Background and Summary of Changes

The existing statutory authority for the Multi-Family Housing (MFH) programs was established in title V of the Housing Act of 1949, which gave authority to the RHS (then the Farmers Home Administration) to make housing loans to farmers. As a result of this Act, the Agency established single-family and multi-family housing programs. The MFH program is administered, subject to appropriations, by the U.S. Department of Agriculture (USDA) as authorized under Sections 514, 515 and, 516 and 521 of the Housing Act of 1949, as amended (42 U.S.C. 1484, 1485, and 1486, and 1490). Over time, the sections of the Housing Act of 1949 addressing MFH have been amended a number of times. Amendments have involved issues such as the provision of interest credit, broadening definitions of eligible areas and populations to be served, participation of limited-profit entities, establishment of a rental assistance program, and imposition of a number of restrictive-use provisions and prepayment restrictions.

The Agency operates a multifamily rural rental housing direct loan program under section 515 and section 514 for farm labor housing. The Agency also provides grants under the section 516 farm labor housing program. The direct loan program employs a public—private partnership by providing subsidized loans at an interest rate of 1 percent to developers to construct or renovate affordable rental complexes in rural areas. This 1 percent loan keeps the debt service on the property sufficiently low to support below-market rents affordable to low-income tenants. Many of these projects also utilize low-income housing tax credit (LIHTC) proceeds. This program is typically used in conjunction with the RHS section 521 Rental Assistance (RA) program, which provides project-based rental assistance payments to property owners to subsidize tenants' rents to an affordable level. With rental assistance, tenants pay 30 percent of income toward their rent (including utilities). Some section 515 projects also utilize the U.S. Department of Housing and Urban Development's (HUD's) section 8 project-based assistance, which enables additional very low-income families to be served.

The direct loan and grant programs under sections 514 and 516 provide low interest loans and grants to provide housing for farmworkers. These workers may work either at the borrower's farm (“on-farm”) or at the borrower's or any other farm (“off-farm”) so long as the tenants meet program eligibility requirements. Section 521 rental assistance is available for off-farm labor housing, but not on-farm labor housing. The Agency has decided to not provide RA to on-farm labor housing units because of its limited availability.

The Rural Housing Service (RHS) published a proposed rule on June 2, 2003 (68 FR 32872) to streamline and consolidate 14 regulations into 7 CFR part 3560. Part 3560 sets forth requirements, policies, and procedures for originating, processing, and servicing Rural Development's MFH direct loans and grants. An interim rule was published November 26, 2004 (69 FR 69032-69176) to implement those changes, with an effective date of February 24, 2005. The Agency received more than 2,800 comments on the Proposed Rule published in the Federal Register on June 2, 2003, (68 FR 32872). While the issues of concern tended to vary, the Agency noted that some issues were raised by more than one commenter. Topics discussed by five or more commenters were presented and organized by subpart within the interim rule published and addressed.

This proposed rule will amend the current interim rule in order to: (1) Implement programmatic changes related to development of a “sustainability plan” for the Rental Assistance (RA) Program, including new Agency flexibilities in managing the RA distribution; (2) integrate new asset management policies; and (3) incorporate technical corrections to clarify reference and formatting issues in the regulation.

The changes proposed are designed to more economically utilize RA, reduce the program cost over time, and provide management flexibilities in the use of funds. The Agency has already implemented several measures to reduce the cost of RA within its already established regulatory authority, but amendments to the regulation are needed to ensure effectiveness and true cost savings to the RA program. The Agency experienced dramatic funding reductions in Fiscal Year 2013, which has highlighted the need for adaptability in delivering RA to as many beneficiaries as possible.

This proposed rule establishes the historical practice of using unused Rental Assistance obligation balances from properties that have left the portfolio for renewal purposes. The Agency has actively used RA balances from properties that have paid off the Rural Development mortgage or natural maturity. These funds supplement the annual appropriation and make efficient use of inactive funds. Inclusion of this process in the regulation will increase transparency on the management of RA funds.

• This proposed rule would add language at § 3560.259(d) regarding the transfer of obligation balances from RA Agreements from properties whose mortgages have naturally matured.

The Consolidated Appropriations Act, 2019 (Pub. L. 116-6, February 2, 2019) for the Rental Assistance Program requires “. . . that rental assistance provided under agreements entered into prior to fiscal year 2019 for a farm labor multi-family housing project financed under section 514 or 516 of the Act may not be recaptured for use in another project until such assistance has remained unused for a period of 12 consecutive months.” Accordingly, the Agency is adding the 12-month term for transfer of unused RA in Section 514 Farm Labor Housing.

• Amending § 3560.259(a)(4) to clarify that when any rental assistance units have not been used for a 6-month period (for Section 515 properties) or 12 months (for Section 514 properties) they will be eligible for transfer.

This proposed rule also proposes to change the following additional RA provisions:

• Amending § 3560.11 definitions of Domestic farm laborer, Management agreement and Management fee to reflect requirements in the Consolidated Appropriations Act, 2018 (Pub. L. 115-141, March 23, 2018) permanently amending Section 514(f)(3)(A) of the Housing Act of 1949 (42 U.S.C. 1484(f)(3)(A)) that the FLH tenant eligibility includes “a person legally admitted to the United States and authorized to work in agriculture.”

• MFH borrowers had previously identified certain requirements within Rural Development's regulations governing Supervised Bank Accounts that are difficult to obtain in the current commercial banking environment. This is mainly due to the current modern electronic banking environment. Accordingly, this proposed rule would add a paragraph at § 3560.65 to allow the Agency to establish an escrow account to collect and disperse funds. This will allow the Agency to establish agency-held escrows which historically was provided for in the loan documents but was not addressed in the regulation.

• Current regulation allows for management agents to earn a management fee for the performance of certain tasks. The Agency intends to clarify that the performance of the agent in meeting the Management Certification requirements will be assessed in determining the allowable fee. This proposed rule would add language at § 3560.102 that performance assessments of management agents will be used when determining the allowable management fee. It will also specify what are allowable management fee expenses and require that management plans include a listing of the charges covered by the fee.

• Borrowers must comply with the requirements of the Fair Housing Amendments Act of 1988, and this section to meet their fair housing responsibilities. At § 3560.104, this proposed rule would raise the threshold for rental units from four units or more to five or more units. This will allow the Agency to align with the Affirmative Fair Housing Marketing Plan (AFHMP) as defined in 24 CFR part 200, subpart M.

• Current regulation does not contain a provision within RA eligibility for tenants that are delinquent on Agency Unauthorized Assistance Repayment Agreements and how should not be eligible to receive federal assistance. This proposed rule would change § 3560.254(c) to clarify that tenants are no longer eligible to receive RA if they are delinquent on their Unauthorized Assistance Repayment Agreement.

The changes proposed in this rule are designed to improve the efficiency in managing the assets in the Direct Loan portfolio. These consist of properties financed under the Section 515 Rural Rental Housing Program and the Section 514 Farm Labor Housing Program. Since publication of the interim rule in 2004, management policies have changed in important areas and certain statutory provisions were not originally included in the interim rule.

Some of these changes are highlighted in:

• Management fees are an allowable expense to be paid from the housing project's general operating account only if the fee is approved by the Agency as a reasonable cost to the housing project and documented on the management certification. This proposed rule would change § 3560.102 to specify what are allowable management fee expenses and require that management plans include a listing of the charges covered by the fee. This will improve the use of the regulation by the borrower and Agency by specifying which expenses can be charged against property income and which must be paid out of the earned management fee.

• This proposed rule would change § 3560.156(c)(6) to add the Violence Against Women Reauthorization Act to the list of federal laws with which lease requirements must comply. Addition of the Violence Against Women Reauthorization Act (VAWA) to federal law compliance list. The Agency requires borrowers to provide a tenant lease that meets all federal and program regulation requirements. The VAWA and its amendments are added to the list of laws.

• MFH borrowers had previously identified certain procedures and requirements within Rural Development's regulations governing Supervised Bank Accounts that are outdated, obsolete, and no longer feasible in the commercial banking environment as a means of withdrawing reserve account funds. This is mainly due to the current electronic banking operations. Section 3560.302(c)(5)(i) will be updated so that Borrowers are no longer required to obtain a collateral pledge if the amount of funds exceed the maximum limit covered by Federal Deposit Insurance. Funds exceeding the Federally insured limit under a Tax ID Number must be moved to a different qualified banking institution that will insure the funds unless the current financial institution provides additional surety such as a collateral pledge that may already be in place. The clarification of 7 CFR 3560.302(c)(5)(iv) will reinforce that all account funds will stay with the property until all outstanding loan balances are paid in full that are securing the property. Language will be added at § 3560.302(c)(5)(vii) to allow for all funds received and held in any account, except the tenant security deposit, membership fee, and patron capital accounts, are considered assets of the property and must be held in trust by the borrower for the loan obligations until used and serve as security, through transfers or assumptions of the Agency loan or grant until all outstanding loan balances are paid in full.

