating that an ETF investor may pay additional fees not described by any other item in this form, such as brokerage commissions and other fees to financial intermediaries.
(i) If the trust is an Exchange-Traded Fund, furnish the disclosures and information set forth in Item 6(c) of Form N-1A [referenced in 17 CFR 274.11A]. Provide information specific to the trust as necessary, utilizing the ETF-specific methodology set forth in the Instructions to Form N-1A Item 6(c). The Fund may omit the information required by Item 6(c)(5) of Form N-1A if it satisfies the requirements of paragraph (c)(1)(v) of Rule 6c-11 [17 CFR 270.6c-11(c)(1)(v)] under the Investment Company Act.
(j) If the trust is an Exchange-Traded Fund, provide a table showing the number of days the Market Price of the Fund shares was greater than the Fund's net asset value and the number of days it was less than the Fund's net asset value (
Subject to General Instruction 2(d) regarding incorporation by reference and rule 483 under the Securities Act, file the exhibits listed below as part of the registration statement. Letter or number the exhibits in the sequence indicated, unless otherwise required by rule 483. Reflect any exhibit incorporated by reference in the list below and identify the previously filed document containing the incorporated material.
The addition and revision read as follows:
The text of Form N-CEN does not, and this amendment will not, appear in the
* * *
* * *
k. Rule 6(c)-11 (17 CFR 270.6c-11):__
* * *
* * *
* * *
* * *
The text of Form N-PORT does not, and this amendment will not, appear in the
* * *
* * *
With the exception of the non-public information discussed below, the information reported on Form N-PORT for the third month of each Fund's fiscal quarter will be made publicly available upon filing.
By the Commission.
Board of Governors of the Federal Reserve System.
Notice of proposed rulemaking.
The Board of Governors of the Federal Reserve System (Board) is inviting comment on a proposal to establish risk-based capital requirements for depository institution holding companies that are significantly engaged in insurance activities. The Board is proposing a risk-based capital framework, termed the Building Block Approach, that adjusts and aggregates existing legal entity capital requirements to determine an enterprise-wide capital requirement, together with a risk-based capital requirement excluding insurance activities, in compliance with section 171 of the Dodd-Frank Act. The Board is additionally proposing to apply a buffer to limit an insurance depository institution holding company's capital distributions and discretionary bonus payments if it does not hold sufficient capital relative to enterprise-wide risk, including risk from insurance activities. The proposal would also revise reporting requirements for depository institution holding companies significantly engaged in insurance activities.
Comments must be received on or before December 23, 2019.
You may submit comments, identified by Docket No. R-1673 and RIN 7100-AF 56, by any of the following methods:
•
•
•
•
All public comments are available from the Board's website at
Thomas Sullivan, Associate Director, (202) 475-7656; Linda Duzick, Manager, (202) 728-5881; Matti Peltonen, Supervisory Insurance Valuation Analyst, (202) 872-7587; Brad Roberts, Supervisory Insurance Valuation Analyst, (202) 452-2204; or Matthew Walker, Supervisory Insurance Valuation Analyst, (202) 872-4971; Division of Supervision and Regulation; or Laurie Schaffer, Associate General Counsel, (202) 452-2272; David Alexander, Senior Counsel, (202) 452-2877; Andrew Hartlage, Counsel, (202) 452-6483; or Jonah Kind, Senior Attorney, (202) 452-2045; Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. For the hearing impaired only, Telecommunication Device for the Deaf, (202) 263-4869.
The Board of Governors of the Federal Reserve System (Board) is issuing this notice of proposed rulemaking (NPR) to seek comment on a proposal to establish risk-based capital requirements for certain depository institution holding companies significantly engaged in insurance activities (insurance depository institution holding companies).
In response to the 2007-09 financial crisis, Congress enacted the Dodd-Frank Act, which, among other objectives, was enacted to ensure fair and appropriate supervision of depository institutions without regard to the size or type of charter and streamline the supervision of depository institutions (DIs) and their holding companies. In furtherance of these objectives, Title III of the Dodd-Frank Act expanded the Board's supervisory role beyond bank holding companies (BHCs) by transferring to the Board all supervisory functions related to savings and loan holding companies (SLHCs) and their non-depository subsidiaries. As a result, the Board became the federal supervisory authority for all DI holding companies, including insurance depository institution holding companies.
Any capital requirements the Board may establish for SLHCs are subject to minimum standards under the Dodd-Frank Act. Specifically, section 171 of the Dodd-Frank Act requires the Board to establish minimum risk-based and leverage capital requirements on a consolidated basis for depository institution holding companies.
The Board issued a revised capital rule in 2013, which served to strengthen the capital requirements applicable to banking organizations supervised by the Board by improving both the quality and quantity of regulatory capital and increasing risk-sensitivity. In consideration of requirements of section 171 of the Dodd-Frank Act, in 2012, the Board had sought comment on the proposed application of the revised capital rule to all firms supervised by the Board that are subject to regulatory capital requirements, including all savings and loan holding companies significantly engaged in insurance activities. In response, the Board received comments by or on behalf of supervised firms engaged primarily in insurance activities that requested an exemption from the capital rule in order to recognize differences in their business model compared with those of more traditional banking organizations. After considering these comments, the Board determined to exclude insurance SLHCs from the application of the rule.
Section 171 of the Dodd-Frank Act was amended in 2014 (2014 Amendment) to provide the Board flexibility when developing consolidated capital requirements for insurance depository institution holding companies.
The 2014 Amendment to section 171 of the Dodd-Frank Act does not require the Board to exclude state-regulated, or certain foreign-regulated, insurers from its risk-based capital requirements. The Board has considered that exclusion of these insurers from the measurement and application of all risk-based capital requirements could present challenges to the Board's ability to timely and accurately assess the risk profile and capital adequacy of the entire organization and fulfill the Board's responsibility as a prudential supervisor of the organization. A more effective regulatory capital framework, reflecting the Board's objectives as consolidated supervisor of insurance depository institution holding companies, would capture all risks that face the enterprise and potentially could jeopardize the organization's ability to serve as a source of financial strength to the subsidiary IDI. There is support for taking this approach in both section 171 of the Dodd-Frank Act and section 10 of HOLA.
Section 171 of the Dodd-Frank Act also provides that the Board may not require, under its authority pursuant to section 171 of the Dodd-Frank Act or HOLA, financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) from a supervised firm that is also a state-regulated insurer and only files financial statements utilizing Statutory Accounting Principles (SAP).
On June 14, 2016, the Board published in the
Among other things, the ANPR provided stakeholders with an opportunity to comment on the Board's development of a capital framework for insurance depository institution holding companies at an early stage. This NPR builds upon the discussion in the ANPR and reflects the Board's review of comments submitted in response to the ANPR. The comments are generally addressed below.
The Board received 27 public comments on the ANPR from interested parties including supervised insurance companies, insurers not supervised by the Board, insurance and other trade associations, regulatory and actuarial associations, and others. Generally, commenters supported the Board's proposed tailoring of a capital requirement that is insurance-centric and appreciated the transparency and early opportunity to provide comment. Commenters agreed that capital frameworks should capture all material companies and risks faced by insurers, reflect on- and off-balance sheet exposures, and build on existing capital frameworks where possible. According to commenters, the Board's capital framework also should be informed by its potential effects on asset allocation decisions of insurers, not unduly incentivizing or disincentivizing allocation to certain asset classes. Commenters generally supported the Board's proposal to efficiently use legal entity capital requirements within an appropriate capital framework for both insurance depository institution holding companies and those insurance firms designated by the FSOC as systemically important. Commenters further suggested that the BBA should be built on principles that include minimal adjustments to already-applicable capital frameworks, indifference as to structure of the supervised firm, comparability across capital frameworks to which the supervised firm's entities are subject, appropriately reflecting insurance and non-insurance frameworks, and transparency. Commenters observed that the BBA would align relatively well with regulators' treatment of capital at individual companies and, consequently, the ways that capital may not be fungible.
In the ANPR, the Board asked what capital requirement should be used for insurance companies, banking companies, and companies not subject to any company-level capital requirement, as used in the BBA. For insurance companies subject to the NAIC's risk-based capital (RBC) requirements, commenters generally supported the use of required capital at the Company Action Level (CAL) under the NAIC RBC framework, with some preferring the use of a greater threshold, often termed the “trend test” level.
According to commenters, among the key disadvantages of the BBA would be that the framework must reconcile possibly divergent valuation and accounting practices. As an aggregated approach, the BBA may not align with the insurance depository institution holding company's own internal approach for risk assessment, which may be conducted on a consolidated basis. Commenters expressed varying views on whether the BBA would be prone to regulatory arbitrage, but many noted that this may not be a shortcoming of the BBA if capital movements are subject to restrictions. With regard to specific implementation issues, commenters noted, among other things, that the BBA may entail challenges in calibrating scalars (the mechanism used to bring divergent capital frameworks to a common basis), identifying scalars with a sufficient level of granularity, and addressing differences in global valuation practices. Furthermore, commenters noted that valuation bases for required capital may differ from valuation bases for available capital.
Some commenters raised concerns about implementation costs and, noting that the BBA as set out may tend to have relatively low impact in terms of costs to regulators and the industry, suggested implementing the BBA over a timeframe in the range of one to two years. Multiple commenters agreed that the BBA is expected to have minimal setup and ongoing maintenance and compliance costs. One commenter noted that since the BBA is a tailored approach that uses a firm's existing books and records without compromising supervisory objectives, the BBA's design is anticipated to aid in controlling the burden.
The Board sought comment on the criteria that should be used to determine which supervised firms would be subject to the BBA. Commenters generally did not disagree with the Board's proposal to apply the BBA to supervised firms with 25 percent or more of total consolidated assets attributable to insurance underwriting activities (other than assets associated with insurance underwriting for credit risk). One commenter suggested that insurance liabilities, rather than dedicated assets, should be considered the principal indicator of insurance activity. Some comments suggested that the Board should consider a depository institution holding company to be an insurance depository institution holding company subject to the BBA when either the ultimate parent of the enterprise is an operating insurance underwriting company, or, if this is not the case, by applying the 25 percent threshold suggested in the ANPR.
The Board's proposed threshold for treating a depository institution holding company as significantly engaged in insurance activities, and thus subject to the BBA, is set out in Section IV.B.
A preliminary question in applying the BBA is whether and, if so, how, the individual companies under an insurance depository institution holding company should be grouped before they are aggregated.
Some comments advocated an approach of keeping all companies together under a common parent as far up in the organizational structure as possible. Other comments saw merit to grouping a subsidiary IDI distinctly from an insurance parent. A number of commenters voiced views on standards for materiality or immateriality in determining whether to include companies under an insurance depository institution holding company when applying the BBA. More generally, commenters voiced openness to deeming companies immaterial if they do not pose significant risk to the insurance depository institution holding company.
The Board's proposed approach to grouping companies in an insurance depository institution holding company's enterprise in applying the BBA is set out in Section IV.C.
In the ANPR, the Board suggested that subsidiaries not subject to capital requirements, such as some mid-tier holding companies, would be treated under the Board's banking capital rule. Commenters expressed concern that this treatment may not always be appropriate, depending on whether the subsidiary's activities are more closely aligned with insurance or banking activities in the enterprise. Commenters suggested that, where the subsidiary's activities are related to insurance operations, treating these companies under capital frameworks applicable to the operating insurance parent of such companies may be more appropriate.
The Board's proposed treatment of non-insurance, non-banking companies under the BBA is discussed further in Section IV.C.
Generally, commenters favored relatively few or modest adjustments to available capital and capital requirements under existing capital frameworks when applying the BBA. According to commenters, adjustments should be focused on addressing accounting mismatches or gaps or to eliminate double-counting. Among other things, commenters advocated adjustments to reverse intercompany transactions and ensure that adequate capital is held to reflect the risks in captive insurance companies. Specific proposed adjustments included, among others, addressing valuation differences, reversing intercompany loans and guarantees, and reversing the downstreaming of capital.
Numerous commenters advocated the use of adjustments to eliminate state permitted and prescribed accounting practices, essentially reverting insurers' accounting treatment to that prescribed by the NAIC. With regard to implementation burden, one commenter noted that it likely would not be unduly burdensome to obtain the data related to permitted and prescribed practices for purposes of applying an adjustment under the BBA.
In response to the ANPR's question on how the BBA should address intercompany transactions, commenters suggested that at least some adjustments for intercompany transactions would be necessary, with varying views on the types of transactions that should be addressed through adjustments. Commenters similarly expressed that assets and liabilities associated with intercompany transactions should not be charged twice for the risks they pose and that intercompany transactions that result in shifting risk from one subsidiary to another should be reviewed.
Many commenters expressed views that unwinding of intercompany transactions should be limited to those needed to prevent double-counting of capital. According to comments, capital should be counted only once as available capital. In particular, commenters highlighted double-leverage, whereby an upstream company's debt proceeds are infused into a downstream subsidiary as equity, resulting in equity at the subsidiary level that is offset by the liability at the parent and, hence, capital-neutral at the enterprise-level.
The proposed treatment of adjustments in the BBA is addressed in Sections VI.B and VII.B.
In the BBA, existing capital requirements would be scaled to a common basis, addressing, among other things, cross-jurisdictional differences. Commenters advocated a framework for the BBA that distinguished between jurisdictions with capital frameworks suitable to be used and subjected to scalars (scalar-compatible frameworks) versus those with capital frameworks that should neither be used nor scaled (non-scalar-compatible frameworks).
A number of commenters advocated that the distinction between scalar-compatible and non-scalar-compatible frameworks should rest on three attributes that the frameworks should possess: (1) Risk-sensitivity; (2) clear regulatory intervention triggers; and (3) transparency in areas such as reserving, capital requirements, and reporting of capital measures. For material companies in a non-scalar-compatible framework, commenters suggested that their data should be restated to a scalar-compatible framework and then scaled in the BBA.
Section V of this NPR explains the Board's approach to scaling in the BBA, including the methodology adopted to produce this scaling approach.
Generally, commenters suggested that available capital under the BBA should be closely aligned with available capital permitted under state insurance laws. In its ANPR, the Board asked whether the BBA should include more than one tier of capital.
The Board's proposed approach to determining available capital under the BBA is set out in Section VII.
The proposed BBA is an approach to a consolidated capital requirement that considers all material risks on an enterprise-wide basis by aggregating the capital positions of companies under an insurance holding company after expressing them in terms of a common capital framework.
In each building block, the BBA generally applies the capital framework for that block to the subsidiaries in that block. For instance, in a life insurance building block, subsidiaries within this block would be treated in the BBA the way they would be treated under life insurance capital requirements. In a
The BBA framework was designed to produce a consolidated risk-based capital requirement that is not less stringent than the results derived from the Board's banking capital rule. To enable aggregation of available capital and capital requirements across different building blocks, the BBA proposes a mechanism (scaling) to translate a capital position under one capital framework to its equivalent in another capital framework.
In designing the BBA, the Board considered, among other things, the activities and risks of insurance institutions, existing legal entity capital requirements, input from interested parties, comments to the ANPR, and the requirements of federal law. The Board sought to develop the BBA to reflect risks across the entire firm in a manner that is as standardized as possible, rather than relying predominantly on a supervised firm's internal capital models. Furthermore, the BBA is built on U.S. regulatory and valuation standards that are appropriate for the U.S. insurance industry.
Board staff also met with interested parties, including members of the NAIC, to solicit their views on the overall development of the BBA. Input from the NAIC and states has helped identify areas of commonality between the BBA and the Group Capital Calculation (GCC) that is under development by the NAIC, achieve consistency between those frameworks wherever possible, and minimize burden upon firms that may be subject to both frameworks, while remaining respectful of the various objectives of the relevant supervisory bodies and legal environments.
These considerations exist in the context of the Board's participation in the international insurance standard-setting process and development of the international Insurance Capital Standard (ICS), an approach the Board did not follow in designing the BBA. The ICS is being developed through the International Association of Insurance Supervisors (IAIS) as a consolidated group-wide prescribed capital requirement for internationally active insurance groups (IAIGs).
The purpose of the ICS Monitoring Period is to monitor the performance of the ICS over time. It is not intended to be used as supervisory mechanism to evaluate the capital adequacy of IAIGs. The ICS Monitoring Period is intended to provide a period of stability for the design and calibration of the ICS so that group-wide supervisors, with the support of supervisory colleges, may compare the ICS to existing group standards or those in development, assess whether material risks are captured and appropriately calculated, and report any difficulties encountered. Reporting during the Monitoring Period will include a reference ICS as well as additional reporting at the request of the group-wide supervisor.
The reference ICS is comprised of a market-adjusted valuation approach (MAV), which is a market-based balance sheet valuation approach similar to that used under the Solvency II framework, along with a standard method for determining capital requirements and common criteria for available capital. At the group-wide supervisor's request, ICS 2.0 will also include an alternative valuation approach, GAAP with Adjustments, that is based on local GAAP accounting rules and reporting with certain adjustments to produce results that are comparable to the reference ICS. In addition, supervisors may request information on internal models as an alternative approach for calculating risk weights. During the Monitoring Period, the IAIS will also continue with the collection of information and field-testing of the Aggregation Method.