• Changes in § 3560.303 will also address property expenses are monitored by the Agency to ensure they are proper and reasonable; but as expenses increase, more income is needed, which results in rent increases and additional cost to rental assistance. Since the interim rule was published, borrowers have sought clarification on how expenses should be treated. The Agency has provided periodic guidance to Servicing Officials and borrowers to ensure the appropriate use of project funds. This is in accordance with a recommendation from the Office of the Inspector General (OIG) in their audit “Review of Rural Rental Housing's Tenant and Owner Data using Data Analytics,” Audit No. 04901-001-13. MFH properties rely on project income to maintain operations and provide safe, decent and sanitary housing for our residents. Rent increases are necessary at times to generate needed revenue to pay for ongoing maintenance, capital improvements, and immediate repairs, as well as to cover administrative costs associated with management of the property. To achieve these objectives, it is necessary and proper for Servicing Officials to thoroughly review budget submissions, ask questions, and seek documentation that support budget requests or actual expenses. Implementing this change will improve compliance, reduce unnecessary and unsupportable expenses, and result in stronger, more financially stable properties.

○ In § 3560.303(a)(1), the Agency will require that the annual project budget must include anticipated expenditures on the project's long-term capital needs as specified in § 3560.103(c) and will provide a metric for the Agency to determine current or future rent increase requests based on the Borrower's utilization of the reserve account. This will ensure that borrowers are utilizing project revenue for ongoing capital improvements needed to maintain compliance and reduced risk of the property.

○ A change will be made to § 3560.303(c) to add payables as a priority for budget expenditures. This will allow for the Agency to ensure that all payables are being paid from project revenues in a timely manner and not accrued, without agency consent, causing increased costs and penalties and adding risk.

○ In § 3560.303, the Agency will clarify what are allowable project expenses and provide for a comparable “reasonableness” test by the Agency. Generally, expenses charged to project operations for expenses, must be reasonable, typical, necessary and show a clear benefit to the residents of the property.

○ In § 3560.303(b)(1)(vii), the Agency will add the requirements for a non-profit entity to pro-rate certain organizational reimbursable costs across all properties owned by that entity.

• MFH borrowers had previously identified certain procedures and requirements within Rural Development's regulations governing Supervised Bank Accounts that are outdated, obsolete, and no longer feasible in the commercial banking environment as a means of withdrawing reserve account funds. This is mainly due to the current electronic banking operations. Language will be amended at § 3560.306(e)(2) removing the requirement to countersign withdrawals from reserve accounts. This will allow for current electronic banking practices.

• Currently under use of reserve account Borrowers must only inform the Agency of planned uses of reserve accounts in their annual capital budget if known at budget planning time without utilization of an agency approved capital needs assessment. A change at § 3560.306(g) requiring that needed capital improvements, based on the needs identified in an Agency approved capital needs assessment, are completed within a reasonable timeframe. This will improve the management and delivery of the MFH program by establishing the authority to require borrower utilization of the reserve accounts as recommended in the Agency approved capital needs assessment (CNA).

Other technical changes (moving and consolidating sections, removing duplicative language, language clarifications) will make the regulation easier to use, and promote better compliance with program requirements by borrowers and management agents. The changes include:

• In § 3560.105(f)(10), a change to clarify that if an insurance deductible is met, there is no need to track with a replacement reserve account.

• Section § 3560.152 incorporates changes related to “age” ineligibility.

• The Agency has updated the wording of “State Director” to “Leadership Designee” to allow for future staff flexibility.

• Update § 3560.152 by removing term “elderly units in mixed housing”.

• Language will be changed in § 3560.154 to correct “sex” to “gender” and update policy on criminal activity for admissions.

• Update § 3560.205 to include the notification of all household members of rent change effective 30 days from date of notification.

• Section § 3560.252 will now include the Agency's housing voucher program to allow for the proper allowance of rental subsidies.

• In § 3560.402 the Agency will amend language that any loan servicing action will require DIAS accounts to be converted to the current Predetermined Amortization Schedule System (PASS) system of accounting.

This proposed rule has been determined to be non-significant and; therefore, was not reviewed by the Office of Management and Budget (OMB) under Executive Order 12866.

The Rental Assistance Program (RA) is administered subject to appropriations by the U.S. Department of Agriculture (USDA) as authorized under Section 521 of Title V of the Housing Act of 1949 as amended.

This document has been reviewed in accordance with 7 CFR part 1970, subpart A, “Environmental Policies.” RHS determined that this action does not constitute a major Federal action significantly affecting the quality of the environment. In accordance with the National Environmental Policy Act of 1969, Public Law 91-190, an Environmental Impact Statement is not required.

The rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act (5 U.S.C. 601-612). The undersigned has determined and certified by signature on this document that this rule will not have a significant economic impact on a substantial number of small entities since this rulemaking action does not involve a new or expanded program nor does it require any more action on the part of a small business than required of a large entity.

The policies contained in this rule do not have any substantial direct effect on 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. This rule does not impose substantial direct compliance costs on State and local Governments; therefore, consultation with States is not required.

This rule has been reviewed under Executive Order 12988. In accordance with this rule: (1) Unless otherwise specifically provided, all State and local laws that conflict with this rule will be preempted; (2) no retroactive effect will be given to this rule except as specifically prescribed in the rule; and (3) administrative proceedings of the National Appeals Division of the Department of Agriculture (7 CFR part 11) must be exhausted before bringing suit in court that challenges action taken under this rule.

Title II of the UMRA, Public Law 104-4, establishes requirements for Federal Agencies to assess the effects of their regulatory actions on State, local, and tribal Governments and on the private sector. Under section 202 of the UMRA, Federal Agencies generally must prepare a written statement, including cost-benefit analysis, for proposed and Final Rules with “Federal mandates” that may result in expenditures to State, local, or tribal Governments, in the aggregate, or to the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires a Federal Agency to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under the regulatory provisions of title II of the UMRA) for State, local, and tribal Governments or for the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of the UMRA.

The information collection requirements contained in this regulation have been approved by OMB and have been assigned OMB control number 0575-0189. This proposed rule contains no new reporting and recordkeeping requirements that would require approval under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35).

RHS is committed to complying with the E-Government Act by promoting the use of the internet and other information technologies in order to provide increased opportunities for citizen access to Government information, services, and other purposes.

Rural Development has reviewed this rule in accordance with USDA Regulation 4300-4, Civil Rights Impact Analysis,” to identify any major civil rights impacts the rule might have on program participants on the basis of age, race, color, national origin, sex or disability. After review and analysis of the rule and available data, it has been determined that implementation of the rule will not adversely or disproportionately impact very low, low- and moderate-income populations, minority populations, women, Indian tribes or persons with disability by virtue of their race, color, national origin, sex, age, disability, or marital or familiar status. No major civil rights impact is likely to result from this rule.

The program affected by this regulation is listed in the Catalog of Federal Domestic Assistance under numbers 10.427—Rural Rental Assistance Payments.

This executive order imposes requirements on RHS in the development of regulatory policies that have tribal implications or preempt tribal laws. RHS has determined that the rule does not have a substantial direct effect on one or more Indian tribe(s) or on either the relationship or the distribution of powers and responsibilities between the Federal Government and Indian tribes. Thus, this rule is not subject to the requirements of Executive Order 13175. If tribal leaders are interested in consulting with RHS on this rule, they are encouraged to contact USDA's Office of Tribal Relations or RD's Native American Coordinator at: AIAN@usda.gov to request such a consultation.

These loans are subject to the provisions of Executive Order 12372, which require intergovernmental consultation with State and local officials. RHS conducts intergovernmental consultations for each loan in accordance with 2 CFR part 415, subpart C.

In accordance with Federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its Agencies, offices, employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, familial/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs). Remedies and complaint filing deadlines vary by program or incident.

Persons with disabilities who require alternative means of communication for program information ( e.g., Braille, large print, audiotape, American Sign Language, etc.) should contact the responsible Agency or USDA's TARGET Center at (202) 720-2600 (voice and TTY) or contact USDA through the Federal Relay Service at (800) 877-8339. Additionally, program information may be made available in languages other than English.

To file a program discrimination complaint, complete the USDA Program Discrimination Complaint Form, AD-3027, found online at: http://www.usda.gov/oascr/how-to-file-a-program-discrimination-complaint and at any USDA office or write a letter addressed to USDA and provide in the letter all of the information requested in the form. To request a copy of the complaint form, call (866) 632-9992, submit your completed form or letter to USDA by:

(1) Mail: U.S. Department of Agriculture, Director, Office of Adjudication, 1400 Independence Avenue SW, Washington, DC 20250-9410;

(2) Fax: (202) 690-7442; or

(3) Email: program.intake@usda.gov.

USDA is an equal opportunity provider, employer, and lender.

For the reasons set forth in the preamble, 7 CFR part 3560 is proposed to be amended as follows:

The revisions and addition read as follows:

The revisions and addition read as follows:

The addition and revision read as follows:

The revisions and additions read as follows:

Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on all aspects of this rule via one of the methods and by the deadline stated above. All comments must be submitted in English, or accompanied by an English translation. The Department also invites comments that relate to the economic, environmental, or federalism effects that might result from this rule. Comments that will provide the most assistance to the Department in developing these procedures will reference a specific portion of the proposed rule; explain the reason for any recommended change; and include data, information, or authority that support such recommended change.

Please note that all comments received are considered part of the public record and made available for public inspection at www.regulations.gov . Such information includes personally identifiable information (such as your name, address, etc.) voluntarily submitted by the commenter. If you want to submit personally identifiable information (such as your name, address, etc.) as part of your comment, but do not want it to be posted online, you must include the phrase “PERSONALLY IDENTIFIABLE INFORMATION” in the first paragraph of your comment and identify what information you want redacted.

If you want to submit confidential business information as part of your comment, but do not want it to be posted online, you must include the phrase “CONFIDENTIAL BUSINESS INFORMATION” in the first paragraph of your comment. You must prominently identify the confidential business information to be redacted within the comment. If a comment has so much confidential business information that it cannot be effectively redacted, all or part of that comment may not be posted on www.regulations.gov .

Personally identifiable information located as set forth above will be placed in the agency's public docket file, but not posted online. Confidential business information identified and located as set forth above will not be placed in the public docket file. The Department may withhold from public viewing information provided in comments that it determines may impact the privacy of an individual or is offensive. For additional information, please read the Privacy Act notice that is available via the link in the footer of http://www.regulations.gov . To inspect the agency's public docket file in person, you must make an appointment with the agency. Please see the “For Further Information Contact” paragraph above for agency contact information.

In 1980, Congress enacted the Refugee Act of 1980, which, among other things, amended the Immigration and Nationality Act (“INA” or “Act”) to implement the obligations of the United States under the 1967 Protocol Relating to the Status of Refugees (“1967 Protocol”), by establishing a formal statutory procedure for granting asylum to certain refugees who are present in the United States, and by providing for a permanent procedure for the admission and resettlement of refugees. Public Law 96-212, 94 Stat. 102, 102. The term “refugee” is now generally defined as “any person who is outside of any country of such person's nationality . . . and who is unable or unwilling to return to, and is unable or unwilling to avail himself or herself of the protection of, that country because of persecution or a well-founded fear of persecution on account of race, religion, nationality, membership in a particular social group, or political opinion.” INA 101(a)(42), 8 U.S.C. 1101(a)(42). Those five grounds, which mirror those set out in the 1951 Convention Relating to the Status of Refugees, as well as the 1967 Protocol, are the sole grounds for asylum in the United States today.

An applicant for relief or protection from removal, including asylum, must comply with applicable requirements to submit information or documentation in support of the application as provided by statute or regulation. INA 240(c)(4)(B), 8 U.S.C. 1229a(c)(4)(B). With one exception for detained crewmembers of a vessel, see 8 CFR 1208.5(b)(1)(ii), the regulations currently do not prescribe a specific deadline for filing an application for asylum and withholding of removal with EOIR. 1 Rather, in immigration proceedings, the immigration judge has the authority to set deadlines for the filing of applications and related documents. 8 CFR 1003.31(c). Where an immigration judge has set a deadline for filing an application for relief and that application is not filed within the time set by the court, the opportunity to file such an application shall be deemed waived. Id. The Board of Immigration Appeals has routinely held that applications for benefits are deemed abandoned when the alien fails to timely file them. See Matter of R-R-, 20 I&N Dec. 547, 549 (BIA 1992) (asylum application deemed abandoned after alien failed to file application by deadline set by the immigration judge); Matter of Jean, 17 I&N Dec. 100, 101-02 (BIA 1979) (asylum application deemed abandoned after alien failed to meet 20-day filing deadline set by immigration judge).

In this notice of proposed rulemaking (“proposed rule”), the Department proposes to revise 8 CFR 1208.4 to add a 15-day deadline from the date of the alien's first hearing to file an application for asylum and withholding of removal for aliens in asylum-and-withholding-only proceedings. 2 Aliens in such proceedings are generally already subject to removal orders, denials of applications for admission, or denials of permission to land in the case of crewmembers, and are often also detained. 8 CFR 1208.2(c). 3 Moreover, their only avenues for relief or protection are applications for asylum, statutory withholding of removal, and protection under the regulations issued pursuant to legislation implementing U.S. obligations under the Convention Against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment (“CAT regulations”), and they would not be in asylum-and-withholding-only proceedings if they had not already claimed a fear of persecution or torture upon being returned to their home countries. 8 CFR 1208.2(c)(3)(i). Claims for asylum and withholding of removal (both statutory, INA 241(b)(3), 8 U.S.C. 1231(b)(3), and under the CAT regulations) are the sole issues to be resolved in the proceeding and are squarely presented at the outset of the proceeding; thus, there is no reason not to expect the alien to be prepared to state his or her claim as quickly as possible. Moreover, delaying filing of the claim risks delaying protection or relief for meritorious claims and increases the likelihood that important evidence, including personal recollections, may degrade or be lost over time. Further, without such a deadline for the asylum application, there is a risk that applicants may simply delay proceedings, resulting in inefficiency in what should otherwise be a streamlined proceeding. Finally, such a deadline is consistent with existing regulations that specify a 10-day deadline for detained crewmembers to file an asylum application, 8 CFR 1208.5(b)(1)(ii), and with the regulatory directive in 8 CFR 1208.5(a) that asylum applications filed by detained aliens are to be given expedited consideration. 4

To allow for unusual situations in which an alien may need additional time to file the application, notwithstanding the alien's recent assertion of a fear of persecution, the Department also proposes to amend 8 CFR 1208.4 to allow for the extension of the deadline for good cause similar to the extension to the 10-day deadline allowable for alien crewmembers to file an asylum application. See 8 CFR 1208.5(b)(1)(ii).

Finally, the regulatory deadline would not preclude an alien from amending or supplementing the application later in the course of proceedings, subject to an immigration judge's discretion consistent with 8 CFR 1208.4(c); rather, the deadline would ensure only that the application is filed in a timely manner consistent with the streamlined and focused nature of asylum-and-withholding-only proceedings.

A Form I-589, Application for Asylum and for Withholding of Removal, is incomplete if it does not include a response to each question, is unsigned, or lacks required supporting evidence described on the form and form instructions. 8 CFR 1208.3(c)(3). An incomplete application does not start the accrual of time for an asylum applicant to file for employment authorization. Id. As currently drafted, however, the regulations provide that if the immigration court  5 fails to return an I-589 application submitted by mail within 30 days, the application will be deemed complete. Id. The regulations do not provide a time frame in which an alien must re-file the application if the alien wishes it to be considered. Id. Upon an alien's request and as a matter of discretion, an immigration judge may allow an alien to amend or supplement the alien's application after it is filed. 8 CFR 1208.4(c).

The proposed rule would revise 8 CFR 1208.3(c)(3) to ensure that cases of individuals seeking asylum are processed efficiently by minimizing any delay between the return of an incomplete asylum application and the re-filing of a complete one. First, the proposed rule would remove the current provision that an alien's incomplete asylum application submitted by mail will be deemed complete if the immigration court fails to return the application within 30 days of receipt. Instead, the proposed rule would provide that immigration courts will reject all incomplete applications and return them to the applicant in a timely fashion to the address of record for the alien or any representative of record. 6 Further, the proposed rule would add a maximum of 30 days for the alien to correct any deficiencies in his or her application; the regulations do not currently have any time requirement for the alien to correct an incomplete application. If the alien fails to file a complete application within the required time period, absent exceptional circumstances, the application would be deemed abandoned and would be denied.