The reference ICS may not be optimal for the Board's supervisory objectives, considering the risks and activities in the U.S. insurance market. In the United States, financial firms frequently serve a substantial role in facilitating their customers' long-term financial planning. Insurers in the United States meet consumers financial planning needs with life insurance and annuity products in addition to property/casualty products to protect personal and real property and limit liability. Insurers match life insurance and annuity long-duration products with a long-term investment strategy.
As proposed, the BBA would appropriately reflect, rather than unduly penalize, long-duration insurance liabilities in the United States. In the United States, an aggregation-based approach like the BBA could also strike a better balance between entity-level, and enterprise-wide, supervision of insurance firms.
The Board believes that the capital requirements proposed in this NPR advance the regulatory objectives of the Board as consolidated supervisor of insurance depository institution holding companies, including ensuring enterprise-wide safety and soundness, and protecting the subsidiary IDIs. Based on the Board's preliminary review, the Board does not anticipate that any currently supervised insurance depository institution holding company will initially need to raise capital to meet the requirements of the BBA. Moreover, the BBA is consistent with the Board's continuing emphasis on adopting a tailored approach to supervision and regulation in a manner that streamlines implementation burden.
In light of the requirements of the Dodd-Frank Act, in addition to the BBA, the Board is proposing to apply a separate minimum risk-based capital requirement calculation (the Section 171 calculation) to insurance depository institution holding companies that uses the flexibility afforded under the 2014 amendments to section 171 of the Dodd-Frank Act to exclude certain state and foreign regulated insurance operations and to exempt top-tier insurance underwriting companies.
As previously discussed, section 171 of the Dodd-Frank Act requires the Board to establish minimum risk-based and leverage capital requirements for depository institution holding companies. These requirements may not be less than the “generally applicable” capital requirements for IDIs, nor quantitatively lower than the capital requirements that applied to IDIs on July 21, 2010.
Notwithstanding the general requirement of section 171 of the Dodd-Frank Act that the minimum risk-based capital requirements established by the Board for depository institution holding companies apply on a consolidated basis, section 171(c) provides that the Board is not required to include for any purpose of section 171 (including in any determination of consolidation) any entity regulated by a state insurance regulator or a regulated foreign subsidiary or certain regulated foreign affiliates of such entity engaged in the business of insurance.
Currently, only a depository institution holding company that is a bank holding company or a “covered savings and loan holding company”
(i) An institution that meets the requirements of section 10(c)(9)(C) of HOLA (12 U.S.C. 1467a(c)(9)(C)); and
(ii) As of June 30 of the previous calendar year, derived 50 percent or more of its total consolidated assets or 50 percent of its total revenues on an enterprise-wide basis (as calculated under GAAP) from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k));
(2) A top-tier savings and loan holding company that is an insurance underwriting company; or
(3) A top-tier savings and loan holding company that, as of June 30 of the previous calendar year, held 25 percent or more of its total consolidated assets in subsidiaries that are insurance underwriting companies (other than assets associated with insurance for credit risk).
Under the proposed Section 171 calculation the Board's existing minimum risk-based capital requirements would generally apply to a top-tier insurance SLHC on a consolidated basis when this company is not an insurance underwriting company. In the case of an insurance SLHC that is an insurance underwriting company, the requirements would instead apply to any insurance SLHC's subsidiary SLHC that is not itself an insurance underwriting company and is not a subsidiary of any SLHC other than the insurance SLHC, provided that the subsidiary SLHC is the farthest upstream non-insurer SLHC (
The proposed Section 171 calculation would be implemented by amending the definition of “covered savings and loan holding company” for the purposes of the Board's banking capital rule.
As a result of this amendment to the definition of “covered savings and loan holding company,” insurance SLHCs generally would become subject to the minimum risk-based capital requirements in the Board's banking capital rule. However, under the proposed rule, top-tier holding companies that are engaged in insurance underwriting and regulated by a state insurance regulator, or certain foreign insurance regulators, would not be required to comply with the generally applicable risk-based capital requirements.
As noted, under the proposed Section 171 calculation, an insurance SLHC subject to the generally applicable risk-based capital requirements (
With regard to the regulatory capital treatment of an insurance SLHC's (or insurance mid-tier holding company's) equity investment in subsidiary insurers that do not consolidate assets and liabilities with the holding company pursuant to the election, the proposal presents two alternative approaches for comment.
As previously noted, in addition to risk-based capital requirements, section 171 requires the Board to establish minimum leverage capital requirements for depository institution holding companies. The Board's banking capital rule includes a minimum leverage ratio of 4 percent tier 1 capital to average total assets.
A holding company electing to de-consolidate the assets and liabilities of all of its subsidiary state- and certain foreign regulated insurers would make this election, and indicate the manner in which it will account for its equity investment in such subsidiaries, on the applicable regulatory report filed by the holding company for the first reporting period in which it is subject to the Section 171 calculation. A holding company seeking to make such an election at a later time, or to change its election due to a change in control, business combination, or other legitimate business purpose, would be required to receive the prior approval of the Board.
The proposed BBA is an approach to a consolidated capital requirement that aggregates the capital positions of companies under an insurance depository institution holding company, adjusted as prescribed in the proposed rule, and scaled to a common capital framework. The proposed BBA would group companies into subsets of the full enterprise, called building blocks, where the company that owns or controls each building block is termed a “building block parent.” The purpose of a building block is to group together companies generally falling under the same capital framework (namely, the framework of the building block parent). Each building block parent's applicable capital framework would be used to determine that parent's capital position.
An important part of applying the BBA is identifying the building block parents in an insurance depository institution holding company's enterprise. Section IV.C below discusses the steps to determine the building block parents, including identifying an inventory of companies from which building block parents are identified based on the applicable capital framework assigned to the companies for use in the BBA. Ultimately, all of the building blocks are aggregated into the top-tier depository institution holding company's building block, thereby resulting in an amount of available capital and capital requirement for the top-tier depository institution holding company used to calculate its BBA ratio.
The proposed BBA would apply to depository institution holding companies significantly engaged in insurance activities. The Board proposed in the ANPR that a firm would be subject to the BBA if the top-tier parent were an insurance underwriting company or 25 percent of its total assets were in insurance underwriting subsidiaries. In this NPR, the Board proposes to leave this threshold unchanged. A firm would be subject to the BBA if: (1) The top-tier DI holding company is an insurance underwriting company; (2) the top-tier DI holding company, together with its subsidiaries, holds 25 percent or more of its total consolidated assets in insurance underwriting subsidiaries (other than assets associated with insurance underwriting for credit risk related to bank lending);
As consolidated supervisor of the top-tier DI holding company of an insurance depository institution holding company, the Board proposes to include, within the scope of the BBA calculation, all owned or controlled subsidiaries of this top-tier parent.
Currently, the insurance depository institution holding companies are all SLHCs and the current proposed definition of top-tier depository institution holding company in the BBA only encompasses SLHCs. However, it is possible for a bank holding company (which is also a depository institution holding company under the FDI Act) to be significantly engaged in insurance activities as determined by applying the threshold described earlier in this section. In particular, under the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA),
In order to identify the set of companies that would be grouped into building blocks and aggregated, an insurance depository institution holding company would first identify an inventory of all companies in its enterprise. Some of the companies in the inventory would be building block parents. The remaining companies would be assigned to building block parents.
To construct the inventory, the Board prefers including a broad set of companies that reflects the firm's full enterprise under the BBA's scope and provides an appropriately wide range of candidates for building block parents. A framework for constructing the inventory that relied on, for instance, the definitions of “control” under U.S. GAAP may be burdensome to apply and set a relatively higher bar for inclusion of affiliates, resulting in too few companies appearing on the inventory. The Board notes that the NAIC's Schedule Y, filed annually as part of the SAP financial statements, is advantageous in utilizing a standard for “control” that enables more subsidiaries and affiliates to be included.
Because it is possible that certain banking, SLHC, or nonbanking companies may not appear on the supervised firm's Schedule Y (but would appear on the firm's regulatory filings with the Board), the Board sought to augment the inventory by adding to the set of companies obtained from Schedule Y the companies appearing on the Board's Forms FR Y-6 and FR Y-10. These forms use a definition of control setting out scenarios where one company has control over another through a variety of ways, including ownership, control of voting securities, and management agreements. The Board considers that through the combination of companies appearing on Forms FR Y-6 and FR Y-10, and the NAIC's Schedule Y,
While the inventory in the BBA will generally comprise the companies shown on the forms discussed above, the Board also seeks to ensure that the supervised firm's organizational and control structure does not materially alter the scope of risks that the BBA considers. Firms may engage in transactions with counterparties not shown on these forms, where these transactions have the effect of transferring risk or evading application the BBA. For such circumstances, the BBA includes a mechanism to include these counterparties in the inventory.
As discussed below, applying the BBA and performing its calculations rests on identifying the building block parents among the companies in the inventory. Once these building block parents are identified, all of their subsidiaries, whether or not listed on the inventory, would fall within the scope of the BBA.
An illustration of this step in applying the BBA is presented in Section IX.A.
In the BBA, the term “applicable capital framework” refers to a regulatory capital framework that is used to determine whether a company should be a building block parent, and, once a company is assigned to a building block, to measure the capital resources of that company and the amount of risk the company contributes to the overall enterprise. Once a company is identified as a building block parent, its applicable capital framework would be used to reflect the capital position across all of the subsidiaries in the building block, including subsidiaries that are not directly subject to any regulatory capital framework.
For the insurance operations, insurance capital requirements are likely to best reflect the underlying risks.
For banking companies, the Board was mindful of the reflection of risks in the banking capital requirements. The Board proposes to incorporate the regulatory capital framework established for a depository institution by its primary Federal banking regulator as the depository institution's applicable capital framework, because the capital framework has been calibrated to reflect the potential impact of various risk exposures common to banking organizations (primarily in the form of assets) on the risk profile of a depository institution. In particular, an IDI's applicable capital framework is determined as follows:
The Board proposes to include, within the scope of the BBA, the insurance depository institution holding company predominantly engaged in title insurance through a tailored application of the Board's banking capital rule.
As a simplified example of the determination of companies' applicable capital frameworks, consider an insurance depository institution holding company consisting of a life insurance top-tier parent with two subsidiaries, a P&C insurer and the IDI. Each of these companies would fall under a different applicable capital framework, namely, for the top-tier parent, NAIC RBC for life insurance; for the P&C subsidiary, NAIC RBC for P&C insurance; and for the IDI, the appropriate Federal banking capital rule. A further illustration of this step in applying the BBA is presented in Section IX.B.
Under the proposed BBA, a building block parent can be one of several different types of companies. The first is the top-tier depository institution holding company. In the absence of any other identified building block parents, the top-tier depository institution holding company's building block would contain all of the top-tier depository institution holding company's subsidiaries. A second type of building block parent is a mid-tier holding company that is a “depository institution holding company” under U.S. law. Treating these companies as building block parents will allow for the calculation of a separate BBA ratio at the level of these companies in the enterprise and help to ensure that these companies remain appropriately capitalized. The balance of this subsection discusses the remaining types of building block parents.
For two categories of companies that could be identified as building block parents, companies that are subject to company-level capital requirements (capital-regulated companies) and MFEs, the analysis is conducted in the same manner. For each of these companies in the inventory, the supervised firm analyzes whether that company's applicable capital framework differs from that of the next capital-regulated company, MFE, or DI holding company encountered when proceeding upstream in the supervised firm's inventory. If so, that company is identified as a building block parent. The identification of building block parents, particularly capital-regulated companies and material financial entities, can be illustrated through the following decision tree, which would be applicable for each company in the insurance depository institution holding company's enterprise.
For example, if a firm's top-tier depository institution holding company is a life insurer that has two direct subsidiaries—a P&C insurer and the IDI—the firm would analyze whether the P&C company's applicable capital framework (NAIC RBC for P&C insurers) differs from that of the top-tier DI holding company (NAIC RBC for life insurers). Upon finding that the applicable capital frameworks are different, the P&C insurer would be a building block parent. The same would be the case for the IDI, whose applicable capital framework (a Federal banking capital rule) differs from the capital framework of its life insurance parent. However, if the P&C subsidiary has a further downstream P&C subsidiary, the firm would compare the latter P&C company's applicable capital framework only against that the P&C subsidiary immediately below the life insurer.
If the capital framework of a capital-regulated company or MFE is the same as that of the next-upstream capital-regulated company, MFE, or DI holding company, generally the companies will remain in the same building block except for one case. This exceptional case is where a company's applicable capital framework treats the company's subsidiaries in a way that does not substantially reflect the subsidiary's risk. For instance, there are situations in which NAIC RBC may not fully reflect the risks in certain subsidiaries (typically, certain foreign subsidiaries) that assume risk from affiliates.
While the current population of insurance depository institution holding companies does not include material non-U.S. operations, additional considerations in identifying capital-regulated companies as building block parents may arise in cases of an insurance depository institution holding company's insurance subsidiaries subject to non-U.S. capital frameworks. Whether such companies can be identified as building block parents depends on whether the companies' applicable capital frameworks can be scaled to NAIC RBC, the common capital framework used in the BBA. If a scalar has been developed for the applicable capital framework, the capital-regulated non-U.S. insurance subsidiary would be identified as a building block parent. Where a scalar has not been developed for the applicable capital framework, but the aggregate of the enterprise's companies falling under the non-U.S. insurance capital framework is material,
As discussed above, an MFE is a financial entity that is material, subject to certain exclusions. The proposed definition of “financial entity” in the BBA enumerates several types of companies engaged in financial activity consistent with similar enumerations in other rules applied by the Board. To develop the proposed definition of “financial entity,” the Board began with the definition of the same term under the Board's existing rules,
The proposed definition of materiality consists of two parts. In the first part, a company is presumed to be material if the top-tier depository institution holding company has exposure to the company exceeding 1 percent of the top-tier's total assets.
• The absolute value of the top-tier depository institution holding company's direct or indirect interest in the company's capital;
• the top-tier depository institution holding company or any of its subsidiaries providing an explicit or implicit guarantee for the benefit of the company; and
• potential counterparty credit risk to the top-tier depository institution holding company or any subsidiary arising from any derivatives or similar instrument, reinsurance or similar arrangement, or other contractual agreement.
The notion of a material financial entity is proposed to address a variety of companies not subject to a capital requirement and that could pose risk to the safety and soundness of the insurance depository institution holding company or its subsidiary IDI. For instance, an insurance depository institution holding company may have a material derivatives trading subsidiary not presently subject to any capital framework. Additionally, a company under an insurance depository institution holding company may serve as a funding vehicle for other companies in the institution, borrowing and downstreaming funds to affiliates.
Among other companies that could be MFEs are certain insurance companies that exist to reinsure risk from affiliates. The Board proposes that when such companies, and the insurance depository institution holding company's use of and transactions with such companies, could pose material financial risk to the insurance depository institution holding company, such companies' financial information should be restated in accordance with SAP.
The BBA includes certain exceptions whereby companies that are financial entities and material would nonetheless not be treated as MFEs. Where a company primarily functions as an intermediary through which other companies within the insurance depository institution holding company's enterprise conduct activities (
In addition, the Board proposes that certain types of companies would be ineligible to be MFEs: A financial subsidiary as defined in GLBA Section 121 and a subsidiary primarily engaged in asset management. In the case of a financial subsidiary, the equity of these subsidiaries is deducted, and the assets and liabilities not consolidated, under the Board's banking capital rules. Treating such a subsidiary as an MFE, and calculating qualifying capital and RWA for such a subsidiary, may not fully accord with the Board's current banking capital rules.
In the case of a subsidiary primarily engaged in asset management, the Board considers that a registered investment adviser under the Investment Advisers Act of 1940 would not be an MFE. As a non-insurance company, the applicable capital regime under the BBA for an investment adviser would be the Federal banking capital rules. These rules are built on the calculation of RWA and presently do not have dedicated, robust, and risk-sensitive treatment of operational risk. Moreover, investment advisers do not typically report all assets under management on their balance sheets and can face substantial operational risk. As such, measuring these subsidiaries' capital positions using the Board's banking capital rules may not provide a complete depiction of the subsidiaries' risks. Furthermore, in insurers' organizational structures, asset manager subsidiaries can exist under non-operating or shell holding companies. To the extent that such holding companies under insurance depository institution holding companies are not engaged in financial activities, they would not constitute financial entities under the BBA.
The BBA allows for three additional cases in which a company is identified as a building block parent. First, a company is a building block parent when it is:
• Party to one or more reinsurance or derivative transactions with other inventory companies;
• Material; and
• Engaged in activities such that one or more inventory companies are expected to absorb more than 50 percent of its expected losses.