Thirty days is a reasonable period in which to remedy application defects, and the Department expects that applicants would have an incentive to re-file the application as soon as possible in order to trigger the possibility of obtaining employment authorization. It is well established that immigration judges have the authority to set filing deadlines and manage their dockets consistent with applicable law, and this requirement is fully consistent with that authority. See 8 CFR 1003.10(b), 1003.14(b), 1003.18, 1003.31(c). Further, if an application is not filed within the time set by an immigration judge, the opportunity to file that application shall be deemed waived. 8 CFR 1003.31(c). Additionally, reasonable filing deadlines do not violate the immigration laws or any international treaty obligations. See, e.g., Hui Zheng v. Holder, 562 F.3d 647, 655-56 (4th Cir. 2009); Chen v. Mukasey, 524 F.3d 1028, 1033 (9th Cir. 2008); Foroglou v. Reno, 241 F.3d 111, 113 (1st Cir. 2001).

Without such a deadline, there is a risk that applicants will delay proceedings based on an assertion that a corrected application will be forthcoming, resulting in wasted immigration judge time and increasing the likelihood that, due to the ongoing addition of cases to the docket, the eventual application may not be adjudicated within 180 days as contemplated by the Act. INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii). These changes will enhance efficiencies for the immigration courts by ensuring that cases proceed in a timely and predictable manner rather than allowing deficiencies in applications to be corrected at any point, and are fully consistent with the Attorney General's authority to set conditions or limitations on the consideration of asylum applications. INA 208(d)(5)(B), 8 U.S.C. 1158(d)(5)(B). Moreover, administrative agencies have the prerogative to determine proper rules of procedure that best allow them to carry out their missions. Vt. Yankee Nuclear Power Corp. v. Nat. Res. Def. Council, Inc., 435 U.S. 519, 543 (1978).

The Department also proposes to amend 8 CFR 1208.3(c)(3) to specify that any required filing fee must be submitted in connection with the asylum application at the time of filing. See 8 CFR 1003.24, 1003.31(b), 1103.7(a)(3) (describing process for payment of fees relating to EOIR proceedings). A Department regulation, 8 CFR 1103.7(b)(4)(ii), provides that when EOIR uses a Department of Homeland Security (“DHS”) form in immigration proceedings, the applicable fee is the one provided under DHS regulations at 8 CFR 103.7. 7 EOIR uses the U.S. Citizenship and Immigration Services (“USCIS”) Form I-589, Application for Asylum and for Withholding of Removal, for which DHS sets the application fee. Under the Department's regulation, the DHS fee would also apply to any filing of USCIS Form I-589 in EOIR proceedings. See 8 CFR 1103.7(b)(4)(ii); see also 8 CFR 103.7. Thus, the proposed rule would provide that a fee must be submitted if DHS requires one. 8

Under 8 CFR 1208.12, an immigration judge  9 may rely on material provided by certain entities when deciding an asylum application, or deciding whether an alien has a credible fear of persecution or torture pursuant to 8 CFR 1208.30 or a reasonable fear of persecution or torture pursuant to 8 CFR 1208.31. Currently, those entities are the Department of State, the DOJ Office of International Affairs, DHS, and other credible sources, which, under the regulation, may include international organizations, private voluntary agencies, news organizations, or academic institutions.

The Department proposes to clarify the external materials upon which an immigration judge may rely, including by broadening the scope of Department components and other government agencies that may possess relevant information for an immigration judge in adjudicating a claim. The Department also proposes to revise the standard for an immigration judge's consideration of information from non-governmental sources to ensure that only probative and credible evidence is considered. Although materials provided by non-governmental organizations are sometimes helpful, the current regulatory text could be read to imply that they always are, which is not necessarily the case. See, e.g., M.A. v. U.S. INS, 899 F.2d 304, 313 (4th Cir. 1990) (en banc) (“A standard of asylum eligibility based solely on pronouncements of private organizations or the news media is problematic almost to the point of being non-justiciable.”). The proposed revision provides appropriate guidance regarding the use of such materials to ensure that only credible and probative materials are considered.

The Department also proposes to expand 8 CFR 1208.12 to allow an immigration judge to submit evidence into the record and consider that evidence, so long as the judge has provided a copy to both parties, which will give the parties an opportunity to respond to or address the information appropriately. This proposal is consistent with the immigration judge's powers and duties under 8 CFR 1003.10(b) to manage immigration court hearings: “In deciding the individual cases before them, . . . immigration judges shall exercise their independent judgment and discretion and may take any action consistent with their authorities under the Act and regulations that is appropriate and necessary for the disposition of such cases.” See also 8 CFR 1003.36 (“The Immigration Court shall create and control the Record of Proceeding.”). It is also consistent with an immigration judge's duty to develop the record. See, e.g., Yang v. McElroy, 277 F.3d 158, 162 (2d Cir. 2002) (per curiam) (“[T]he IJ whose decision the Board reviews, unlike an Article III judge, is not merely the fact finder and adjudicator but also has an obligation to establish the record.”); Constanza-Martinez v. Holder, 739 F.3d 1100, 1102-03 (8th Cir. 2014) (concluding that the immigration judge's introduction of documents into the record did not deprive the respondent of due process because “IJs maintain an affirmative duty to develop the record”); see also Richardson v. Perales, 402 U.S. 389, 410 (1971) (finding that an administrative law judge “acts as an examiner charged with developing the facts”); Charles H. Koch, Jr., Administrative Law and Practice § 5.25 (2d ed. 1997) (noting that “[t]he presiding official is pivotal to the fact-finding function of an evidentiary hearing and hence, unlike the trial judge, an administrative judge has a well-established affirmative duty to develop the record”). Further, this change will better enable immigration judges to ensure full consideration of all relevant evidence and full development of the record for cases involving a pro se respondent. See Matter of S-M-J-, 21 I&N Dec. 722, 729 (BIA 1997) (en banc) (noting that “various guidelines for asylum adjudicators recommend the introduction of evidence by the adjudicator”).

The proposed rule would remove and reserve 8 CFR 1208.7 as EOIR does not adjudicate applications for employment authorization. 10 Further, there is confusing language in 8 CFR 1208.7 regarding the relationship between the time period for applications for employment authorization, which EOIR does not adjudicate, and the time period for adjudicating actual asylum applications, which are relevant for EOIR's purposes.

The INA contains two separate provisions relating to a 180-day time frame in the context of an asylum application. The first, INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), directs the Attorney General to set procedures for processing asylum applications providing that, in the absence of exceptional circumstances, final administrative adjudication of the asylum application, not including administrative appeal, shall be completed within 180 days after the date an application is filed. Implementing regulations clarify that the “time period[] within which . . . the asylum application must be adjudicated pursuant to section 208(d)(5)(A)(iii) of the Act shall begin when the alien has filed a complete asylum application in accordance with” applicable procedures. 8 CFR 1208.7(a)(2).

The second, INA 208(d)(2), 8 U.S.C. 1158(d)(2), addresses when an asylum applicant may be granted employment authorization based on an asylum application, providing that an applicant for asylum is not entitled to employment authorization, but such authorization may be provided under regulation by the Attorney General. An applicant who is not otherwise eligible for employment authorization shall not be granted such authorization prior to 180 days after the date of filing of the application for asylum.

EOIR's current regulations provide that (1) an alien cannot apply for employment authorization until at least 150 days after filing an application for asylum, and (2) “no employment authorization shall be issued to an asylum applicant prior to the expiration of the 180-day period following the filing of the asylum application.” 8 CFR 1208.7(a)(1). Furthermore, the time periods within which the alien may not apply for employment authorization “shall begin when the alien has filed a complete asylum application in accordance with” applicable regulations. 8 CFR 1208.7(a)(2). 11

Although neither provision is privately enforceable, INA 208(d)(7), 8 U.S.C. 1158(d)(7), both statutory provisions express Congress's strong expectation that asylum applications would be adjudicated within 180 days of the date of filing. Section 208(d)(5)(A)(iii) of the Act, 8 U.S.C. 1158(d)(5)(A)(iii), does so expressly, by indicating that asylum applications should be adjudicated within 180 days absent “exceptional circumstances.” And INA 208(d)(2), 8 U.S.C. 1158(d)(2), does so implicitly, by providing that employment authorization shall not be granted prior to 180 days after an alien files an asylum application, i.e., after the claim is supposed to have been adjudicated.