Second, the case could arise where a company under an insurance depository institution holding company is jointly owned by more than one building block parent, where the jointly owned company is not itself a building block parent. Furthermore, the company may be consolidated in the applicable capital framework of one or more of the building block parents. In such a case, the aggregation in the BBA could result in double counting of the risks and resources of the jointly-owned company. To avoid this outcome, the proposed BBA would identify the jointly-owned company as a building block parent, whereupon the aggregation and consideration of allocation shares, discussed below, would avoid double-counting.
Finally, depending on an insurance depository institution holding company's organizational structure, it may be more convenient or less burdensome to treat, as a building block parent, a company that is not identified as such through the operations described above, or vice versa.
Each of these cases of identifying or declining to identify building block parents is achieved through the reservation of authority provision proposed in the BBA.
An illustration of this step in applying the BBA is presented in Section IX.C below.
After identifying all of the building block parents and their applicable capital frameworks, the BBA would determine available capital and capital requirements, make appropriate adjustments and translate as needed to the common capital framework used in the BBA, the NAIC's RBC. The BBA uses a bottom up approach to aggregation. This approach will generate a BBA ratio for each company in the organization that is a depository institution holding company under the FDI Act,
The purpose of aggregating companies within the BBA is to reflect the ownership interests of building block parents in subsidiaries and affiliates in order to provide an accurate measure of available capital without double counting. In the BBA, this is achieved by determining a building block parent's “allocation share” of any downstream building block parent. The following three examples may further illustrate the determination of allocation shares in the proposed BBA:
• An upstream company that is a building block parent (upstream building block parent) owns 100 percent of a subsidiary that is also a building block parent (downstream building block parent). The downstream building block parent's available capital is comprised solely of the equity owned by the upstream building block parent.
The upstream building block parent's allocation share in the downstream building block parent is 100 percent.
• An upstream building block parent (BBP A), and another building block parent (BBP B) at the same level in the corporate hierarchy as BBP A, together own a downstream building block parent, where BBP A owns 30 percent and BBP B owns 70 percent.
BBP A's allocation share in the downstream building block parent is 30 percent and BBP B's allocation share is 70 percent.
• Upstream building block parents BBP A and BBP B jointly own a downstream building block parent, where BBP A owns 30 percent and BBP B owns 70 percent. In addition, BBP A owns a surplus note issued by the downstream building block parent, which represents 20 percent of the downstream building block parent's available capital. Consider further that the carrying value of the downstream building block parent (and its capital excluding the surplus note) is $100 million and the surplus note is for $25 million.
BBP A's allocation share is the surplus note ($25 million) plus its prorated share of the downstream building block parent's equity ($30 million), divided by the downstream building block parent's total available capital ($125 million), or 44 percent. BBP B's allocation share is 56 percent.
As a simple example, consider the hypothetical insurance depository institution holding company presented in Section IV.C.2. Suppose the life parent's Total Adjusted Capital (TAC) is $500 million and its Authorized Control Level (ACL) RBC is $100 million. Suppose the P&C subsidiary's TAC and ACL are $40 million and $10 million, respectively. Aggregating the P&C subsidiary and life parent is seamless, since the life parent's RBC figures already include the P&C subsidiary,
A further illustration of this step in applying the BBA is presented in Section IX.G.
In the BBA, the calculation referred to as “scaling” translates a company's capital position under one capital framework to its equivalent capital position in another framework. This translation allows appropriate comparisons and aggregation of metrics. In evaluating different approaches to determining scalars, the Board was primarily informed by considerations including reasonableness of the approaches' assumptions, ease of implementation, and stability of the parametrization resulting from the approaches. Reasonable assumptions include those that are reflective of supervisory experience, as opposed to those that are crude and unlikely to produce accurate translations. Ease of implementation refers to the ease with which scaling parameters can be derived in an approach, which can vary based on availability of data on companies' experience under a framework. The stability of parametrization refers to the extent to which changes in assumptions or data affect the value of scaling parameters.
As an Appendix to this proposed rule, the Board is publishing a white paper that supplements the determination of the scaling parameters in this proposed rule.
Because all of the current insurance depository institution holding
With regard to scaling between U.S. and non-U.S. jurisdictions (
After considering potential scaling methods and the analysis in the referenced white paper, the Board proposes to use an approach to scaling in the BBA based on historical bank and insurer default data (the probability of default approach). The proposal uses historical default rates to analyze the meaning of solvency ratios and preserves this in translating values between capital frameworks. While default definitions can be difficult to align across capital frameworks, an underlying purpose of many solvency ratios is to assess the probability of a firm defaulting and default data currently appears to be the best available economic benchmark for capitalization metrics.
Using the probability of default approach, the Board proposes to use the following scaling formulas, which are explained more fully in the referenced white paper. The first equation below calculates the equivalent ACL under NAIC RBC based on an amount of risk-weighted assets under Federal banking capital rules. The second equation below calculates TAC under NAIC RBC, based on an amount of tier 1 plus tier 2 qualifying capital under Federal banking capital rules. The third and fourth equations cover scaling back from NAIC RBC to Federal banking capital rules.
This scaling approach reflects a total balance sheet perspective.
In the example of a simple insurance depository institution holding company presented in Sections IV.C.2 and IV.D above, the life insurance parent's subsidiary IDI had total capital of $27 million and RWA of $150 million. To calculate scaled available capital and required capital, the IDI's amounts under Federal banking capital rules are used in the equations shown above. Specifically, scaled capital requirement = 0.0106 * $150 million = $1.59 million and scaled available capital = $27 million − (0.063 * $150 million) = $27 million − $9.45 million = $17.55 million.
A further illustration of this step in applying the BBA is presented in Section IX.F.
As proposed, the BBA only includes scaling between Federal bank capital rules and NAIC RBC. However, depending on how insurance depository institution holding companies change their structures and business mixes over time, or new insurance depository institution holding companies come under Board supervision, the BBA may need to include scaling from other frameworks. While the Board will not propose scalars for specific capital frameworks not present in the existing population of insurance depository institution holding companies, the proposed BBA includes a framework by which the scaling would be provisionally determined for a capital framework where no scalar is specified, should the need arise.
This provisional approach would be used for a non-U.S. insurance subsidiary when its regulatory capital framework is scalar compatible, as defined in the proposed rule. The proposed rule defines “scalar compatible framework” as (1) a framework for which the Board has determined scalars or (2) a framework that exhibits the following three attributes: (a) The framework is clearly defined and broadly applicable to companies engaged in insurance; (b) the framework has an identifiable intervention point that can be used to calibrate a scalar;
The proposed BBA determines aggregate capital requirements by beginning with the capital requirements at each building block. For building block parents that are subject to NAIC RBC in the BBA, the Board proposes to use the ACL amount of required capital under NAIC RBC as the input to
The main categories of adjustments to capital requirements under the proposed BBA (the denominator in the BBA ratio) are discussed below.
An illustration of this step in applying the BBA is presented in Section IX.E.2 below.
The accounting practices for insurance companies can vary from state to state due to permitted and prescribed practices, which can result in significant differences in financial statements between similar companies filing SAP financial statements in different states. Regulators both within and outside of the United States have the authority to take actions with respect to insurance companies in the form of variations from standard accounting practices. An issue for the BBA is whether and how to address international or state regulator-approved variations in accounting or capital requirements for regulated insurance companies.
The proposed BBA contains adjustments to address permitted practices, prescribed practices, or other practices, including legal, regulatory, or accounting, that departs from a capital framework as promulgated for application in a jurisdiction. To serve the Board's supervisory objectives, the Board proposes an adjustment to capital requirements (the denominator in the BBA ratio) to reverse state permitted and prescribed practices (and, where relevant, any approved variations applied by solvency regulators other than U.S. state and territory insurance supervisors). The Board considers that this proposed adjustment provides for a consistent representation of financial information across all companies in the jurisdiction.
The Board anticipates that the majority of permitted and prescribed practices would primarily affect available capital, but includes the adjustment to capital requirements for completeness and because permitted practices to balance sheet items such as reserves can have secondary impacts on the NAIC RBC calculation. Extensions or other company-specific treatments may also affect capital requirements as calculated under non-U.S. insurance capital frameworks.
Although intercompany transactions are eliminated in consolidated accounting frameworks, in an aggregated framework like the BBA, some intercompany transactions could introduce redundancies in capital requirements or raise the potential to overstate risk at the aggregated, enterprise-wide level. Others could reduce the capital requirement of a company without reducing the overall risk to the institution. The Board considers that some adjustments to capital requirements for intercompany transactions may be appropriate for the BBA. For instance, intra-group reinsurance, loans, or guarantees can result in credit risk weights at the subsidiary level without generating additional risk at the enterprise level. In this scenario, eliminating risk weights in the appropriate companies' capital requirements may better reflect total enterprise-wide risk.
The BBA thus proposes an adjustment for the elimination of charges for the possibility of default of the top-tier depository institution holding company or any subsidiary thereof. However, in many cases, the impact on enterprise-wide capital requirement from this reflection of risk may be small or immaterial. The Board thus proposes to make this adjustment optional,
Similar to the availability of permitted and prescribed practices and other approved variations, transitional measures are sometimes included under capital frameworks during implementation.
As described in Section IV.C, an insurance depository institution holding company has the option to not treat as an MFE a company that meets the definition of an MFE. Typically, such a company would be one that serves as a pass-through or risk management intermediary for other companies under the insurance depository institution holding company.
For an insurance depository institution holding company predominantly engaged in title insurance, the risks are reflected in part in the company's claim reserve liability, but the Board's banking capital rule would not risk-weight this amount. To determine an appropriate risk weight to apply to this liability, the Board reviewed data from historical title claim reserves and observed a risk comparable to assets that have been assigned a 300 percent risk weight in the Board's banking capital rule. In order to tailor
In order to bring capital requirements from various frameworks to a comparable basis before aggregation, the BBA would scale capital requirements. Capital requirement amounts for building block parents would be scaled by application of the parameters set out in Section V above.
The BBA aggregates a downstream building block's capital requirements into those of its upstream building block parent by scaling to the upstream parent's capital framework and adding to the upstream parent's capital requirement. This rollup includes adjusting for the parent's ownership of the building block prior to adding in the scaled capital requirement for the building block. In performing this rollup, building blocks are aggregated to achieve a consolidated, enterprise-wide reflection of capital requirements. Ultimately, all building blocks under the top-tier depository institution holding company would be scaled and rolled up into the capital position of the top-tier depository institution holding company.
An illustration of this step in applying the BBA is presented in Section IX.H.
A firm's capital resources should be accessible to absorb losses and not have features that cause the firm's financial condition to weaken in times of stress. In developing the BBA the Board was informed by its review of existing capital frameworks—including the NAIC's RBC, the Board's banking capital rules, and their objectives, taking into account, among other things, considerations of the permanence and subordination of capital resources; the right of the issuer to make, cancel, or defer payments under a capital instrument; and the absence of encumbrances.
In many capital frameworks, including the Board's banking capital rule, qualifying capital is divided into tiers. In general, tiers of capital can represent different levels of capital resources' availability and loss-absorbency. Capital in a higher tier may represent the ability to absorb losses such that the institution can continue operations as a going concern, while capital in a lower tier may represent resources that serve as a supplementary cushion to a higher tier and aid the institution in the event of resolution (
By contrast, the state insurance capital framework uses one tier of capital. In the proposed BBA, the frameworks most often applicable to the supervised firms' building blocks will be U.S. state insurance capital frameworks. The NAIC RBC framework began as an early warning system, providing a risk sensitive “safety net” for insurers that provides for timely regulatory intervention in the case of insurer distress or insolvency.
The proposed BBA contains one tier of available capital. This approach achieves the supervisory objectives sought to be achieved through the BBA in a manner that achieves simplicity of design.
The Board proposes to determine available capital in the BBA by aggregating available capital under the frameworks applicable to the companies in an insurance depository institution holding company, subject to certain limited adjustments, rather than applying a consistent definition or set of criteria to all capital instruments for inclusion in the BBA. Since the BBA will determine aggregate capital requirements by beginning with capital requirements from company capital frameworks (prior to adjustments and scaling), determining available capital in a different manner could introduce inconsistencies. Moreover, applying a single set of definitional criteria, as occurs in the Board's banking capital rule, may be facilitated when the subject firms prepare consolidated financial statements in accordance with U.S. GAAP or other rules. However, doing this may be more challenging in the context of differing bases of accounting across building blocks in the BBA applied to insurance depository institution holding companies.
Mechanically, the proposed rule determines available capital under the BBA similarly to how it determines capital requirements, namely, by rolling up available capital from downstream building block parents into upstream building block parents, with certain adjustments and scaling. The aggregation of available capital eliminates double leverage or multiple leverage by deducting upstream parents' investments in subsidiaries that are building block parents.
In addition, the proposal requires an insurance depository institution holding company to deduct upstream holdings within a building block,
This section discusses adjustments in the BBA to determine available capital, performed at the level of each building block. The next section (subsection VII.C below) discusses two final adjustments, made at the level of the top-tier parent once all building block available capital is aggregated.
An illustration of adjusting available capital in applying the BBA is presented in Section IX.E.2.
Adjustments at the level of determining building block available capital include deducting any capital instrument, issued by a company within the building block that fails one or more of the eleven criteria for Tier 2 capital under the Board's banking capital rule, as codified in section 217.20(d) of the Board's Regulation Q.
The Board proposes that certain instruments frequently used by insurers, surplus notes,
The Board is thus proposing to include a grandfathering provision for surplus notes issued by a top-tier depository institution holding company or its subsidiary to a non-affiliate prior to November 1, 2019. This allows existing and currently planned surplus notes to qualify without any modifications, but future surplus notes would be expected to comply with all requirements after a short notice period. Under this grandfathering, these notes are deemed to meet criteria set out in proposed Section 608(a) that they may not otherwise meet, provided that the surplus note is currently capital under state insurance capital frameworks (a company capital element as set out in the proposed rule) for the issuing company.
Certain instruments used as capital resources may have call options that could be exercised within five years of the issuance of the instrument, specifically for a “rating event.” The Board proposes section 217.608(f) in the BBA to accommodate these capital resources.
As set out above, under application of the proposed BBA, certain capital-regulated companies, including IDIs and other companies subject to the Federal bank capital rules, would be identified as building block parents. In applying the Board's banking capital rule to determine available capital, one deduction from qualifying capital relates to the deduction of the amount of the capital requirement for insurance underwriting risks established by the regulator of any insurance underwriting activities of the bank, including such activities of a subsidiary of the bank. In the context of the BBA, an aggregation-based framework that is structurally and conceptually different from the Board's banking capital rule, the risk-sensitive amount of required capital is aggregated into the enterprise-wide capital requirement. Measuring enterprise-wide risk based on insurance underwriting activities is among the core supervisory objectives that the BBA serves. Deducting capital requirements for insurance underwriting activities, when aggregate capital requirements will reflect this risk, could overly penalize an insurance depository institution holding company.
The Board's banking capital rule deducts, for a depository institution holding company insurance subsidiary, the RBC for underwriting risk from qualifying capital (and assets subject to risk weighting). In the BBA, this deduction would be eliminated in calculating building block available capital since the insurance risks are being aggregated, rather than deducted.
As explained above in section VI with regard to capital requirements, the accounting practices for insurance companies can vary from U.S. state to state due to permitted and prescribed practices, and can result in significant differences in financial statements between companies with similar financial profiles but domiciled in different states. An issue for the BBA is whether and how to address regulator-approved variations in determining available capital. Similar to the adjustment described above to the calculation of building block capital requirements (the denominator of the calculation), the Board proposes to include adjustments to available capital (the numerator in the BBA ratio) to reverse the impact of these accounting
As with the corresponding adjustment in determining capital requirements under the BBA, similar to the availability of permitted and prescribed practices or other approved variations, transitional measures are sometimes adopted in capital frameworks during implementation. While such measures are important for application of regulatory capital frameworks, in practice, the framework without applying the transitional measures can provide a more accurate reflection of loss absorbing capital as intended by that framework. The BBA thus proposes an adjustment for the removal of the effects of any grandfathering or transitional measures, under a regulatory capital framework, in determining available capital.
To avoid the double-counting of available capital, and in light of the Board's supervisory objectives in designing the BBA, the proposal requires building block parents to deduct the amount of their investments in their own capital instruments along with any such investments made by members of their building block, to the extent such instruments are not already excluded from available capital. In addition, under the proposal, a capital instrument issued by a company in an insurance depository institution holding company's enterprise that the firm could be contractually obligated to purchase also would have been deducted from capital elements. The proposal notes that if an insurance depository institution holding company has already deducted its investment in its own capital instruments from its available capital, it would not need to make such deductions twice.