Although both of these provisions reflect an expectation that asylum applications should be adjudicated within 180 days of filing, the provisions themselves are not identical. For example, the adjudication deadline for the asylum application itself is subject to tolling for “exceptional circumstances.” INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii). In contrast, the period during which an alien is barred from filing an application for employment authorization based on an asylum application may be tolled solely for an alien-caused continuance, 8 CFR 1208.7(a)(1), and continuances are subject to a “good cause” standard, see 8 CFR 1003.29 and 1240.6. 12

Aliens in removal proceedings sometimes request continuances pursuant to 8 CFR 1003.29 that, if granted, would delay adjudication of their asylum applications past the 180-day deadline. Section 1003.29 imposes a “good cause” standard for granting continuances. But if granting a continuance would result in missing the 180-day deadline, the immigration judge may only grant the continuance if the respondent satisfies both the “good cause” standard of 8 CFR 1003.29 and also shows the “exceptional circumstances” required by INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii). Under 8 CFR 1208.7(a)(2), “[a]ny delay requested or caused by the applicant shall not be counted as part of” the 180-day adjudication deadline described in INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii). This means that an alien who causes delays in the adjudication process is not entitled to such a prompt adjudication of his asylum claim. But, absent delays that qualify as exceptional circumstances, 8 CFR 1208.7(a)(2) does not relieve immigration judges of their obligation to adjudicate asylum claims within 180 days.

Neither existing regulations nor EOIR's operational guidance, however, has always clearly and carefully distinguished between INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), and INA 208(d)(2), 8 U.S.C. 1158(d)(2). See Policy Memorandum 19-05, Guidance Regarding the Adjudication of Asylum Applications Consistent with INA section 208(d)(5)(A)(iii) (Nov. 19, 2018). Consequently, the proposed rule remedies that confusion by removing regulatory language related to the employment authorization process that EOIR does not administer and by amending part 1003 of EOIR's regulations to implement INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), and to direct immigration judges to adjudicate asylum applications within 180 days of filing absent exceptional circumstances.

Although the term “exceptional circumstances” is not defined for purposes of INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), 13 there is no indication that Congress intended for that standard to be satisfied by any request for delay by the applicant or to be linked to the employment authorization process. To the contrary, EOIR's adjudication of asylum applications is a wholly separate process from DHS's adjudication of employment authorization applications. Indeed, there is no apparent basis to include the reference to INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), in 8 CFR 1208.7 because that regulation otherwise addresses employment authorization, which is unrelated to INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii). 14

To better effectuate the “exceptional circumstances” exception to the 180-day deadline in INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), the Department proposes to add a definition of exceptional circumstances in the context of asylum adjudications that is similar to the one currently in INA 240(e)(1), 8 U.S.C. 1229a(e)(1). The statutory definition in INA 240(e)(1), 8 U.S.C. 1229a(e)(1), characterizes circumstances in which an order of removal issued in absentia may be rescinded for an alien who had notice of the hearing at which the alien failed to appear, provided the alien filed a motion to reopen and rescind the order within 180 days. INA 240(b)(5)(C)(i), 8 U.S.C. 1229a(b)(5)(C)(i). As a definition of circumstances in which an adjudication should have been delayed, it also represents a helpful explanation of the exceptional nature of circumstances that would warrant an exception to the 180-day deadline.

As of August 14, 2020, EOIR has over 560,000 applications for asylum and withholding of removal pending, and its ability to ensure they are adjudicated consistent with the statutory requirements of INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), may be undermined by the current text of 8 CFR 1208.7(a)(2), which could be interpreted to allow either party to unilaterally delay the adjudication of an asylum application without necessarily showing exceptional circumstances, in contravention of the statute. Nothing in the text of INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), which is directed toward adjudicators rather than applicants, indicates that an asylum applicant may unilaterally prompt an extension of the adjudication deadline in the absence of exceptional circumstances.

An applicant may have his or her removal proceeding continued upon a showing of good cause. 8 CFR 1003.29, 1240.6; Matter of L-A-B-R-, 27 I&N Dec. 405 (A.G. 2018). Although neither “good cause” nor “exceptional circumstances” is defined by statute or regulation in this context, there is no indication that the two terms were intended to mean the same thing. To the contrary, plain meaning would dictate that the two terms reflect different standards. Indeed, in other contexts, “good cause” is generally treated as a lower standard than “exceptional circumstances.” Compare United States v. Lea, 360 F.3d 401, 403 (2d Cir. 2004) (“Exceptional circumstances [under a criminal detention statute] exist where there is a unique combination of circumstances giving rise to situations that are out of the ordinary.” (internal quotation marks omitted)), with Hall v. Sec'y of Health, Educ. & Welfare, 602 F.2d 1372, 1377 (9th Cir. 1979) (“Good cause is . . . not a difficult standard to meet.”).

In short, “exceptional circumstances” are circumstances that are “clearly out of the ordinary, uncommon, or rare.” United States v. Larue, 478 F.3d 924, 926 (8th Cir. 2007) (per curiam) (applying “exceptional reasons” standard); see also INA 240(e)(1), 8 U.S.C. 1229a(e)(1) (exceptional circumstances include “battery or extreme cruelty to the alien or any child or parent of the alien, serious illness of the alien, or serious illness or death of the spouse, child, or parent of the alien, but not including less compelling circumstances”). The term “good cause” has no settled meaning and generally requires a balancing of relevant factors to determine whether it exists. Matter of L-A-B-R-, 27 I&N Dec. at 412-13. Thus, although an exceptional circumstance will support a finding of good cause, good cause itself is not necessarily an exceptional circumstance that would warrant an exception to the statutory 180-day adjudication deadline for an asylum application. The inclusion of the reference to INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), in 8 CFR 1208.7, which could be understood to effectively allow an alien or DHS to delay the adjudication deadline pursuant only to the “good cause” standard in 8 CFR 1003.29 and 1240.6, is in tension with the statute. Thus, not only does 8 CFR 1208.7 warrant deletion, but modifications to 8 CFR 1003.29 and 1240.6 are also necessary. Moreover, removing the reference to INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), as part of the removal of all of 1208.7 will allow EOIR to ensure that the statutory mandate regarding adjudicating asylum applications within 180 days is fulfilled absent exceptional circumstances.

In order to further ensure that asylum adjudications are completed within the 180-day period prescribed by INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), the proposed rule would directly promulgate a clear regulation implementing INA 208(d)(5)(A)(iii), 8 U.S.C. 1158(d)(5)(A)(iii), in 8 CFR 1003.10(b) as part of the listing of immigration judge powers and duties. It would also amend 8 CFR 1003.31(c), which outlines the immigration judge's authority to set and extend time limits for filings of applications and related documents, to ensure that the setting of deadlines for filing supporting documents does not inadvertently extend the 180-day deadline absent exceptional circumstances. In short, the changes would incorporate the 180-day timeline by limiting an immigration judge's ability to set filing deadlines that would cause the adjudication of an asylum application to exceed 180 days absent a showing of exceptional circumstances.

Finally, the proposed rule would also remove and reserve § 1208.9 because that provision refers to operations performed by asylum officers in DHS, not immigration judges in EOIR. That provision was duplicated from § 208.9 as part of the reorganization of title 8 following the transfer of functions from the former Immigration and Naturalization Service to DHS due to the Homeland Security Act of 2002, Public Law 107-296. Aliens and Nationality; Homeland Security; Reorganization of Regulations, 68 FR 9824, 9834 (Feb. 28, 2003).

The Department has reviewed this proposed regulation in accordance with the Regulatory Flexibility Act and has determined that it will not have a significant economic impact on a substantial number of small entities. 5 U.S.C. 605(b). The proposed rule would not regulate “small entities” as that term is defined in 5 U.S.C. 601(6). Only individuals, rather than entities, are eligible to apply for asylum, and only individuals are placed in immigration proceedings.

This proposed rule will not result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year, and it will not significantly or uniquely affect small governments. Therefore, no actions were deemed necessary under the provisions of the Unfunded Mandates Reform Act of 1995.

This proposed rule would not be a major rule as defined by section 804 of the Congressional Review Act. 5 U.S.C. 804(2). This rule will not result in an annual effect on the economy of $100 million or more; a major increase in costs or prices; or significant adverse effects on competition, employment, investment, productivity, innovation, or on the ability of United States-based enterprises to compete with foreign-based enterprises in domestic and export markets.

The Office of Information and Regulatory Affairs of the Office of Management and Budget (“OMB”) has determined that this proposed rule is a “significant regulatory action” under section 3(f) of Executive Order 12866. Accordingly, the regulation has been submitted to OMB for review. The Department certifies that this regulation has been drafted in accordance with the principles of Executive Order 12866, section 1(b), and Executive Order 13563.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health, and safety effects; distributive impacts; and equity). Executive Order 13563 emphasizes the importance of using the best available methods to quantify costs and benefits, reducing costs, harmonizing rules, and promoting flexibility.