The proposed rule requires an insurance depository institution holding company to look through its holdings of an index to deduct investments in its own capital instruments, including synthetic exposures related to investments in own capital instruments. Gross long positions in investments in its own capital instruments resulting from holdings of index securities would have been netted against short positions in the same underlying index. Short positions in indexes to hedge long cash or synthetic positions could have been decomposed to recognize the hedge. More specifically, the portion of the index composed of the same underlying exposure that is being hedged could have been used to offset the long position only if both the exposure being hedged and the short position in the index were covered positions under the market risk rule and the hedge was deemed effective by the banking organization's internal control processes which would have been assessed by the primary federal supervisor of the banking organization or is reported as a highly effective hedge by insurance supervisors under Statement of Statutory Accounting Principle 86. If the insurance depository institution holding company found it operationally burdensome to estimate the investment amount of an index holding, the proposal permits the institution to use a conservative estimate with prior approval from the Board. In all other cases, gross long positions would be allowed to be deducted net of short positions in the same underlying instrument only if the short positions involved no counterparty risk. In determining such net long positions, the proposed BBA would exclude such positions held in a separate account asset or through an associated guarantee, unless the relevant separate account fund is concentrated in the company.
A reciprocal cross-holding results from a formal or informal arrangement between two financial institutions to swap, exchange, or otherwise hold or intend to hold each other's capital instruments. The use of reciprocal cross-holdings of capital instruments to artificially inflate the capital positions of each of the financial institutions involved would undermine the purpose of available capital, potentially affecting the safety and soundness of such financial institutions. Under the proposal, in light of the Board's supervisory objectives in designing the BBA, reciprocal cross-holdings of capital instruments of companies in an insurance depository institution holding company's enterprise are deducted from available capital. The proposed deduction encompasses reciprocal cross-holdings between building block parents and companies external to the insurance depository institution holding company, and such holdings between building block parents and other companies within the insurance depository institution holding company's enterprise.
In light of the Board's supervisory objectives in designing the BBA, the Board proposes to limit available capital under the BBA arising from investments in the capital of unconsolidated financial institutions. This treatment is consistent with the Board's banking capital rule and treatment of non-insurance SLHCs under the Board's rules. The proposed BBA incorporates the limit on investments in the capital of unconsolidated financial institutions in the manner currently done under the Board's banking capital rule.
To operationalize this limitation in the context of the BBA, a proxy for consolidation is also needed because the U.S. GAAP definition is not presently applicable to the full population of current insurance depository institution holding companies. The proposed BBA would not treat a company appearing on the insurance depository institution holding company's inventory as an unconsolidated financial institution. Moreover, investments in the capital of unconsolidated financial institutions would be determined as the net long position calculated in accordance with 12 CFR 217.22(h), provided that separate account assets or associated guarantees would not be regarded as an indirect exposure. As a result, the look-through treatment under 12 CFR 217.22(h) would not be applied to separate account assets or associated guarantees.
As noted above, the proposed BBA contains one tier of available capital, but as discussed in this Section VII.C, certain limitations may apply. The criteria set out in subsection VII.B.1 set a baseline threshold for capital instruments to be includable as available capital under the BBA. However, certain more stringent criteria for capital instruments can isolate instruments that are more loss absorbing and of higher quality. These criteria are reflected in the Board's banking capital rule corresponding to capital instruments includable as common equity tier 1 capital, as codified in section 217.20(b) of the Board's Regulation Q.
Consistent with the Board's supervisory objectives, the Board aims to ensure that an insurance depository institution holding company does not
In reaching this proposal, the Board considered expressing this limit as a percentage of the top-tier parent's building block available capital excluding capital instruments qualifying for inclusion in the BBA but not meeting the criteria in 12 CFR 217.20(b), as modified in the proposed BBA. Ignoring any impact of scaling, in light of the Board's supervisory objectives in designing the BBA, this percentage of such available capital could be determined in the context of the minimum capital requirements under the Board's banking capital rule. The Board considered that a limit expressed in this manner was less favorable from a supervisory standpoint. In times of stress, in the Board's supervisory experience, available capital typically declines more rapidly than required capital. As a result, in such times, a supervised firm's capacity to count existing or newly issued tier 2 capital instruments towards regulatory requirements generally would decline in tandem if they were limited as a percentage of other available capital. By contrast, expressing the limit as a percentage of capital requirement avoids much of this procyclicality. Supervised firms would also have a less volatile limit under which to count or issue tier 2 capital instruments in a case where the firm's capital levels fell close to or below the required minimum amounts.
As discussed below, the minimum capital requirement under the BBA is for the top-tier parent to hold building block available capital at least equal to 250 percent of its building block capital requirement. In light of the Board's supervisory objectives in designing the BBA, this minimum requirement corresponds to, and is therefore at least as stringent as, the minimum requirement under the Board's banking capital rule of 8 percent of risk-weighted assets. In light of the BBA's limit on tier 2 capital instruments (62.5 percent of the top-tier parent's building block capital requirement), an insurance depository institution holding company holding exactly the minimum requirement level of available capital therefore holds at least 187.5 percent of the top-tier parent's building block capital requirement through available capital
Thus, the BBA's proposed limitation on tier 2 instruments means that insurance depository institution holding companies would effectively meet the requirements under the Board's banking capital rule applicable to additional tier 1 capital plus common equity tier 1 capital using building block available capital excluding tier 2 instruments.
As a simple illustration of these limits, consider further the example presented in Sections IV and V above. Suppose the life insurance parent did not hold any investment in the capital of unconsolidated financial institutions, but had issued $35 million in surplus notes owned by third parties. Suppose further that these surplus notes qualify for inclusion as available capital under the BBA, but are not grandfathered surplus notes. The life insurance parent's capital requirement of $99.6 million would be used to determine the limit on surplus notes and other tier 2 instruments that are includable as available capital. Here, the insurance depository institution holding company could not include more than $62.25 million of tier 2 instruments in available capital,
The BBA proposal also includes a provision concerning Board approval of a capital instrument. In accordance with the proposal, existing capital instruments will be includable in available capital under the BBA. However, over time, capital instruments that are equivalent in quality and capacity to absorb losses to existing instruments may be created to satisfy different market needs. Proposed section 217.608(g) accommodates such instruments for inclusion in available capital. Similar authority exists under the Board's banking capital rule under section 217.20(e).
Under the BBA, the Board's minimum capital requirement for an insurance depository institution holding company would be the ratio of aggregated building block available capital to the aggregated building block capital requirement (the BBA ratio):
In light of the Board's supervisory objectives and authorities in accordance with U.S. law, the Board proposes to require a minimum BBA ratio of 250 percent. The Board determined this minimum threshold by first translating the minimum total capital requirement of 8 percent of risk-weighted assets under the Board's banking capital rule to its equivalent under NAIC RBC. The Board then added a margin of safety to account for factors including any potential data or model parameter uncertainty in determining scaling parameters and an adequate degree of confidence in the stringency of the requirement. The Board notes that the proposed minimum ratio, 250 percent, aligns with the midpoint between two prominent, existing state insurance supervisory intervention points, the “company action level” and “trend test level” under state insurance RBC requirements.
As a simple illustration of this minimum requirement, consider the example presented in Sections IV, V, and VII above. After aggregating the subsidiary building block parents, the life insurance top-tier parent had building block available capital of $487.5 million and building block capital requirement of $99.6 million. Its BBA ratio is thus 489 percent, above the required minimum 250 percent. A further illustration of this step in applying the BBA is presented in Section IX.H.
To encourage better capital conservation by supervised firms and enhance the resiliency of the financial system, the proposed rule would limit capital distributions and discretionary bonus payments for insurance depository institution holding companies that do not hold a specified amount of available capital at the level of a top-tier parent or other depository institution holding company, in addition to the amount that is necessary to meet the minimum risk-based capital requirement proposed under the BBA. Insurance depository institution holding companies would be subject only to the proposed capital conservation buffer under the BBA, not the existing capital conservation buffer codified at section 217.11 of the Board's banking capital rule.
To determine the appropriate threshold for a capital conservation buffer under the BBA, the Board took a similar approach to how it determined the minimum requirement. The analysis began with the threshold levels from the buffer under the Board's banking capital rule and translated them to their equivalents under NAIC RBC.
In order to tailor the capital conservation buffer to the insurance business, the proposal introduces a number of technical adaptations to the capital conservation buffer appearing in the Board's banking capital rule to apply this in the context of an insurance depository institution holding company. First, in light of the proposed annual reporting cycle for the BBA, discussed below, the proposed rule would apply the capital conservation buffer on a calendar year basis rather than quarterly. Second, the proposed rule broadens “distributions” to include discretionary dividends on participating insurance policies because, for mutual insurance companies, these payments are the equivalent of stock dividends. Third, rather than restrict the composition of the capital conservation buffer to solely common equity tier 1 capital, the proposal restricts the composition to building block available capital excluding tier 2 instruments. Moreover, the proposed rule replaces the thresholds appearing in 12 CFR 217.11, Table 1, with corresponding amounts that have been scaled from the Board's banking capital rule to the common capital framework under the BBA.
In addition, the proposal defines “eligible retained income” as “the annual change in building block available capital,” excluding certain changes resulting from capital markets
In order to better illustrate the steps and application of the BBA, this NPR presents the example below based on a fictitious mutual life insurance company.
As described above in Section IV.C.1, the first step in applying the BBA is identifying an inventory of companies within the insurance depository institution holding company's enterprise. This would generally be performed by identifying the companies on the Board's Y-10 and Y-6 forms together with companies on the Schedule Y, as prepared in accordance with the NAIC's SSAP No. 25, included in the most recent statutory annual statement for an operating insurer in the insurance depository institution holding company's enterprise. The organizational chart below illustrates the application of this step for the sample insurance firm presented here, Mutual Life Insurance Company (Mutual Life).
As can be seen from this organizational chart, Mutual Life Ins. Co. is the top-tier depository institution holding company of the insurance depository institution holding company's enterprise. In addition to two life insurance companies, this enterprise has two P&C insurance companies, a life captive insurance company, and an IDI (assume it is a nationally-chartered IDI), as well as a number of nonbank, non-insurance companies, including life and P&C insurance agencies, investment vehicles, an asset manager, a broker/dealer, and a midtier holding company above the IDI.
As described in Section IV.C.2, the second step in applying the BBA is to determine the applicable capital frameworks for companies under the insurance depository institution holding company. As proposed in this rule, the applicable capital framework for a company other than one engaged in insurance or reinsurance underwriting, except for an IDI, is the Board's banking capital rule, while the applicable capital framework for a nationally-chartered IDI is the banking capital rule as set forth by the OCC. For companies engaged in insurance or reinsurance underwriting, the applicable capital framework is generally the regulatory capital framework under the laws or regulations to which that company is subject. The applicable capital frameworks for companies under Mutual Life Ins. Co. are presented below.
In the illustration above, the applicable capital frameworks are shown for certain key companies. For instance, the applicable capital frameworks for Mutual Life Insurance Co., the top-tier depository institution holding company, and P&C Insurance Co. are shown, but no frameworks are shown for Life Insurance Agency or P&C Insurance Agency—these two companies would be treated as they are under the capital frameworks applicable to their immediate parents. Assume that the life insurance captive was material in relation to the insurance depository institution holding company through Mutual Life Insurance Company guaranteeing the return on certain investments of the captive. The life insurance captive would be treated as an MFE and the applicable capital framework would be the NAIC's RBC applicable to life insurance companies.
As described in Section IV.C.3, the third step in applying the BBA is to identify the building block parents. Most often, this will occur as a result of having identified the applicable capital frameworks for the companies under the insurance depository institution holding company, where a capital-regulated company or MFE is assigned to a building block when its applicable capital framework differs from that of the next-upstream capital-regulated company, MFE, or DI holding company.
As the top-tier depository institution holding company, Mutual Life Insurance Company itself is the first candidate to be a building block parent. Life Insurance Co. would fall under the same applicable capital framework as the top-tier depository institution holding company (NAIC life RBC), and therefore would not be identified as a building block parent; rather, it would remain in the same building block as the block for which Mutual Life Ins. Co. is building block parent. By contrast, the BBA proposes (for purposes of identification of building blocks) to treat NAIC RBC for life and P&C as distinct frameworks; thus, P&C Insurance Company is identified as a building block parent from Mutual Life Ins. Co. With it, the Subsidiary P&C Insurance Company, P&C Insurance Agency, and two investment subsidiaries would be members of this building block.
The life insurance captive would be subject to NAIC RBC for life insurers. Because treatment of captives' risk can vary among insurers, the life insurance captive may not be reflected in the RBC capital calculations of its operating insurance parents. Assuming that, for purposes of this illustration, the life insurance captive's risk is not reflected in the RBC calculations of Mutual Life or Life Ins. Co., the captive would be made its own building block parent. The other subsidiaries of Life Insurance Co. would be assigned to the building block for which Mutual Life Ins. Co. is building block parent.
Midtier Holdco is a depository institution holding company. Under the proposed rule, this company would be identified as a building block parent. Note that, as a non-insurance company, this company's applicable capital framework under the proposed BBA would be the Board's banking capital rule, which, in turn, would reflect the risks of the IDI. Therefore, the IDI would not be identified as a building block parent. The same would be the case for the broker/dealer, which, together with the IDI, would be assigned as a member of Midtier Holdco's building block.
Thus, the building block parents in Mutual Life Ins. Co.'s enterprise are Mutual Life Ins. Co., P&C Ins. Co., Life Ins. Captive, and Midtier Holdco. The demarcation of building blocks for Mutual Life Ins. Co. is shown below:
Assume that, for the captive, an RBC calculation is performed and reported to the state regulator even though the captive generally would not be subject to the same generally applicable capital requirements as primary insurers. Assume further that, for Mutual Life Ins. Co., the available capital and capital requirement amounts for its four building blocks are as shown below. Determination of available capital and capital requirements would result as follows:
As described in Section VI.B above, the BBA, as proposed, includes a number of possible adjustments to capital requirements at the level of each building block. Assume that no adjustments to capital requirements are applicable in the building block for which Mutual Life Insurance Company is the building block parent.
The first possible adjustment is to reverse any permitted or prescribed practices that affect capital requirements. Suppose that the Life Ins. Captive benefits from a prescribed practice under its domiciliary jurisdiction, specifically, that assets in the form of conditional letters of credit are reported on the balance sheet without corresponding liabilities. This prescribed practice would be adjusted out of the capital requirement. Under the proposed BBA, these letters of credit would not be treated as assets and, hence, would face no risk weight. Additionally, the use of principles-based reserving from the elimination of transitional measures would impact the RBC calculation because reserves are used in different parts of the RBC calculation, including the calculation of exposure to mortality risk. Assume that the total impact on Life Insurance Company's RBC capital requirement from these adjustments to captives is $3 million.
The second possible adjustment to capital requirements is an optional elimination of intercompany credit risk weights. Suppose that in Mutual Life Ins. Co., there is an inter-affiliate reinsurance arrangement whereby P&C Ins. Co. reinsures a portion of Sub P&C Ins. Co.'s book. Sub P&C Ins. Co. retains some risk, and faces a charge in its RBC requirement for its receivables from its parent. Suppose that this receivable is in the amount of $40 million, the RBC charge for Sub P&C Ins. Co. is $2 million, and Mutual Life Ins. Co. elects to make this adjustment.
An additional possible adjustment to capital requirements relates to the insurance depository institution holding company's ability to elect to not treat as an MFE a company that otherwise meets the definition of this term, after which the insurance depository institution holding company must correspondingly allocate the risks of this company to other companies in the insurance depository institution holding company with which the company engages in transactions. Assume that Mutual Life Ins. Co. has no companies other than its Life Insurance Captive that would constitute MFEs and that Mutual Life Ins. Co opts to treat the Life Insurance Captive as an MFE. This adjustment to capital requirements is therefore not applicable in this case.
Under the BBA as proposed, no adjustments would take place to total risk-weighted assets for building block parents subject to the Board's banking capital rule. Thus, the total impact of adjustments to capital requirements for Mutual Life Ins. Co. can be shown as follows:
As described in Section VII.B above, the proposed BBA includes a number of possible adjustments to available capital. In the example of Mutual Life Ins. Co., assume that no adjustments to available capital are applicable in the building block for which Mutual Life Insurance Company is the building block parent.
However, suppose that the P&C Insurance Co. subsidiary benefits from a permitted practice under its domiciliary jurisdiction. As described in Section VII.B.3, permitted and prescribed practices would be adjusted out of available capital, so that insurance companies are presented on a consistent basis in the BBA. Suppose that, for P&C Insurance Co., the increase to surplus arising from the permitted practice is $15 million. This amount would be deducted in determining building block available capital for P&C Insurance Co.
Captive reinsurers typically would have at least two related adjustments. Suppose that, as noted above, the Life Ins. Captive has a prescribed practice that allows holding undrawn contingent letters of credit as assets without a corresponding liability. By application of the adjustment to available capital to reverse prescribed practices, described in Section VII.B.3, these letters of credit would not be treated as assets and, hence, would not contribute to available capital under the proposed BBA. Suppose that, for Life Ins. Captive, these letters of credit are held at $240 million. This amount would be deducted in determining building block available capital for Life Ins. Captive. Somewhat offsetting this, captives would typically benefit from the adjustment that removes transitional measures. Suppose that application of principles-based reserving to business in the captive results in reduced liabilities that increase surplus by $100 million. This would be added to available capital.
Under the BBA, as proposed, the sole possible adjustment to building block parents, or their building blocks, subject to the Board's banking capital rule arises where the building block parent owns an insurer. Under the Board's banking capital rule, this ownership generally results in a deduction from qualifying capital in the amount of the insurance subsidiary's capital requirement for insurance underwriting risks.
The total impact of adjustments to available capital for Mutual Life Ins. Co. can be shown as follows:
As described above in Section V, adjusted available capital and adjusted capital requirement for each building block are scaled, using the scaling approach proposed by the Board, to the applicable capital framework of the building block parent most immediately upstream. No scaling is proposed for translating between NAIC RBC as applicable to life and P&C insurance. Thus, in the case of Mutual Life Ins. Co., for the building blocks for which P&C Ins. Co. and Life Ins. Captive are
For the building block for which Midtier Holdco is building block parent, scaling is needed. This building block is under the Board's banking capital rule. The building block parent most immediately upstream, Mutual Life Ins. Co., is under NAIC RBC. Thus, scaling is needed between the Board's banking capital rule and NAIC RBC according to the equations set out in Section V.C above. The calculations are as follows:
The total impact of scaling for Mutual Life Ins. Co. can be shown as follows:
As described in Sections IV.D, VI.C, and VII.A.2 above, building block available capital and building block capital requirement, reflecting adjustments and scaling, are rolled up through successive upstream building blocks until the top-tier parent's building block is reached.
At each step, when rolling up available capital, any downstreamed capital from the upstream parent is deducted. Assume that Mutual Life Ins. Co. provides no capital to P&C Ins. Co. or Midtier Holdco other than its equity investment in the subsidiary, and that Mutual Life Ins. Co. carries these subsidiaries at $698 million and $301 million, respectively. Assume that Mutual Life Ins. Co. treats the Life Ins. Captive as a nonadmitted asset. The total impact on Mutual Life Ins. Co.'s surplus is thus $999 million, which would be deducted in the roll-up prior to re-aggregating the building block available capital for P&C Ins. Co., Midtier Holdco, and Life Ins. Captive.
When rolling up capital requirements, the amount of the upstream parent's capital requirement attributable to each downstream building block parent is deducted. Mutual Life Ins. Co.'s RBC required capital amount would include the unadjusted P&C RBC requirement for P&C Ins. Co., assumed to be $166 million, in its C0 component, but would include no amount attributable to Life Ins. Captive. Mutual Life Ins. Co.'s holding of Midtier Holdco would affect its life RBC calculation through the C1cs component, deriving from the carrying value of $301 million but also may reflect the impact of asset concentration charges, taxes, and the covariance adjustment as reflected in the life RBC calculation. Assume that extracting Midtier Holdco from Mutual Life Ins. Co.'s RBC calculation would reduce the amount (on the basis of the authorized control level of RBC) by $24 million. Assume that the total impact on Mutual Life Ins. Co.'s RBC requirement is thus $190 million, which would be deducted in the roll-up prior to re-aggregating the building block capital requirement for P&C Ins. Co., Life Ins. Captive, and Midtier Holdco.
In each case, the roll-up is also done taking into account the upstream parent's allocation share of the downstream building block parent. For purposes of Mutual Life Ins. Co., assume
Taking into account the building block available capital amounts, building block capital requirements, and deductions of downstreamed capital and contributions to Mutual Life Ins. Co.'s RBC related to P&C Ins. Co., Life Ins. Captive, and Midtier Holdco, the resulting building block available capital and building block capital requirement amounts for Mutual Life Ins. Co. are as follows:
This can be shown as follows:
As described in Section VII.C above, there is a remaining adjustment at the level of the top-tier depository institution holding company to determine whether capital instruments that meet the criteria set out in Section VII.B.1 above, but not the criteria in Section VII.C, exceed 62.5 percent of capital requirements. Assume that Mutual Life Ins. Co. has outstanding surplus notes that are grandfathered as proposed in the BBA, and thus are deemed to satisfy the criteria set out in Section VII.B.1 above. These surplus notes may not meet the criteria set out in Section VII.C above, but as proposed in the BBA, would be grandfathered such that the BBA would not limit the insurance depository institution holding company from treating all of these instruments as available capital under the BBA. Going forward, the unretired portion of these surplus notes would continue to be grandfathered, and Mutual Life Ins. Co. would treat as available capital any instruments meeting the criteria from Section VII.B.1, but not meeting the criteria in Section VII.C, not exceeding the greater of 62.5 percent of capital requirements and the outstanding grandfathered surplus notes.
As described in Sections III.A above, the ratio of building block available capital to building block capital requirements is the calculated BBA Ratio. This ratio is reviewed relative to the minimum requirement set out in the proposed BBA. In the example presented above, the ratio of building block available capital to building block capital requirements for Mutual Life Ins. Co. is $4,172 million/$489 million = 853 percent. This can be shown as follows:
In connection with this proposed rule, the Board proposes to implement a new reporting form for use in the BBA. The proposed reporting form, titled “Capital Requirements for Board-Regulated Institutions Significantly Engaged in Insurance Activities” (Form FR Q-1), and instructions focus on information needed to carry out the BBA calculations.
The vast majority of the information reported to the Board through the proposed reporting form would not be public. The information that the Board proposes to make public would consist of the building block available capital, building block capital requirement, and BBA ratio for the top-tier parent of an insurance depository institution holding company's enterprise. The Board has long supported meaningful public disclosure by supervised firms with the objective of improving market discipline and encouraging sound risk management practices. The Board is also aware that a sizable amount of information is publicly disclosed by insurance firms pursuant to state laws and that IDIs disclose their Call Reports. At this stage, the Board does not see the need for the proposed BBA to require more detailed disclosure of information by an insurance depository institution holding company. The Board's consideration of market discipline is also informed by the fact that the current population of insurance depository institution holding companies represents a minority of the U.S. insurance market. Furthermore, the Board believes that the proposed disclosure requirements strike an appropriate balance between the need for meaningful disclosure and the protection of proprietary and confidential information.
As set out in the proposed reporting form and instructions, the form would be sent to the Board annually by March 15 of each year. The Board may also choose to require reporting more frequently than annually if needed for the Board to fulfill its supervisory objectives. Instances calling for such more frequent reporting may include, among others, a significant change such that the most recent reported amounts are no longer reflective of the supervised firm's capital adequacy and risk profile, or a significant change in qualitative attributes (for example, the firm's risk management objectives and policies, nature of reporting system, and definitions).
To be transparent, gather additional input, and provide a valuable test of the proposed approach, the Board intends to conduct a quantitative impact study (QIS) of the BBA as part of its rulemaking process. The data collected through this QIS will be used to analyze the impact of various aspects of the proposed BBA. For instance, information collected through the QIS will allow further exploration of areas of thought and concern raised by commenters in response to the Board's ANPR of June 2016. In addition, the Board's analysis of the QIS results may inform its advocacy of positions in international insurance standard setting, including an aggregation method, akin to the BBA, that may be deemed comparable to the ICS. The analysis of QIS results may also assist in the Board's continued engagement with the NAIC and the NAIC's development of the GCC so as to minimize burden and achieve efficiencies with regard to firms that may be subject to more than one of these approaches.
This section presents a preliminary assessment of anticipated benefits and costs of the proposed BBA, were it to be adopted as proposed. The Board's review of potential costs and benefits of this proposal remains ongoing as the Board proceeds towards a final rule implementing the BBA. This assessment will be informed by a QIS. Furthermore, the Board remains mindful of the assistance commenters can provide in bringing to light anticipated costs and benefits. The Board has already reached a more informed preliminary assessment of benefits and costs because of the comments submitted in response to the ANPR. This preliminary analysis indicates that the proposed BBA achieves the statutory requirement to establish a consolidated capital requirement for insurance depository institution holding companies in a manner that streamlines burden such that the benefits should more than outweigh any initial or ongoing implementation costs. The Board invites comments on all potential benefits and costs, as well as balance between the two, arising from the BBA as proposed.
To the greatest extent possible, the Board attempts to minimize regulatory burden in its rulemakings, consistent with the effective implementation of its statutory responsibilities. Moreover, the Board remains committed to transparency in this and all of its rulemaking processes, including engagement with interested parties and an appropriate balancing of benefits, costs, and economic impacts.
One of the main elements of a program of supervision of financial institutions is a robust and risk-sensitive capital requirement, a key benefit provided by the BBA with respect to insurance depository institution holding companies. Maintaining sufficient capital is central to a financial institution's ability to absorb unexpected losses and continue to engage in financial intermediation. Ensuring the adequacy of a supervised firm's capital levels and a robust capital planning process for managing and allocating its capital resources are primary objectives of the Board's consolidated supervision, including supervision of insurance depository institution holding companies. In the absence of a capital rule for insurance depository institution holding companies, the Board's supervision of these firms has focused on the second of these objectives, evaluation of the supervised firms' capital planning. The Federal Reserve System's supervisory teams conduct capital adequacy inspections at insurance depository institution holding companies, evaluating processes and policies for capital planning including methodologies and controls. A more complete supervisory program includes a capital requirement, a need that this proposal aims to fill and a principal benefit it is intended to achieve.
With a capital requirement for insurance depository institution holding companies, the Board as a consolidated supervisor will have a risk-sensitive framework to assess going-concern safety and soundness for each insurance depository institution holding company and the population of these firms overall. This enables firm-specific capital adequacy review and horizontal reviews across firms. The Board remains cognizant that state insurance supervisors regulate the types of insurance products offered by insurance companies that are part of organizations that the Board supervises, as well as the manner in which the insurance is provided, and the capital adequacy of licensed insurers. The Board's consolidated supervision is complementary to, and in coordination with, existing legal-entity supervision by the states by providing a perspective that considers the risks across the entire firm.
As a result, the Board's supervision will have the ability to consider risks at the enterprise level arising from an array of sources, including companies subject and not subject to a capital requirement, and insurance and non-insurance companies, under an insurance depository institution holding company. The BBA therefore has the benefit of not only providing a capital requirement for the Board's consolidated supervision, but also providing the Board with additional supervisory insights.
The Board believes that it is important that any company that owns and operates a depository institution be held to appropriate standards of capitalization. The Board's consolidated supervision of an insurance depository institution holding company encompasses the parent company and its subsidiaries, and allows the Board to understand the organization's structure, activities, resources, and risks, and to address financial, managerial, operational, or other deficiencies before they pose a danger to the insurance depository institution holding companies' subsidiary depository institutions. Using its authority, the Board proposes a consolidated capital requirement for insurance depository institution holding companies, helping to ensure that these institutions maintain adequate capital to support their group-wide activities and do not endanger the safety and soundness of their depository institution subsidiaries.
The proposed BBA brings the benefit of contributing to the protection of the insurance depository institution holding companies' IDIs and, consequently, the FDIC and the U.S. system of deposit insurance. Deposit insurance has provided a safe and secure place for those households and small businesses with relatively modest amounts of financial assets to hold their transactional and other balances, and Congress designed deposit insurance mainly to protect the modest savings of unsophisticated depositors with limited financial assets.
The proposed BBA brings the benefit of potential efficiencies at insurance depository institution holding companies through improved capital management practices by providing an enterprise-wide capital requirement and associated framework. For example, the application of a consolidated capital
As noted above, the Board is charged by Congress to promulgate rules in accordance with statutory mandates, which reflect a deliberation of costs and benefits first performed by Congress. The framework proposed in this NPR fulfills a statutory mandate under Section 171 of the Dodd-Frank Act.
While insurers typically have internal capital planning processes, calculations, and metrics, insurance depository institution holding companies do not presently perform an enterprise-wide capital calculation mandated by a federal regulator. Compliance with the BBA will thus require some upfront setup and attendant maintenance to collect the requisite information, perform the calculations, and submit the required reports, as well as opportunity cost of management's time to undertake this setup. However, the BBA builds on existing legal entity capital requirements and, as a result, minimizes the amount of additional systems infrastructure development beyond what is already done by the insurance depository institution holding company to comply with its entity-level regulatory requirements. Implementation costs are thereby notably less relative to a ground-up capital requirement.
Under the proposal, the BBA would require certain calculations of, and information pertaining to, the RBC requirements for certain operating insurance companies in the insurance depository institution holding company's enterprise. Generally, RBC reports that insurers file with state regulators are confidential under the applicable state laws. The proposed reporting form FR Q-1 aims to reflect this treatment under state law while still serving the Board's supervisory objectives.
The attributes of the BBA as proposed are not anticipated to give rise to significant initial or ongoing implementation costs. Generally, compliance with the BBA may entail initial costs for an insurance depository institution holding company. In particular, the firm may need to set up certain systems for information collection and processing and, on an ongoing basis, maintain these systems, conduct certain review, and submit the regulatory reports required under the proposal. The analysis suggests that these costs will not be unduly burdensome.
The BBA's proposed approach to grouping an insurance depository institution holding company's legal entities into building blocks is not anticipated to be unduly burdensome. Under the proposal, the insurance depository institution holding company would be required to inventory its legal entities, then review each capital-regulated company and material financial entity and ascertain whether each should be treated as a building block parent. The proposed BBA would use an insurance depository institution holding company's Schedule Y, as prepared in the institution's lead insurer's most recent statutory annual statement, together with its Forms Y-6 and Y-10 prepared for the Board, as the basis for the inventory. By leveraging information that the insurance depository institution holding company already prepares under current regulatory requirements, the proposed BBA would streamline implementation burden. The burden of evaluating each company against the BBA's proposed provisions on determining building block parents is anticipated to be minimal.
The proposed rule also sets out a method and formula for scaling between Federal banking capital rules and NAIC RBC. Implementing this provision entails calculations that are not anticipated to be burdensome.
Under the proposed rule, a material financial entity not engaged in insurance or reinsurance underwriting would be subject to the Board's banking capital rule prior to aggregation, unless the insurance depository institution holding company elects to not treat such a company as an MFE. While the burden of identifying a material financial entity is not expected to be sizable, an insurance depository institution holding company may face some initial implementation costs in preparing financial statement data for MFEs in accordance with U.S. GAAP, to the extent such data is not already prepared. Were the insurance depository institution holding company to decline to treat any such company as an MFE, the firm would be required to allocate the risks faced by the company to relevant affiliates. However, a financial report for an MFE, or allocation of an MFE's risks to affiliates with which it engages in certain transactions, would build on financial data anticipated to be already captured, thereby minimizing additional implementation burden. The costs associated with initial setup to produce financial statement data for MFEs, or allocating the risks of the MFE to relevant affiliates with any attendant recalculations of required capital amounts, could include, but may not be limited to, the opportunity cost of personnel and management's time to establish and oversee processes to generate this data, and the more direct costs of establishing or improving new management information systems to assure the timely and accurate presentation of information. Ongoing costs in either case may include system maintenance and additional staffing to produce the statements, potentially entailing ongoing payroll costs and the opportunity cost of the time spent operating the systems to produce MFEs' financial data or allocating its risks and potential constraints on flexibility in financial or corporate structure. However, none of these initial and ongoing costs is expected to be substantial.
Under the proposal, an insurance depository institution holding company would be required to conform all permitted and prescribed practices, for any insurer in its enterprise, that depart from statutory accounting treatment as set out by the NAIC. An insurance depository institution holding company would also be required to remove the impact of any transitional measures available under applicable capital frameworks. The initial implementation costs of administering these adjustments are anticipated to be comparable to such ongoing costs since reviewing and making these adjustments would generally be done on an annual basis when performing the BBA's calculations. When permitted or prescribed accounting practices impact capital, surplus and/or net income, they are generally required to be disclosed in statutory annual statements prepared by regulated insurers. The identification of these and the remaining such practices is not anticipated to involve significant time beyond what is incurred by the insurance depository institution holding company in preparing its regulatory
Under the proposal, the insurance depository institution holding company would have the option to eliminate credit risk weights on intercompany transactions, including loans, guarantees, reinsurance, and derivatives transactions. Because this adjustment is at the option of the insurance depository institution holding company, the Board considers that the supervised institution would only elect for such adjustments if the benefits outweighed the costs. In any event, the costs associated with running entity-level capital requirements, including RBC, excluding intercompany credit risk weights are expected to be minimal, where such costs could include, but may not be limited to, changes in accounting or management information systems and costs of potentially rerunning certain capital calculations, with any attendant costs to recruit and hire staff, including ongoing payroll and benefits costs, to revise accounting treatment as needed.