The Department believes that this proposed rule would effectuate congressional intent to resolve cases in an expeditious manner and would provide significant net benefits relating to EOIR proceedings by allowing the agency to resolve cases more quickly. See Executive Order 12866, sec. (1)(b)(6) (stating that “[e]ach agency shall assess both the costs and the benefits of the intended regulation and, recognizing that some costs and benefits are difficult to quantify, propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs”). As of August 14, 2020, EOIR has over 560,000 pending cases with an application for asylum and withholding of removal, and the median processing time for a non-detained case with an asylum application is 807 days. This proposed rule would assist EOIR in adjudicating new asylum cases more efficiently in order to ensure that this volume does not increase to an insurmountable degree. No costs to the Department or to respondents are expected. Respondents are already required to submit complete asylum applications in order to have them adjudicated, and immigration judges already have authority to set deadlines.

The Department notes that this proposed rule would not impose any new fees. Consistent with the treatment of other applications referred by USCIS that are renewed in immigration proceedings, an alien filing a USCIS Form I-589 with USCIS who is then referred to DOJ for immigration proceedings would pay the application fee only once. The Department's fees for applications published by DHS are established in accordance with 8 CFR 1103.7(b)(4)(ii), which, in turn, cross-references the DHS fee schedule. Given the inextricable nature of the two agencies' asylum processes and the benefit of not treating applicants for substantially similar benefits differently if they file with DOJ or with DHS, the Department's regulations have contained this cross-reference for several years, and this proposed rule would not alter it. The Department is also not authorized, per regulation, to waive the application fee for an application published by DHS if DHS identifies that fee as non-waivable. 8 CFR 1103.7(c). The proposed rule would also not alter that regulatory structure.

The Department believes that this proposed rule would impose only minimal direct costs on the public, to include the costs associated with attorneys and regulated entities familiarizing themselves with this rule. An immigration judge's ability to set filing deadlines is already established by regulation, and filing deadlines for both applications and supporting documents are already a well-established aspect of immigration court proceedings guided by regulations and the Immigration Court Practice Manual. The proposed rule also does not require an immigration judge to schedule a merits hearing at any particular time after the application is filed, as long as the application is adjudicated within 180 days absent exceptional circumstances, which is an existing and longstanding statutory requirement. Moreover, this rule does not require that an alien wait until the immigration judge sets a filing deadline before filing an application, and an alien remains free to file his or her asylum application with the immigration court before the first hearing. Asylum applications are frequently filed prior to or at an initial immigration court hearing already, and existing regulations allow for supplementing an initial application as appropriate, subject to an immigration judge's discretion. Most aliens filing asylum applications in pending immigration proceedings—87 percent—have representation, 15 and the proposed rule would not be expected to increase any burdens on practitioners, who are already subject to professional responsibility rules regarding workload management, 8 CFR 1003.102(q)(1), and who are already accustomed to preparing and filing documents related to asylum claims according to deadlines established by an immigration judge. The Department acknowledges that establishing a fixed deadline to file an asylum application in some types of immigration proceedings may alter the manner in which attorneys organize their caseloads, though it also recognizes that attorneys have been aware of the 180-day adjudication deadline for asylum applications for over two decades and may be familiar with the similar existing deadline for alien crewmember asylum applications in 8 CFR 1208.5(b)(1)(ii). The Department seeks comment on the proposed rule's potential indirect costs and benefits to practitioners, if any, beyond those already inherent in immigration proceedings and existing law.

No costs to the Department are associated with the proposed regulatory changes. The changes do not create an incentive that would cause DHS to file more cases and, thus, are not expected to result in an increase in the number of cases to be adjudicated by EOIR. Further, the changes provide guidance for administrative decision-making but do not require immigration judges to make more decisions or to prolong immigration proceedings.

This rule will not have substantial direct effects 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. Therefore, in accordance with section 6 of Executive Order 13132, it is determined that this rule does not have sufficient federalism implications to warrant the preparation of a federalism summary impact statement.

This rule meets the applicable standards set forth in sections 3(a) and 3(b)(2) of Executive Order 12988.

Under the Paperwork Reduction Act of 1995, Public Law 104-13, 44 U.S.C. chapter 35, and its implementing regulations, 5 CFR part 1320, all agencies are required to submit to OMB, for review and approval, any reporting requirements inherent in a rule. This proposed rule may require edits to the USCIS Form I-589, Application for Asylum and for Withholding of Removal, because the filing of an asylum application may now require submission of a fee receipt. If necessary, a separate notice will be published in the Federal Register requesting comments on the information collection impacts of this rule and the revised USCIS Form I-589.

Accordingly, for the reasons set forth in the preamble, 8 CFR parts 1003, 1208, and 1240 are proposed to be amended as follows:

The FAA's authority to issue rules regarding aviation safety is found in Title 49 of the United States Code. 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. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority, as it would modify the Class D and Class E airspace at Helena Regional Airport, Helena, MT, to support IFR operations at the airport.

Interested parties are invited to participate in this proposed rulemaking by submitting such written data, views, or arguments, as they may desire. Comments that provide the factual basis supporting the views and suggestions presented are particularly helpful in developing reasoned regulatory decisions on the proposal. Comments are specifically invited on the overall regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Persons wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: “Comments to Docket No. FAA-2020-0810; Airspace Docket No. 19-ANM-101”. The postcard will be date/time stamped and returned to the commenter.

All communications received before the specified closing date for comments will be considered before taking action on the proposed rule. The proposal contained in this notice may be changed in light of the comments received. A report summarizing each substantive public contact with FAA personnel concerned with this rulemaking will be filed in the docket.

An electronic copy of this document may be downloaded through the internet at https://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA's web page at https://www.faa.gov/air_traffic/publications/airspace_amendments/.

You may review the public docket containing the proposal, any comments received, and any final disposition in person in the Dockets Office (see the ADDRESSES section for the address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except federal holidays. An informal docket may also be examined during normal business hours at the Northwest Mountain Regional Office of the Federal Aviation Administration, Air Traffic Organization, Western Service Center, Operations Support Group, 2200 S. 216th Street, Des Moines, WA 98198.

This document proposes to amend FAA Order 7400.11E, Airspace Designations and Reporting Points, dated July 21, 2020, and effective September 15, 2020. FAA Order 7400.11E is publicly available as listed in the ADDRESSES section of this document. FAA Order 7400.11E lists Class A, B, C, D, and E airspace areas, air traffic service routes, and reporting points.

The FAA is proposing an amendment to Title 14 Code of Federal Regulations Part 71 by modifying the Class D airspace at Helena Regional Airport, Helena, MT. The proposal would modify the Class D airspace extensions east and west of the airport to properly contain IFR departures to 700 feet above the surface. The airspace area would be described as follows: That airspace extending upward from the surface to and including 6,400 feet within a 4.4-mile radius of the airport, and within 2 miles each side of the 091° bearing from the airport, extending from the 4.4-mile radius to 5.2 miles east of the airport, and within 2 miles each side of 292° bearing from the airport, extending from the 4.4-mile radius to 5.8 miles west of Helena Regional Airport. This Class D airspace area is effective during the specific dates and times established in advance by a Notice to Airmen. The effective date and time will thereafter be continuously published in the Chart Supplement.

This action also proposes to modify Class E airspace, designated as a surface area, to be coincident with the new Class D dimensions. The airspace area would be described as follows: That airspace extending upward from the surface within a 4.4-mile radius of the airport, and within 2 miles each side of the 091° bearing from the airport, extending from the 4.4-mile radius to 5.2 miles east of the airport, and within 2 miles each side of 292° bearing from the airport, extending from the 4.4-mile radius to 5.8 miles west of Helena Regional Airport. This Class E airspace area is effective during the specific dates and times established in advance by a Notice to Airmen. The effective date and time will thereafter be continuously published in the Chart Supplement.

Additionally, this action proposes to establish Class E airspace, designated as an extension to a Class D or Class E surface area. The proposed area is designed to contain IFR aircraft descending below 1,000 feet above the surface. This airspace area would be described as follows: That airspace extending upward from the surface within an area bounded by a line beginning at lat. 46°34′18.57″ N, long. 111°51′30.319″ W, to lat. 46°38′5.89″ N, long. 111°51′24.53″ W, to lat. 46°37′12.53″ N, long. 111°45′24.67″ W, to lat. 46°32′22.72″ N, long. 111°46′31.44″ W, to lat. 46°33′24.13″ N, long. 111°54′20.01″ W, then counter-clockwise along the 4.4-mile radius of the airport to lat. 46°34′20.01″ N, long. 111°53′22.03″ W, then to the point of beginning, and within an area bounded by a line beginning at lat. 46°38′39.95″ N, long. 112°06′47.50″ W, to lat. 46°36′47.49″ N, long. 112°07′53.41″ W, to lat. 46°37′22.52″ N, long. 112°11′37.80″ W, to lat. 46°39′19.40″ N, long. 112°10′58.64″ W, then to the point of beginning west of Helena Regional Airport.