Any capital requirement has the potential to influence a subject firm's actions. With regard to the BBA, the Board notes that it is generally less likely for an insurance depository institution holding company to fail an aggregation-based approach if it already meets each of its entity-level regulatory requirements. In concept, this outcome may not always hold after reflecting an aggregation-based approach's adjustments, inclusion of entities not subject to a regulatory capital framework, and the intervention levels used by the supervisor applying the aggregation-based approach. However, based on the Board's preliminary review, the Board does not presently anticipate that any currently supervised insurance depository institution holding company will initially need to raise capital to meet the requirements of the proposed BBA.
In light of the Board's supervisory objectives in designing the BBA, the Board proposes in this NPR to subject capital instruments that may be included in the BBA to the criteria for tier 2 capital under the Board's banking capital rule. It is possible that, to the extent that a state's criteria for inclusion of capital instruments differs from the criteria in the Board's banking capital rule, instruments that qualify under legal entities' RBC requirements would not qualify under the BBA, which could result in an insurance depository institution holding company incurring costs (
Moreover, in order to mitigate any burdens arising from these proposed requirements applicable to capital resources, the Board proposes to grandfather existing surplus notes and treat them as available capital under the BBA, and treat as capital, on a going-forward basis, newly issued surplus notes meeting the criteria set out in the BBA.
The proposed BBA would also deduct any investments that an insurance depository institution holding company has in its own capital instruments, including upstream investments by subsidiaries in parents and any reciprocal cross-holdings in the capital of financial institutions. In the Board's supervisory experience, insurance depository institution holding companies tend to have few such investments, if any. The proposed BBA also includes a limitation on the investment by a top-tier parent or other depository institution holding company in instruments recognized as capital of unconsolidated financial institutions. The Board's supervisory experience suggests that insurance depository institution holding companies do not tend to hold such instruments. The Board therefore anticipates any costs or burden arising from these proposed provisions to be minimal or nonexistent.
Under the proposal, the minimum capital requirement applied under the BBA would be the minimum requirement under the Board's banking capital rule, scaled to the BBA's common capital framework, plus a margin of safety. The proposal further includes the capital conservation buffer requirement under the Board's banking capital rule, tailored and scaled to the BBA's common capital framework. To minimize any burden and tailor the BBA to be an insurance-centric standard, the Board proposes to use, as the common capital framework for aggregation, the NAIC RBC framework. Based on the Board's preliminary review, the Board does not presently anticipate that any insurance depository institution holding company would immediately fail to meet the proposed BBA's minimum capital requirement or this requirement together with the BBA's proposed capital conservation buffer.
The proposed BBA would limit the inclusion in the BBA of instruments meeting the criteria for tier 2 instruments under the Board's banking capital rule, but not meeting the banking capital rule's criteria for common equity tier 1, to 62.5 percent of required capital after aggregating to the level of the top-tier parent of the insurance depository institution holding company's enterprise. An insurance depository institution holding company may have issued instruments that would qualify as tier 2 capital under the banking capital rule, but would not qualify as common equity tier 1 under the same, exceeding 62.5 percent of required capital. In such a case, absent grandfathering, the firm would not be able to count the instruments in excess of 62.5 percent of required capital towards its BBA requirement.
This proposal also includes the Section 171 calculation, as described above. The Board continues to deliberate the potential implementation costs of this calculation. In light of this, the Board has proposed two options by which subject DI holding companies can exclude certain insurance subsidiaries.
Any initial and ongoing costs of complying with the standard, if adopted as proposed, could nominally affect the premiums and fees that the insurance depository institution holding companies charge, since insurance products are priced to allow insurers to recover their costs and earn a fair rate of return on their capital. A capital requirement like the BBA, if adopted as proposed, could also affect the cost of capital borne by the insurance depository institution holding company, which in turn could affect premiums and an insurer's borrowing cost. In the long run, costs of providing a policy may be borne by policyholders.
Because the expected costs associated with implementing the proposal, if adopted, are not expected to be substantial within the context of the insurance depository institution holding companies' existing budgets, there is not expected to be a substantial change in the pricing of insurance depository institution holding companies' products resulting from the proposed standards. In addition, because the Board does not presently anticipate that any supervised insurance depository institution holding company will need to initially raise capital to meet the requirements of the BBA, there is not expected to be a substantial change in the cost of capital faced by insurance depository institution holding companies. Moreover, the better identification of risk to the safety and soundness of the consolidated enterprise, as well as the subsidiary IDI, that is expected to result from the proposal may lead to improved efficiencies, fewer losses, and lower costs in the long term, which may offset any effects on premiums of any compliance costs.
The possibility of reduced financial intermediation or economic output in the United States related to the proposed BBA appears unlikely. In this regard, the Board recalls that capital requirements under the BBA are taken as they are under the jurisdictional capital frameworks, including NAIC RBC, subject to adjustment and scaling that does not alter the underlying capital charges. As a result, the BBA is not expected to operate to influence insurance depository institution holding companies' aggregate investment allocations among asset classes, or more generally affect insurance depository institution holding companies' role in risk assumption or other financial intermediation.
Based on an initial assessment of available information, the benefits of the proposed BBA are expected to outweigh any costs. Most significantly, the intent of the proposed rule is to ensure the safety and soundness of the insurance depository institution holding company and protect the subsidiary IDI, in fulfillment of the Board's statutory mandate. The Board believes this objective would be accomplished, in accordance with the Board's supervisory goals, through the proposed BBA in a manner that is minimally burdensome and appropriately tailored.
Section 722 of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338, 1471, 12 U.S.C. 4809) requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. The Board has sought to present the proposed rule in a simple and straightforward manner, and invites comment on the use of plain language.
In connection with the proposed rule, the Board proposes to implement a new reporting form that would constitute a “collection of information” within the meaning of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521). In accordance with the requirements of the PRA, the Board may not conduct or sponsor, and a 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 OMB control number is 7100-NEW. The Board reviewed the proposed information collection under the authority delegated to the Board by the OMB.
The proposed reporting form is subject to the PRA. The form would be implemented pursuant to section 171 of the Dodd-Frank Act and section 10 of HOLA for insurance depository institution holding companies.
Comments are invited on:
(a) Whether the collections of information are necessary for the proper performance of the Board's functions, including whether the information has practical utility;
(b) The accuracy of the Board's estimate of the burden of the information collections, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collections 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.
All comments will become a matter of public record. Comments on aspects of this notice that may affect reporting, recordkeeping, or disclosure requirements and burden estimates should be sent to the addresses listed in the
In accordance with section 3(a) of the Regulatory Flexibility Act
In accordance with section 171 of the Dodd-Frank Act and section 10 of HOLA, the Board is proposing to adopt subpart J to 12 CFR part 217 (Regulation Q) to establish risk-based capital requirements for insurance depository institution holding companies.
Under Small Business Administration (SBA) regulations, the finance and insurance sector includes direct life insurance carriers, direct title insurance carriers, and direct P&C insurance carriers, which generally are considered “small” for the purposes of the RFA if a life insurance carrier or title insurance carrier has assets of $38.5 million or less or if a P&C insurance carrier has less than 1,500 employees.
Life insurance companies and title insurance companies that would be subject to the proposed rule all substantially exceed the $38.5 million asset threshold at which they would be considered a “small entity” under SBA regulations. P&C insurance companies subject to the proposed rule exceed the less than 1,500 employee threshold at which a P&C entity is considered a “small entity” under SBA regulations.
Because the proposed rule is not likely to apply to any life insurance carrier or title insurance carrier with assets of $38.5 million, or P&C carrier with less than 1,500 employees, if adopted in final form, it is not expected to apply to a substantial number of small entities for purposes of the RFA. The Board does not believe that the proposed rule duplicates, overlaps, or conflicts with any other federal rules. In light of the foregoing, the Board does not believe that the proposed rule, if adopted in final form, would have a significant economic impact on a substantial number of small entities supervised. Nonetheless, the Board seeks comment on whether the proposed rule would impose undue burdens on, or have unintended consequences for, small organizations, and whether there are ways such potential burdens or consequences could be minimized in a manner consistent with section 171 of the Dodd-Frank Act and section 10 of HOLA.
Administrative practice and procedure, Banks, Banking, Capital, Federal Reserve System, Holding companies, Reporting and recordkeeping requirements, Risk, Securities.
Administrative practice and procedure, Banks, banking, Credit, Federal Reserve System, Holding companies, Investments, Qualified financial contracts, Reporting and recordkeeping requirements, Securities.
For the reasons set forth in the preamble, the Board of Governors of the Federal Reserve System proposes to amend chapter II of title 12 of the Code of Federal Regulations as follows:
12 U.S.C. 248(a), 321-338a, 481-486, 1462a, 1467a, 1818, 1828, 1831n, 1831o, 1831p-1, 1831w, 1835, 1844(b), 1851, 3904, 3906-3909, 4808, 5365, 5368, 5371.
The revisions and additions read as follows:
(c) * * *
(1) * * *
(ii) A bank holding company domiciled in the United States that is not subject to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (part 225, appendix C of this chapter), provided that the Board may by order apply any or all of this part to any bank holding company, based on the institution's size, level of complexity,
(iii) A covered savings and loan holding company domiciled in the United States that is not subject to the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement (part 225, appendix C of this chapter). For purposes of compliance with the capital adequacy requirements and calculations in this part, savings and loan holding companies that do not file the FR Y-9C should follow the instructions to the FR Y-9C.
(2)
(A) The subsidiary savings and loan holding company is an insurance SLHC mid-tier holding company; and
(B) The subsidiary savings and loan holding company's assets and liabilities are not consolidated with those of a savings and loan holding company that controls the subsidiary for purposes of determining the parent savings and loan holding company's capital requirements and capital ratios under subparts B through F of this part.
(ii)
(A) In complying with the capital adequacy requirements of this part (except for the requirements and calculations of subpart J of this part), including any determination of applicability under § 217.100 or § 217.201, an insurance savings and loan holding company, or an insurance SLHC mid-tier holding company, may elect to:
(
(
(
(
(B)
(
The revision and additions read as follows:
(1) An institution that meets the requirements of section 10(c)(9)(C) of HOLA (12 U.S.C. 1467a(c)(9)(C)); and
(2) As of June 30 of the previous calendar year, derived 50 percent or more of its total consolidated assets or 50 percent of its total revenues on an enterprise-wide basis (as calculated under GAAP) from activities that are not financial in nature under section 4(k) of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(k)).
(1) A top-tier savings and loan holding company that is an insurance underwriting company; or
(2)(i) A top-tier savings and loan holding company that, as of June 30 of the previous calendar year, held 25 percent or more of its total consolidated assets in subsidiaries that are insurance underwriting companies (other than assets associated with insurance underwriting for credit risk); and
(ii) For purposes of this definition, the company must calculate its total consolidated assets in accordance with GAAP, or if the company does not calculate its total consolidated assets under GAAP for any regulatory purpose (including compliance with applicable securities laws), the company may estimate its total consolidated assets, subject to review and adjustment by the Board.
(1) Is a subsidiary of an insurance savings and loan holding company to which subpart J applies; and
(2) Is not an insurance underwriting company that is subject to state-law capital requirements.
(a) * * *
(4) For a Board-regulated institution other than an insurance savings and loan holding company or insurance SLHC mid-tier holding company, a leverage ratio of 4 percent.
(6) An insurance savings and loan holding company that is a state regulated insurer is not required to meet the minimum capital ratio requirements in paragraphs (a)(1) through (5) of this section, if the company uses subpart J of this part for purposes of compliance with the capital adequacy requirements and calculations in this part.
(7) An insurance savings and loan holding company is not required to meet the buffer in § 217.11, if the company uses subpart J of this part for purposes of compliance with the calculation of its capital conservation buffer.
(a) * * *
(3)
(a)
(b)
(1) (i) A top-tier depository institution holding company that is an insurance underwriting company; or
(ii) A top-tier depository institution holding company, that, as of June 30 of the previous calendar year, held 25 percent or more of its total consolidated assets in insurance underwriting companies (other than assets associated with insurance underwriting for credit risk). For purposes of this subparagraph (b)(ii), the Board-regulated institution must calculate its total consolidated assets in accordance with U.S. GAAP, or if the Board-regulated institution does not calculate its total consolidated assets under U.S. GAAP for any regulatory purpose (including compliance with applicable securities laws), the company may estimate its total consolidated assets, subject to review and adjustment by the Board; or
(2) An institution that is otherwise subject to this subpart, as determined by the Board.
(c)
(i) Exclusively files financial statements in accordance with SAP;
(ii) Is not subject to a State insurance capital requirement; and
(iii) Has no subsidiary depository institution holding company that
(A) Is subject to a capital requirement; or
(B) Does not exclusively file financial statements in accordance with SAP.
(d)
(1)
(i) If the Board determines that a particular company capital element has characteristics or terms that diminish its ability to absorb losses, or otherwise present safety and soundness concerns, the Board may require the supervised insurance organization to exclude all or a portion of such element from building block available capital for a depository institution holding company in the supervised insurance organization.
(ii) Notwithstanding the provisions set forth in § 217.608, the Board may find that a capital resource may be included in the building block available capital of a depository institution holding company on a permanent or temporary basis consistent with the loss absorption capacity of the capital resource and in accordance with § 217.608(g).
(2)
(3)
(i) Identify an inventory company that is a depository institution holding company as a top-tier depository institution holding company, or vice versa;
(ii) Identify any company as an inventory company, material financial entity, or building block parent;
(iii) Reverse the identification of a building block parent; or
(iv) Set a building block parent's allocation share of a downstream building block parent equal to 100 percent.
(e)
(f)
(a) Terms that are set forth in § 217.2 and used in this subpart have the definitions assigned thereto in § 217.2.
(b) For the purposes of this subpart, the following terms are defined as follows:
(1) For a company whose applicable capital framework is NAIC RBC, the Authorized Control Level risk-based capital requirement;
(2) For a company whose applicable capital framework is a U.S. federal banking capital rule, the total risk-weighted assets; and
(3) For any other company, a risk-sensitive measure of required capital used to determine the jurisdictional intervention point applicable to that company.
(1) A bank holding company; a savings and loan holding company as defined in section 10(n) of the Home Owners' Loan Act (12 U.S.C. 1467a(n)); a U.S. intermediate holding company established or designated for purposes of compliance with this part;
(2) A depository institution as defined in section 3(c) of the Federal Deposit Insurance Act (12 U.S.C. 1813(c)); an organization that is organized under the laws of a foreign country and that engages directly in the business of banking outside the United States; a federal credit union or state credit union as defined in section 2 of the Federal Credit Union Act (12 U.S.C. 1752(1) and (6)); a national association, state member bank, or state nonmember bank that is not a depository institution; an institution that functions solely in a trust or fiduciary capacity as described in section 2(c)(2)(D) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)(D)); an industrial loan company, an industrial bank, or other similar institution described in section 2(c)(2)(H) of the Bank Holding Company Act of 1956 (12 U.S.C. 1841(c)(2)(H));
(3) An entity that is state-licensed or registered as:
(i) A credit or lending entity, including a finance company; money lender; installment lender; consumer lender or lending company; mortgage lender, broker, or bank; motor vehicle title pledge lender; payday or deferred deposit lender; premium finance company; commercial finance or lending company; or commercial mortgage company; except entities registered or licensed solely on account of financing the entity's direct sales of goods or services to customers;
(ii) A money services business, including a check casher; money transmitter; currency dealer or exchange; or money order or traveler's check issuer;
(4) Any person registered with the Commodity Futures Trading Commission as a swap dealer or major swap participant pursuant to the Commodity Exchange Act of 1936 (7 U.S.C. 1
(5) A securities holding company as defined in section 618 of the Dodd-Frank Act (12 U.S.C. 1850a); a broker or dealer as defined in sections 3(a)(4) and 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4)-(5)); an investment company registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1
(6) A private fund as defined in section 202(a) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)); an entity that would be an investment company under section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3) but for section 3(c)(5)(C); or an entity that is deemed not to be an investment company under section 3 of the Investment Company Act of 1940 pursuant to Investment Company Act Rule 3a-7 (17 CFR 270.3a-7) of the U.S. Securities and Exchange Commission;
(7) A commodity pool, a commodity pool operator, or a commodity trading
(8) An entity that is organized as an insurance company, primarily engaged in underwriting insurance or reinsuring risks underwritten by insurance companies;
(9) Any designated financial market utility, as defined in section 803 of the Dodd-Frank Act (12 U.S.C. 5462); and
(10) An entity that would be a financial entity described in paragraphs (1) through (9) of this definition, if it were organized under the laws of the United States or any State thereof.
(1) Where the top-tier depository institution holding company's total exposure exceeds 1 percent of total consolidated assets of the top-tier depository institution holding company. The supervised firm must calculate its total consolidated assets in accordance with U.S. GAAP, or if the firm does not calculate its total consolidated assets under U.S. GAAP for any regulatory purpose (including compliance with applicable securities laws), the company may estimate its total consolidated assets, subject to review and adjustment by the Board. For purposes of this definition, total exposure includes:
(a) The absolute value of the top-tier depository institution holding company's direct or indirect interest in the company capital elements of the company;
(b) The top-tier depository institution holding company or any other company in the supervised insurance organization providing an explicit or implicit guarantee for the benefit of the company; and
(c) Potential counterparty credit risk to the top-tier depository institution holding company or any other company in the supervised insurance organization arising from any derivative or similar instrument, reinsurance or similar arrangement, or other contractual agreement; or
(2) The company is otherwise significant in assessing the building block available capital or building block capital requirement of the top-tier depository institution holding company based on factors including risk exposure, activities, organizational structure, complexity, affiliate guarantees or recourse rights, and size.
(1) The supervised insurance organization has elected pursuant to § 217.605(c) to not treat the company as a material financial entity.
(2) The inventory company is a financial subsidiary, as defined in section 121 of the Gramm-Leach-Bliley Act;
(3) The inventory company is properly registered as an investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 80b-1
(1) For which the Board has determined scalars; or
(2) That is an insurance capital regulatory framework, and exhibits each of the following three attributes:
(a) the framework is clearly defined and broadly applicable;
(b) The framework has an identifiable intervention point that can be used to calibrate a scalar; and
(c) The framework provides a risk-sensitive measure of required capital reflecting material risks to a company's financial strength.
(1) In the case of a depository institution holding company, the set of companies consisting of:
(i) A top-tier depository institution holding company that is an insurance underwriting company, together with its inventory companies; or
(ii) A top-tier depository institution holding company, together with its inventory companies, that, as of June 30 of the previous calendar year, held 25 percent or more of its total consolidated assets in insurance underwriting companies (other than assets associated with insurance underwriting for credit risk). For purposes of this paragraph (1)(ii) of this definition, the supervised firm must calculate its total consolidated assets in accordance with U.S. GAAP, or if the firm does not calculate its total consolidated assets under U.S. GAAP for any regulatory purpose (including compliance with applicable securities laws), the company may estimate its total consolidated assets, subject to review and adjustment by the Board; or
(2) An institution that is otherwise subject to this subpart, as determined by the Board.
(a)
(1) Establishing an inventory that includes the supervised insurance organization and every company that meets the requirements of § 217.605(b)(1);
(2) Identifying all building block parents as required under § 217.605(b)(3);
(3) Determining the available capital and capital requirement for each building block parent in accordance with its applicable capital framework;
(4) Determining the building block available capital and building block capital requirement for each building block, reflecting adjustments and scaling as set out in this subpart;
(5) Rolling up building block available capital and building block capital requirement amounts across all building blocks in the supervised insurance organization's enterprise to determine the same for any depository institution holding companies in the enterprise; and
(6) Determining the ratio of building block available capital to building block capital requirement for each depository institution holding company in the supervised insurance organization.
(b)
(c)
(d)
(2) A depository institution holding company in a supervised insurance organization must have a process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining an appropriate level of capital.
(a)
(1) Replacing the term “calendar quarter” with “calendar year;”
(2) Including in the definition of “distribution” discretionary dividend payments on participating insurance policies;
(3) In § 217.11(a)(1), replacing “
(4) Replacing § 217.11(a)(2)(i) in its entirety with the following: “
(5) Replacing § 217.11(a)(3) in its entirety with the following: “The capital conservation buffer for a depository institution holding company in a supervised insurance organization is the greater of its BBA ratio, calculated as of the last day of the previous calendar year based on the supervised insurance organization's most recent Form FR Q-1, minus the minimum capital requirement under § 217.603(c), and zero;”
(6) Replacing § 217.11(a)(4)(ii) in its entirety with the following: “A depository institution holding company in a supervised insurance organization with a capital conservation buffer that is greater than 235 percent is not subject to a maximum payout amount under this section;
(7) In § 217.11(a)(4)(iii)(B), replacing “2.5 percent” with “235 percent;”
(8) Replacing Table 1 to § 217.11 in its entirety with the following:
(a)
(b)
(1)
(A) Required to be reported on the FR Y-6;
(B) Required to be reported on the FR Y-10; or
(C) Classified as affiliates in accordance with NAIC Statement of Statutory Accounting Principles (SSAP) No. 25 and the preparation of Schedule Y;
(ii) Any company, special purpose entity, variable interest entity, or similar entity that:
(A) Enters into one or more reinsurance or derivative transactions with inventory companies identified pursuant to paragraph (b)(1)(i) of this section;
(B) Is material;
(C) Is engaged in activities such that one or more inventory companies identified pursuant to paragraph (b)(1)(i) of this section are expected to absorb more than 50 percent of its expected losses; and
(D) Is not otherwise identified as an inventory company; and
(iii) Any other company that the Board determines must be identified as an inventory company.
(2)
(A) Determine the applicable capital framework for each inventory company; and
(B) Identify inventory companies that are subject to a regulatory capital framework.
(ii) The applicable capital framework for an inventory company is:
(A) If the inventory company is not engaged in insurance or reinsurance underwriting, the U.S. federal banking capital rules, in particular:
(
(
(B) If the inventory company is engaged in insurance or reinsurance underwriting and subject to a regulatory capital framework that is scalar-compatible, the regulatory capital framework; and
(C) If the inventory company is engaged in insurance or reinsurance underwriting and not subject to a regulatory capital framework that is scalar-compatible, then NAIC RBC for life insurers, fraternal insurers, health insurers, or property & casualty insurers based on the company's primary source of premium revenue.
(3)
(i) (A) Identify all top-tier depository institution holding companies in the supervised insurance organization.
(B) Any top-tier depository institution holding company is a building block parent
(ii) (A) Identify any inventory company that is a depository institution holding company;
(B) An inventory company identified in paragraph (b)(3)(ii)(A) of this section is a building block parent.
(iii) Identify all inventory companies that are capital-regulated companies (
(iv) (A) Of the inventory companies identified in paragraph (b)(3)(iii) of this section, identify any inventory company that:
(
(
(B) Of the inventory companies identified in paragraph (b)(3)(iii) of this section, identify any inventory company that:
(
(
(
(
(
(C) An inventory company identified in paragraph (b)(3)(iv)(A) through (B) of this section is a building block parent.
(v) Include any inventory company identified in paragraph (b)(1)(ii) of this section as a building block parent.
(vi) (A) Identify any inventory company
(
(
(
(B) An inventory company identified in paragraph (b)(3)(vi)(A) of this section is a building block parent.
(4)
(B) A supervised insurance organization is not required to assign to a building block any inventory company that is not a downstream company or subsidiary of a top-tier depository institution holding company.
(5)
(i) For any inventory company whose applicable capital framework is NAIC RBC, prepare financial statements in accordance with SAP; and
(ii) For any building block parent whose applicable capital framework is subparts A through F of this part:
(A) Apply the same elections and treatment of exposures as are applied to the subsidiary depository institution;
(B) Apply subparts A through F of this part, to the members of the building block of which the building block parent is a member, on a consolidated basis, to the same extent as if the building block parent were a Board-regulated institution; and
(C) Where the building block parent is not the top-tier depository institution holding company, not deduct investments in capital of unconsolidated financial institutions, nor exclude these investments from the calculation of risk-weighted assets.
(6)
(c)
(2) The election in paragraph (c)(1) of this section is available as to an inventory company if:
(
(
(d)
(2) The top-tier depository institution's allocation share of a building block parent identified under paragraph (b)(3)(v) of this section is 100 percent. Any other building block parent's allocation share of such building block parent is zero.
(a)
(1)
(i)
(ii)
(2) [Reserved]
(b)
(1)
(i)
(ii)
(2)
(3)
(a)
(1) The company capital requirement of the building block parent;
(i) Recalculated under the assumption that members of the building block parent's building block had no investment in any downstream building block parent; and
(ii) Adjusted pursuant to paragraph (b) of this section;
(2) For each downstream building block parent, the adjusted downstream building block capital requirement (
(b)
(1)
(i) The building block parent's company capital requirement; and
(ii) The building block parent's company capital requirement recalculated excluding capital requirements related to potential for the possibility of default of any company in the supervised insurance organization.
(2)
(i) The building block parent's company capital requirement, after making any adjustment in accordance with paragraph (b)(1) of this section; and
(ii) The building block parent's company capital requirement, after making any adjustment in accordance with paragraph (b)(1) of this section, recalculated under the assumption that neither the building block parent, nor any company that is a member of that building block parent's building block, had prepared its financial statements with the application of any permitted accounting practice, prescribed accounting practice, or other practice, including legal, regulatory, or accounting procedures or standards, that departs from a solvency framework as promulgated for application in a jurisdiction.
(3)
(i) The building block parent's company capital requirement; and
(ii) The building block parent's company capital requirement recalculated under the assumption that neither the building block parent, nor any company that is a member of the building block parent's building block, had prepared its financial statements with the application of any grandfathering or transitional measures under the building block parent's applicable capital framework, unless the application of these measures has been approved by the Board.
(4)
(i) The building block parent's company capital requirement; and
(ii) The building block parent's company capital requirement recalculated with the risks of the company, excluding internal credit risks described in paragraph (b)(1) of this section, allocated to the building block parent, reflecting the transaction(s) that the company engages in with any member of the building block parent's building block.
(5)
(i) A supervised insurance organization must deduct from the building block parent's company capital requirement any difference between:
(A) The building block parent's company capital requirement; and
(B) The building block parent's company capital requirement recalculated after assuming that neither the building block parent, nor any company that is a member of the building block parent's building block, held any investment in the building block parent's own capital instrument(s), including any net long position determined in accordance with paragraph (b)(5)(ii) of this section.
(ii)
(6)
(a)
(1) Under this subpart, a qualifying capital instrument with respect to a building block parent is a capital instrument that meets the following criteria:
(i) The instrument is issued and paid-in;
(ii) The instrument is subordinated to depositors and general creditors of the building block parent;
(iii) The instrument is not secured, not covered by a guarantee of the building block parent or of an affiliate of the building block parent, and not subject to any other arrangement that legally or economically enhances the seniority of the instrument in relation to more senior claims;
(iv) The instrument has a minimum original maturity of at least five years. At the beginning of each of the last five years of the life of the instrument, the amount that is eligible to be included in building block available capital is reduced by 20 percent of the original amount of the instrument (net of redemptions), and is excluded from building block available capital when the remaining maturity is less than one year. In addition, the instrument must not have any terms or features that require, or create significant incentives
(v) The instrument, by its terms, may be called by the building block parent only after a minimum of five years following issuance, except that the terms of the instrument may allow it to be called sooner upon the occurrence of an event that would preclude the instrument from being included in the building block parent's company available capital or building block available capital, a tax event, or if the issuing entity is required to register as an investment company pursuant to the Investment Company Act of 1940 (15 U.S.C. 80a-1
(A) The top-tier depository institution holding company must receive the prior approval of the Board to exercise a call option on the instrument.
(B) The building block parent does not create at issuance, through action or communication, an expectation the call option will be exercised.
(C) Prior to exercising the call option, or immediately thereafter, the Board-regulated institution must either: Replace any amount called with an equivalent amount of an instrument that meets the criteria for regulatory capital under this section;
(vi) Redemption of the instrument prior to maturity or repurchase requires the prior approval of the Board.
(vii) The instrument meets the criteria in § 217.20(d)(1)(vi) through (ix) and § 217.20(d)(1)(xi),
(2)
(i) The holders of the instrument bear losses as they occur equally, proportionately, and simultaneously with the holders of all other qualifying capital instruments (other than tier 2 capital instruments) before any losses are borne by holders of claims on the top-tier depository institution holding company with greater priority in a receivership, insolvency, liquidation, or similar proceeding.
(ii) The paid-in amount would be classified as equity under GAAP.
(iii) The instrument meets the criteria in § 217.20(b)(1)(i) through (vii) and in § 217.20(b)(1)(x) through (xiii).
(b)
(i) The company available capital of the building block parent:
(A) Less the amount of downstreamed capital owned by any member of the building block parent's building block;
(B) Adjusted pursuant to paragraph (c) of this section;
(ii) For each downstream building block parent, the adjusted downstream building block available capital (
(2)
(c)
(1)
(2)
(3)
(i) The building block parent's company available capital; and
(ii) The building block parent's company available capital recalculated under the assumption that neither the building block parent, nor any company that is a member of that building block parent's building block, had prepared its financial statements with the application of any permitted accounting practice, prescribed accounting practice, or other practice, including legal, regulatory, or accounting procedures or standards, that departs from a solvency framework as promulgated for application in a jurisdiction.
(4)
(i) The building block parent's company available capital; and
(ii) The building block parent's company available capital recalculated under the assumption that neither the building block parent, nor any company that is a member of the building block parent's building block, had prepared its financial statements with the application of any grandfathering or transitional measures under the building block parent's applicable capital framework, unless the
(5)
(i) A supervised insurance organization must deduct from the building block parent's company available capital any investment by the building block parent in its own capital instrument(s), or any investment by any member of the building block parent's building block in capital instruments of the building block parent, including any net long position determined in accordance with paragraph (c)(5)(ii) of this section, to the extent that such investment(s) would otherwise be accretive to the building block parent's building block available capital.
(ii)
(6)
(d)
(1)
(B) The deductions described in paragraph (d)(1)(A) of this section are net of associated deferred tax liabilities in accordance with § 217.22(e).
(2)
(i) 62.5 percent of the amount of its building block capital requirement; and
(ii) The amount of instruments subject to paragraphs (e) or (f) of this section that are outstanding as of the submission date.
(e)
(1) The surplus note is a company capital element for the issuing company;
(2) The surplus note is not owned by an affiliate of the issuer; and
(3) The surplus note is outstanding as of the submission date.
(f)
(g)
(1) A supervised insurance organization must receive Board prior approval to include in its building block available capital for any building block an instrument (as listed in this section), issued by any company in the supervised insurance organization, unless the instrument:
(i) Was a company capital element for the issuer prior to May 19, 2010, in accordance with the applicable capital framework that was effective as of that date and the underlying instrument meets the criteria to be a qualifying capital instrument (as defined in paragraph (a) of this section); or
(ii) Is equivalent, in terms of capital quality and ability to absorb losses with respect to all material terms, to a company capital element that the Board determined may be included in regulatory capital under this subpart pursuant to paragraph (g)(2) of this section, or may be included in the regulatory capital of a Board-regulated institution pursuant to § 217.20(e)(3).
(2) After determining that an instrument may be included in a supervised insurance organization's regulatory capital under this subpart, the Board will make its decision publicly available, including a brief description of the material terms of the instrument and the rationale for the determination.
12 U.S.C. 321-338a, 481-486, 1467a, 1818, 1828, 1831n, 1831o, 1831p-l, 1831w, 1835, 1844(b), 1844(c), 3101
(b) * * *
(ii) Any savings and loan holding company with average total consolidated assets (as defined in § 252.12(d)) of greater than $10 billion, excluding companies subject to part 217, subpart J of this chapter; and”
The following Exhibit will not publish in the Code of Federal Regulations.
This section will not publish in the Code of Federal Regulations.
The Board of Governors of the Federal Reserve System is responsible for protecting the safety and soundness of depository institutions affiliated with
The Board proposes relying on these existing sectoral capital assessment methodologies to assess capital for most holding companies that own both insured depository institutions and insurers. In this proposed approach, capital requirements would be aggregated across sectors to calculate a group-wide capital requirement. Just as adding money denominated in different currencies requires exchange rates, meaningfully aggregating capital resources and requirements calculated under different regulatory frameworks requires some translation mechanism between them. We refer to this process of translating capital measures between regulatory frameworks as “scaling.”
This white paper examines scaling. Scaling has not previously been the subject of academic research, and industry practitioners don't agree on the best methodology.
This paper introduces a scaling method based on historical probability of default (PD) and explains why the Board's proposal uses this approach. This method uses historical default rates as a shared economic language to enable translation. Concretely, scalars pair solvency ratios that have identical estimated historical insolvency rates. An analysis of U.S. data produces the simple scaling formulas below.
This paper also compares the PD method and alternatives, including those suggested by commenters in response to the Board's advance notice of proposed rulemaking (ANPR).
• Scaling can be simplified into the calculation of two parameters: (1) A required capital scalar and (2) an available capital scalar.
• There are at least three considerations of importance in assessing the scaling methods: (1) Reasonableness of the assumptions, (2) ease of implementation, and (3) stability of the parameterization.
• Our analysis identifies a trade-off between the reasonableness of a methodology's assumptions and the easiness of its implementation. Easily producing stable results generally requires bold assumptions about the comparability of regulatory frameworks.
• The Board's recommended scaling approach (PD method) relies on an analysis of historical default rates in the different regulatory frameworks.
In its ANPR of June 2016, the Board proposed a building block approach (BBA) for regulating the capital of banking organizations with substantial insurance operations.
Building blocks originate in regulatory frameworks, referred to as “regimes,” with different metrics and scales. They need to be standardized before they can be stacked together. We refer to the process of translating capital measures from different regimes into a common standard as “scaling.” Based on the firms that would be subject to the proposed rule currently, only two regimes would be material: the regime applicable to U.S. banks and the regime applicable to U.S. insurers, which is the National Association of Insurance Commissioner (NAIC) Risk-Based Capital (RBC) requirements.