Further, this action proposes to modify Class E airspace extending upward from 700 feet above the surface. The action proposes to properly size the airspace to contain IFR departures to 1,200 feet above the surface and IFR arrivals descending below 1,500 feet above the surface. This airspace area would be described as follows: That airspace extending upward from 700 feet above the surface within an 8.3-mile radius of the airport, and within 1 mile each side of the 103° bearing from the airport, extending from the 8.3-mile radius to 10.7 miles east of the airport, and within 1.8 miles each side of the 281° bearing from the airport, extending from the 8.3-mile radius to 18.1 miles west of Helena Regional Airport.

This action also proposes to modify Class E airspace extending upward from 1,200 feet above the surface to properly contain IFR aircraft transitioning to/from the terminal and en route environments. This airspace area would be described as follows: That airspace extending upward from 1,200 feet above the surface within a 36-mile radius of Helena Regional Airport.

The action proposes to update the airport's geographic coordinates to match the FAA database. The coordinates should read lat. 46°36′24″ N, long. 111°59′0.0″ W. This action also proposes to remove the Helena VORTAC and all references to the VORTAC from the Class D, E2, and E5 legal descriptions. The navigational aid is not needed to define the airspace. Removal of the navigational aid allows the airspace to be defined from a single reference point which simplifies how the airspace is described. Additionally, the term “Airport/Facility Directory” in the last sentence of the Class D and Class E2 airspace legal descriptions is outdated and should be changed to “Chart Supplement”.

Class D, E2, E4, and E5 airspace designations are published in paragraphs 5000, 6002, 6004, and 6005, respectively, of FAA Order 7400.11E, dated July 21, 2020, and effective September 15, 2020, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designations listed in this document will be published subsequently in the Order.

FAA Order 7400.11, Airspace Designations and Reporting Points, is published yearly and effective on September 15.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current, is non-controversial, and unlikely to result in adverse or negative comments. It, therefore: (1) Is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1F, “Environmental Impacts: Policies and Procedures” prior to any FAA final regulatory action.

Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows:

I. Background

Section 4s(e) of the Commodity Exchange Act (“CEA” or “Act”)  2 requires the Commission to adopt rules establishing minimum initial and variation margin requirements for all swaps  3 that are (i) entered into by an SD or MSP for which there is no prudential regulator  4 (collectively, “covered swap entities” or “CSEs”)  5 and (ii) not cleared by a registered derivatives clearing organization (“uncleared swaps”). 6 To offset the greater risk to the SD  7 or MSP  8 and the financial system arising from the use of uncleared swaps, these requirements must (i) help ensure the safety and soundness of the SD or MSP and (ii) be appropriate for the risk associated with the uncleared swaps held by the SD or MSP. 9

Following the mandate under Section 4s(e), the Commission in 2016 promulgated Commission regulations 23.150 through 23.161, namely the CFTC Margin Rule, which requires CSEs to collect and post initial margin (“IM”)  10 and variation margin (“VM”)  11 for uncleared swaps. 12 In implementing the CFTC Margin Rule, the Commission has identified certain issues that it understands would likely impede a smooth transition to compliance for entities required to comply with the IM requirements beginning on September 1, 2021.

Commission regulation 23.161 sets forth a schedule for compliance with the CFTC Margin Rule, spanning from September 1, 2016, to September 1, 2021. 13 Under the schedule, entities are required to comply with the IM requirements in staggered phases, 14 starting with entities with the largest average aggregate notional amounts (“AANA”), calculated on a daily basis, of uncleared swaps and certain other financial products, and then successively with lesser AANA.

The last phase of compliance, which begins on September 1, 2021, encompasses two sets of entities: (i) CSEs and covered counterparties with an AANA between $750 billion and $50 billion (“Phase 5 entities”);  15 and (ii) all other remaining CSEs and covered counterparties, 16 including financial end users (“FEUs”) with material swaps exposure (“MSE”) of more than $8 billion in AANA, 17 (“Phase 6 entities”). 18 These entities had been scheduled to begin compliance in separate phase-in dates, with Phase 5 entities to begin compliance on September 1, 2020, and Phase 6 entities on September 1, 2021. On May 28, 2020, the Commission adopted an interim final rule delaying the compliance date for Phase 5 entities until September 1, 2021, to address the operational challenges faced by these entities as a result of the COVID-19 pandemic. Because it was unclear what the impact of the pandemic would be on Phase 6 entities, the Commission did not deem appropriate to postpone these entities' September 1, 2021 compliance date through the interim final rule process. As a result, Phase 5 and Phase 6 entities are now required to begin compliance on September 1, 2021.

Under the Commission's margin requirements, the method for determining when Phase 6 entities are required to comply with the CFTC's IM requirements beginning with the last phase of compliance differs from the method set out in the BCBS/IOSCO Framework. 19 More specifically, the BCBS/IOSCO Framework requires—beginning on September 1, 2022, which starts the last phase of implementation for the margin requirements under the framework—entities with €8 billion  20 in AANA during the period of March, April, and May of the current year, based on an average of month-end dates, to exchange IM beginning September 1 of each year.

In contrast, in the last phase of compliance under the phased compliance schedule, under the Commission's margin requirements, Phase 6 entities ( i.e., CSEs and FEUs with more than $8 billion in AANA, or MSE) are required to begin exchanging IM on September 1, 2021. The MSE for an FEU must be determined on September 1, 2021, based on daily AANA (accounting only for business days)  21 during the period of June, July, and August of the prior year. After the last phase of compliance, the determination of MSE for an FEU, which triggers the applicability of the IM requirements, must be conducted on January 1 of each calendar year based on daily AANA during the June, July, and August period of the prior year, with application of the IM requirements, if the FEU has MSE, required to begin on January 1 of each year.

The BCBS/IOSCO Framework was originally promulgated in September 2013, 22 and then revised in 2015. 23 The 2015 version of the BCBS/IOSCO Framework changed the calculation period of June, July, and August, with an annual implementation date of December 1, to March, April, and May of each calendar year, with an annual implementation date of September 1. The CFTC Margin Rule incorporated the earlier 2013 version of the BCBS/IOSCO Framework by adopting the June, July, and August calculation period for the annual calculation of MSE. As a result, the Commission's existing regulations do not reflect the calculation period of March, April, and May set forth in the revised BCBS/IOSCO Framework published in March 2015.

The Commission also departed from BCBS/IOSCO's month-end date calculation of AANA for determining whether an entity is subject to the IM requirements. In the preamble to the CFTC Margin Rule, the Commission stated that it decided to adopt a daily AANA calculation method for determining whether an FEU has MSE, the finding of which requires a CSE to exchange IM with the FEU, “to gather a more comprehensive assessment of the [FEU]'s participation in the swaps market, and to address the possibility that a market participant might `window dress' its exposure on an as-of date such as year-end, in order to avoid the Commission's margin requirements.”  24

As a result, the Commission's current method for the annual calculation of MSE, which was adopted in coordination with the U.S. prudential regulators and is similar to the U.S. prudential regulators' method of calculation, is not consistent with the most recent version of the BCBS/IOSCO Framework. Nor is it consistent with requirements in other major market jurisdictions, most of which adopted the 2015 BCBS/IOSCO Framework's month-end date calculation of AANA using the period of March, April, and May for the purposes of determining whether an entity is subject to the IM requirements beginning in the last phase of implementation. 25

Market participants have stated that these differences in the methods for determining when an entity comes within the scope of the IM requirements and the timing for compliance after the last phase of compliance may impose an undue burden on their efforts to comply with the CFTC's margin requirements. 26 Entities have to account for different compliance schedules and set up and maintain separate processes for determining when they meet the thresholds for IM compliance. 27

The Commission's Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued CFTC No-Action Letter 19-29 in July 2019 in response to a request for relief submitted by Cargill Incorporated (“Cargill”), a CFTC-registered SD and CSE. 28 DSIO stated that it would not recommend enforcement action if Cargill used the risk-based model calculation of IM of a counterparty that is a CFTC-registered SD as the amount of IM that Cargill is required to collect from the SD and to determine whether the IM threshold amount of $50 million (“IM threshold amount”)  29 has been exceeded, which would trigger the requirement for documentation concerning the posting, collection, and custody of IM collateral.