Scaling translates available capital (AC) and required capital (RC) between two different regimes. We refer to the original regime as the applicable regime and the output regime—under which comparisons are ultimately made—as the common regime. The Board's proposal uses NAIC RBC as the common regime.
The scaling formulas below provide a generalized scaling framework with two parameters and enough flexibility to represent our proposal and all scaling methods suggested by commenters. One parameter, which we refer to as the required capital or
These scaling parameters also have graphical interpretations that illustrate their meaning. An equivalency line between the solvency ratios of regimes (AC divided by RC) has a slope of
In this two-parameter framework, a scaling methodology represents a way of calculating
The first of these is the reasonableness of the assumptions. Methodologies that make crude assumptions likely won't produce accurate translations. Accurate translations between regimes enable a more meaningful aggregation of metrics, thus allowing the Board to better assess the safety and soundness of institutions and ultimately to better mitigate unsafe or unsound conditions.
Another important consideration is the method's ease of implementation. The most theoretically sound methodology would lack practical value if it cannot be parameterized.
A final consideration is the stability of their parameterization—the extent to which changes in assumptions or data affect the value of the scalars. Scaling should be robust across time unless the underlying regimes change. This stability provides predictability to firms and facilities planning.
A sensible economic benchmark for solvency ratios is the insolvency or default rates associated with them, and this method uses these rates as a Rosetta stone for translating ratios between regimes. For example, under this method a bank solvency ratio that has historically resulted in a 5 percent PD translates to the insurance solvency ratio with an estimated 5 percent PD.
Mechanically, this calculation uses (logistic) regressions to estimate the relationship between the solvency ratios and default probability.
In these formulas, “b” represents the slope of the estimated relationship between a regime's solvency ratio and (logistic) default probability and “a” represents the intercept. Simplifying this equation produces the equations below, as demonstrated in appendix 2.
This section will illustrate the approach and describe how it was used to derive the proposed scalars for U.S. banking and U.S. insurance. The approach will then be discussed in terms of the three identified considerations for scaling methods. This analysis reveals that the method generally can provide an accurate and stable translation of regimes for which robust data are available, which is why the Board has proposed to rely on the method for setting the scalar between the U.S. banking regime and the U.S. insurance regime.
To apply this approach, we obtained financial data on depository institutions and insurers. Insurance financial data came from statutory financial statements. Bank data came from year-end Call Reports.
Several filters were applied to the data. Only data after 1998 and before 2015 were used based on data availability, state adoption of insurance risk-based capital laws, and the three-year default horizon discussed below.
We also obtained default data for the banking and insurance sectors. A three-year time horizon for defaults was used in both regimes to balance the competing considerations of wanting to observe a reasonable number of defaults beyond the most weakly capitalized companies and maximizing the number of data points that could be used in the regression.
Insurance default data were obtained from the NAIC's Global Insurance Receivership Information Database (GRID).
For banking organizations, default data were extracted from the FDIC list of failures.
To estimate the probabilities of default from these data, we used a logistic regression, which is commonly used with binary data, to estimate the parameters
The parameters on the P&C and life insurance regressions were analyzed separately because the regimes are distinct; however, the regression results were very close to each other with no significant statistical difference..
Using the formulas from the start of this section that relate logistic regression output to scaling parameters,
These results appear reasonable and suggest that the banking capital requirement is approximately equivalent to the insurance capital requirement but that the regimes differ in their structure. The insurance regime's conservative accounting rules lead to a conservative calculation of
Because regulators design solvency ratios to identify companies in danger of failing, default rates are a natural benchmark for assessing them economically. Comparing solvency ratios based on this benchmark is more reasonable than the alternatives, but it does have limitations.
One important limitation is that definitions of default across sectors may be difficult to compare. To some extent, defaults are influenced by regulatory actions, which are entwined with the underlying regime itself. Although adjustments can be made (as we do with our default definition in the U.S. markets), there is likely still some endogeneity. However, defaults still provide a more objective assessment of the regime than the alternatives discussed in the
As a test of the comparability of the default definitions, we estimated each sector's loss given default. If the default definitions in both sectors were equivalent economically, then the cost of these defaults should also be close. Based on data from the FDIC, the average bank insolvency in the period studied was approximately 10.7% of assets with a median of 22.4%. The median is significantly higher than the mean because of the very large Washington Mutual failure. Excluding Washington Mutual, the mean insolvency cost was 18.7%. We estimated the cost of insurance insolvencies by comparing the cost to insurance guarantee fund assessments during the sample period with the assets of insurers that defaulted using our definition. This produced an estimate of insolvency costs of 16.9% of net admitted assets. This is between the median and mean of the bank distribution and close to the bank mean when Washington Mutual is excluded. This supports our assumption that institutions identified as defaulting can be considered to have comparable financial strength.
Historical insolvency rates also do not reflect regime changes and can be influenced by government support. In the application to U.S. banking and insurance, no adjustment was made for these factors, which are difficult to quantify and would likely offset each other to some extent over the period studied. Banking organizations have been more affected by past government support, which might imply the regressions underestimate PD, but there has recently been a significant tightening of the regime after the 2008 financial crisis, which would have an opposite effect.
An additional limitation is the assumption of linearity in the relationship between solvency ratios and default probabilities after the logistic transformation. Figure 3 shows the goodness of fit of the PD estimation for U.S. banking and insurance. The blue dots represent actual observed default rates. The light red line represents the output from the regressions discussed above. The figures on the left are the same as those on the right after the logistic transformation.
The regressions produce a reasonably good fit to the available data, but the linear fit breaks down for very highly capitalized companies in both sectors (see blue circles). Consistent with other research, beyond a certain point, capital does not appear to have a large impact on the probability of a company defaulting. We considered a piece-wise fit to address this issue, but decided against it for three reasons. First, this issue has little practical impact because it only affects very strongly capitalized companies. Differentiating between these companies is not the focus of the capital rule. Second, a piece-wise function would drastically increase the complexity of the process. Simple scaling formulas can be derived if a single logistic regression is used for each.
The biggest disadvantage of this approach is data availability. The approach requires a large number of default events to calibrate the impact of the solvency ratio accurately. Although these data are available on the currently needed regimes, they may not be available in other regimes for which scalars could be needed in the future.
The parameter estimates appear stable and robust. As one basic measure of stability and robustness, we estimated the standard error of the scaling estimates by simulating from normal distributions with the mean of the underlying regression parameters and standard deviation of their standard error. This measure indicated a 95 percent confidence interval of between .010 and .013 for
We also tested the robustness of the methodology on out of sample data. To do this, we split the sample at the year
We also tested the parameterization for sensitivity to key assumptions, which would not be captured by the estimated standard errors. A description of these tests and the resulting scalars are displayed in table 3. We also attempted to test the impact of the exclusion of some data, including companies with very high or very low solvency ratios, but we found that the regression showed little relationship between the capital ratios and default probabilities in both regimes when outlier entities that have ratios that are orders of magnitude apart from typical companies are included.
The use of historical default probabilities can produce a reasonable scalar for U.S. banking and insurance. The primary disadvantage is the data required, which may not be available for other jurisdictions. Because this method has a relatively robust parameterization, the parameters would not need to be updated on a set schedule and could be instead be revisited if new data or conditions suggest a change is warranted.
Other methods exist for calibrating the scaling parameters. This section gives a description of these methods and compares them to the historical PD method based on the desired characteristics described before. The methods are arranged roughly in order of their ease of parameterization. At one end of the spectrum, not scaling is very simple, but it is not likely to produce an accurate translation. At the other end of the spectrum, scaling based on market-derived probabilities of default and scaling based on a granular analysis of each regime's methodologies have theoretical advantages but cannot be parameterized even for U.S. banking and U.S. insurance. Between these extremes, some methods can be parameterized but generally have less reasonable assumptions than the historical PD method.
One scaling method would be to assume that no scaling is required, as might be tempting for solvency ratios of the same order of magnitude. This method would be equivalent to assuming that
Although this approach would be very stable and not require parameterization, the assumption generally appears unreasonable because of the many differences between regimes. A typical ACL RBC ratio would be hundreds of percent. The average bank operates with an RWA ratio near 16 percent. Furthermore, although the numerators in these ratios might be deemed as comparable under certain circumstances, the denominators are conceptually very different. The denominator in insurance is required capital; the denominator in banking is risk-weighted assets.
This category of methods would take two assumed equivalent solvency ratios and use interpolation between these to produce an assumed equivalence line and the implied scaling parameters. The methods in this category would vary primarily in terms of how they derive the assumed equivalency points.
It is possible to mix and match from these assumptions to produce a scaling methodology as illustrated in figure 5. In this figure, each of the three assumptions is plotted as an assumed equivalence point. For example, an 8 percent level of bank capital and 200 percent of ACL RBC translate to comparable regulatory interventions so (200 percent, 8 percent) is shown as the regulatory intervention equivalence point. An assumption that scaling is not required on available capital translates to equivalence at (0 percent, 0 percent) because a company with no available capital in one regime would also have no available capital after scaling. Three different lines are illustrated which show the three different ways these assumptions could be combined to produce scaling methodology.
Most commenters on the ANPR suggested one of these methods, but commenters were split as to which assumption was better. A plurality of commenters suggested not assuming equivalence in available capital calculations because, as the Board noted in the ANPR, regimes do differ significantly in how they calculate available capital. However, one disadvantage of this method is that the average capital levels in a regime may not always be available, so it might not be possible to parameterize it for all regimes.
It is also possible to add different adjustments to these methods. For instance, rather than directly using the regulatory intervention points, one could first adjust these to make them more comparable. To the extent that one knew that the regulatory intervention point was set at a given level (for example, 99.9 percent over 1 year vs. 99.5 percent over one year) then it would be possible to adjust the intervention point in one regime to move it to a targeted confidence level that aligns with another regime. However, given that these targeted calibration levels are more aspiration than likely to ultimately be supported by empirical data, this adjustment does not significantly improve the reasonableness of the underlying assumptions.
Some other adjustments could marginally improve the analysis. For instance, although it is plausible that industries in similarly developed economies could be similar, assuming equivalence across starkly different economies is less reasonable. In particular, the level of general country risk within a jurisdiction is likely to affect both insurance companies and insurance regulators, and some adjustment for this could improve the method.
Although these adjustments do marginally improve the methods, methods in this category would still not be making as reasonable of assumptions as the historical PD method. We do not consider it appropriate to use any method in this category in setting the scalar between the Board's bank capital rule and NAIC RBC. This category of methods could, however, have utility where simple assumptions are needed to support calibration.
A different data-based method that was considered would use accounting data in place of default data. Under this method, the distribution of companies' income and surplus changes would be analyzed similarly to how the Board calibrated the surcharge on systemically important banks.
Turning this intuition into a scaling methodology requires an additional assumption about equivalent ratios.
Although this method appears more reasonable than the simple interpolation methods, the assumptions are not as sound as for the historical PD method. Although there is some endogeneity with defaults, there is much more with accounting data. Regimes differ greatly in how they calculate net income and surplus changes such that benchmarking against a distribution of these values may not bring the desired comparability. The additional assumption required on equivalence is also problematic as it would essentially require incorporating one of the
In terms of the ease of parameterization, the method ranks somewhere between the historical PD method and the simple methods based on interpolation. Income data are plentiful relative to both historical default data and market-derived default data. This ubiquity of the data could allow for calibration of additional regimes and allow changes in regimes to be picked up before default experience emerges.
To parameterize this method for U.S. banking and insurance, we started with the distribution of bank losses discussed in the calibration of the systemic risk charge for banks (see figure 6).
To
Unlike with historical PD, an analysis of the top 50 life and P&C groups based on year-end 2006 assets under this method strongly suggested a different calibration. Historically, P&C carriers are significantly less likely than life carriers to experience large losses relative to their risk-based capital requirements. In 2008, nearly half the largest life insurance groups experienced losses that were above their authorized control level regulatory capital requirement. P&C insurers were much less likely to experience comparable losses. Table 5 shows the scalars produced when the NAIC RBC life regime is used as the base.
Another scaling method would be to analyze a group of companies in both regimes. From a sample of companies in both regimes, it would be possible to run a regression to parameterize an equivalency line that represents the expected value in the common regime based on their information in the applicable regime.
Although analyzing a single group of companies under both regimes would provide a solid foundation for assuming equivalence theoretically, there are problems with this method under the stated criteria.
One issue is that calculating a given company's ratio under both regimes would likely not be appropriate because it would involve applying the regime outside of its intended domain. Applying the bank capital rules to insurers or the insurance capital rules to banks for calculating the scalar will not necessarily give comparable results. Although a result for a bank could be calculated under the insurance capital rules, this result may not really be comparable to insurers scoring similarly because their risk profiles differ. Indeed, the lack of a suitable regime for companies in both sectors is the primary reason the Board is proposing the BBA rather than applying one of the existing sectoral methodologies to the consolidated group.
Another disadvantage of this method is the difficulty of implementation. Companies typically do not calculate their results under multiple regimes. The limited available data, including the data from the Board's prior QIS, do not statistically represent the situations where a scalar is needed. Barriers to obtaining a representative sample of companies make this method very difficult to parameterize.
Because of these problems, we do not recommend using this methodology as a basis for scaling under the proposal.
The intuition of this method is similar to the historical probability of default method, but it would use market data to calibrate the relationship between solvency ratios and expected defaults. Market data can be used to calculate implied default probabilities with some additional assumptions. Credit default swap (CDS) prices or bond spreads depend heavily on default probabilities, and a Merton model can translate equity prices and volatilities into default probabilities.
Using market-derived default probabilities in place of historical data would have theoretical advantages over the recommended method. Because market signals are forward looking, this method could better capture changes in regimes. It might also be better able to address issues with past government support if the market no longer perceives institutions as likely to be rescued.
Although theoretically appealing, the data limitations prevent this method from being used. Bonds are heterogenous and not frequently traded; equity prices are difficult to translate into default probabilities. Even in the largest markets where CDS data exists, only on a handful of companies have CDS information, and these companies
We attempted to parameterize the scalar for the U.S. market using CDS data from Bloomberg and simple assumptions on recovery rates, but were unable to produce sensible results. Although the historical data show a strong relationship between capital levels and default probabilities, the strong relationship did not hold in our CDS analysis.
Several data restrictions might explain this issue. Only a small number of issuers have observable credit default spreads. Additionally, these are generally at the holding company level, which necessitated making assumptions for insurers as no group solvency ratio exists. Additionally, only relatively well-capitalized banking organizations appear to have CDSs traded currently, potentially creating a section bias. The historical PD data demonstrates that beyond a certain point, capital does not strongly affect default probability.
Other potential explanations of this result exist. Changes in risk aversion and liquidity premiums across the panel period could also explain the results. Time-fixed effects were included in some specifications of the regressions, but they did not improve the outcome of this method. Endogeneity between banks' held capital and their stress testing results may also contribute to the lack of sensible results. Because of the lack of sensible results, we do not recommend using this method to set the scalars.
Another method would be to try to derive the appropriate scalars from a bottom-up analysis of the regimes, including the factors applied to specific risks and the components of available capital. Unfortunately, the differences between the regimes can be inventoried, but such an inventory cannot theoretically or practically be turned into a scaling methodology. In each regime, the risks captured are tailored to those present in the sector. The insurance methodology has complex rules around the calculation of natural catastrophe losses, and the bank regime has complex rules that apply for institutions that have significant market-making operations. Deriving an appropriate scaling methodology from the bottom up based on these differences would require quantifying each of them and then weighting to these differences to calculate an average. This calculation would be infeasible between banking and insurance regimes given the number of differences. Additionally, there are theoretical problems with trying to derive a weighting methodology from the differences that appropriately reflects the risk profiles of both banks and insurers.
This white paper describes our attempt to identify and evaluate different scaling methodologies. We find the PD approach based on historical data could be used to translate information between regimes in a way that preserves the economic meaning of solvency ratios. This method, however, requires data that are not currently available for some regimes outside of the United States. The election of the scaling approach is therefore a choice between using a single simple approach to scaling in all economies or differentiating the scaling approach by country and using the historical PD domestically. We recommend the latter. Although this approach will involve more work and some uncertainty for companies operating in countries with limited data, it should allow for scaling that is more accurate and aid comparability.
Scalars for non-U.S. regimes are not specified in the proposed rule given the Board's supervisory population. These may be set through individual rulemakings as needed. For the scalar between Regulation Q and NAIC RBC, the Board's proposal relies on the historical probability of default method.
We believe that the historical PD method derived in this paper will produce the most faithful translation of financial information between the U.S. banking and insurance regimes. Historical insolvency rates are currently the most credible economic benchmark to assess regimes against, and the long track record and excellent data on both the insurance and the bank U.S. regimes make this analysis feasible.