The CFTC's Global Markets Advisory Committee (“GMAC”) established a subcommittee in January 2020 to consider issues raised by the implementation of margin requirements for non-cleared swaps, to identify challenges associated with forthcoming implementation phases, and to make recommendations through a report for the GMAC to consider in advising the Commission. The subcommittee submitted the Margin Subcommittee Report to the GMAC with its recommendations. 30 The GMAC adopted the Report and recommended to the Commission that it consider adopting the Report's recommendations.

Among other things, the Margin Subcommittee Report recommended alignment of the CFTC Margin Rule with the BCBS/IOSCO Framework with respect to the method for calculating AANA for determining whether an entity comes within the scope of the IM requirements and the timing of compliance after the end of the phased compliance schedule. 31 The Report also recommended the codification of Letter 19-29. 32

The Commission believes that alignment with BCBS/IOSCO, the global standard setter for margin requirements for non-cleared derivatives, would promote harmonization in the application of the IM requirements. Moreover, the Commission does not believe that the disjunction between the CFTC and BCBS/IOSCO regarding the AANA calculation method and the timing of compliance furthers any regulatory purpose. In fact, the Commission notes the foreseeable possibility of calculation errors resulting from differences in the calculation methods. 33

The Commission also believes that adopting regulations along the lines of narrowly-tailored no-action letters, such as Letter 19-29, could promote certainty and clarity, facilitating efforts by market participants to take the application of the Commission's regulations into account in their planning, without undermining the effectiveness of the CFTC Margin Rule. Moreover, the proposed amendment would promote efficient risk hedging by smaller CSEs that offer swaps services to smaller entities that are neither SDs nor MSPs, with some of those risk-taking transactions requiring the exchange of regulatory margin and some, at the option of the parties, requiring the exchange of contractually-agreed margin. The CSEs might then enter into offsetting swaps with SDs and MSPs to hedge the risk associated with the risk-taking transactions. Due to their size and limited swap business and resources, the CSEs may find it uneconomical to develop and maintain a margin model, and would therefore benefit from the option to rely on their SD or MSP counterparties' IM model calculations.

The Commission is proposing to revise the method for calculating AANA for determining whether an FEU has MSE and the timing for compliance with the IM requirements after the end of the last phase of compliance to align these aspects of the CFTC Margin Rule with the BCBS/IOSCO Framework. The Commission is also proposing to amend Commission regulation 23.154(a) in a manner similar to the terms of Letter 19-29, and thus allow CSEs to use the risk-based model calculation of IM of counterparties that are CFTC-registered SDs or MSPs (“swap entities”)  34 to determine the amount of IM that must be collected from such counterparties.

As noted above, the exchange of IM with respect to uncleared swaps between a CSE and a counterparty that is an FEU with MSE (together, Phase 6 entities) is required in the last phase of compliance, which is scheduled to begin on September 1, 2021. 35 Commission regulation 23.151 provides that an entity has MSE if it has more than $8 billion in average daily AANA during June, July, and August of the prior year. 36 An FEU that has MSE based on its calculation of AANA over June, July, and August of 2020 will come within the scope of the IM requirements beginning on September 1, 2021. After September 1, 2021, however, because the base year for calculating AANA is the prior year, the annual determination of MSE, which triggers the applicability of the IM requirements, would be on January 1 of each year, 37 using the AANA for June, July, and August of the prior year. If the FEU has MSE on January 1 of a given year, the FEU would come within the scope of the IM requirements on January 1 of such year. As such, a CSE would be required to exchange regulatory IM beginning on such January 1 for its uncleared swaps with such FEU.

The Commission proposes to amend the definition of MSE in Commission regulation 23.151 by replacing “June, July and August of the previous calendar year” with “March, April and May of that year.” The period for calculating AANA for determining whether an FEU has MSE would thus be March, April, and May of “that year.” “That year” would be understood to mean the year the MSE is calculated for determining whether the IM requirements apply. The calculation of MSE is precipitated by Commission 23.161(a)(7), which requires a CSE to exchange IM with a counterparty that is an FEU with MSE beginning on September 1, 2021, and thereafter.

The Commission is also proposing to amend the definition of MSE to set “September 1 of any year” as the determination date for MSE. Under the current requirements, the MSE for an FEU must be determined beginning on September 1, 2021, and subsequently, after the last phase of compliance, on January 1 of each year. The proposed amendment would change the date of determination of MSE, applicable after the last phase of compliance, from January 1 to September 1. Because having MSE triggers the applicability of the IM requirements for an FEU, requiring the CSE to post and collect IM with its FEU counterparty, the proposed amendment would effectively set the timing for compliance with the IM requirements on September 1 after the last phase of compliance with respect to uncleared swaps entered into by a CSE and an FEU with MSE.

The proposed shift of the MSE determination date from January 1 to September 1 could have the effect of deferring for nine months for 2022  38 the obligation to exchange IM with a firm that was not in scope on September 1, 2021, but would be subject to the IM requirements on January 1, 2022. As a result, in 2022, less collateral would be collected for uncleared swaps during the nine-month period, which could render uncleared swap positions riskier and increase the risk of contagion and systemic risk. The Commission, however, notes that because the deferral period would affect entities with lower AANAs than entities brought into scope in earlier phases, the potential uncollateralized risk would be mitigated, becoming a lesser concern, particularly because the proposed change in the MSE determination date would draw the Commission's rules closer to BCBS/IOSCO's approach, promoting international harmonization.

Conversely, the change in the MSE determination date could also result in requiring certain entities to post and collect IM that would not otherwise be required to do so. This could occur when an FEU meets the MSE threshold in the last phase of compliance beginning on September 1, 2021, but falls below the threshold by January 1, 2022, because the AANA for June, July, and August of the prior year ( i.e., 2021) has declined below $8 billion. In such case, under the current rule, a CSE would no longer be subject to the IM requirements with respect to such FEU beginning January 1, 2022. However, under the proposed amendment, the CSE would continue to be subject to the IM requirements with respect to such FEU through September 1, 2022, and, as a result, the CSE would be required to exchange IM with the FEU for nine months longer than the January 1, 2022 MSE determination date would have required.

These proposed amendments to the definition of MSE would have the effect of reducing the time frame that FEUs and their CSE counterparties would have to prepare for compliance with the IM requirements. Under the current rule, exchange of regulatory IM is required with respect to Phase 6 entities beginning on September 1, 2021, which starts the last phase of the phased compliance schedule. 39 The MSE for the FEU must be determined using the AANA for the June, July, and August period of the prior year ( i.e., 2020). As a result, for the last phase of compliance in 2021, a CSE and FEU will have at least twelve months to prepare in anticipation of compliance with the IM requirements. Under the proposed amendment, however, for the last phase of compliance in 2021, the CSE and FEU would have only 3 months because MSE would be determined using the AANA for the March, April, and May period of the current year ( i.e., 2021).

Also, after the last phase of compliance under the phased compliance schedule, as proposed, the date for determining MSE for an FEU would be September 1 of each year, and the AANA calculation period for determining whether an FEU has MSE would be March, April, and May of such year. As a result, under the proposed amendment, an FEU with MSE and its CSE counterparty would have three months to prepare in advance of compliance with the IM requirements, whereas under the current rule, such parties have four months because MSE must be determined on January 1 based on the AANA for June, July, and August of the prior year.

Market participants recognize the effects of the proposed changes on the time frame for preparing for compliance with the IM requirements, with greater impact on Phase 6 entities that are coming into scope in the last phase of compliance, compared to those entities subject to compliance after the end of the last compliance phase. Nevertheless, the Margin Subcommittee Report, which the GMAC has adopted and recommended to the Commission, supported the changes because they would reconcile the CFTC's margin requirements with the BCBS/IOSCO Framework. 40 The proposed changes would eliminate the need to maintain separate schedules and processes for the computation of AANA and reduce the burden and cost of compliance with the IM requirements. 41 For the reasons set forth above, and taking account of Section 752 of the Dodd-Frank Act that calls on the CFTC to “consult and coordinate” with respect to the establishment of consistent international standards, 42 the Commission preliminarily believes that amending the definition of MSE by replacing “June, July and August of the previous calendar year” with “March, April and May of that year” and by prescribing September 1 of each year as the MSE determination date is appropriate to harmonize its compliance schedule with that of the BCBS/IOSCO Framework and eliminate a disjunction that risks calculation errors and may hinder compliance with the IM requirements.

The Commission is also proposing to amend the requirement to use daily average AANA during the three-month calculation period for determining MSE (“daily AANA calculation method”). The proposed amendment would instead require the use of average month-end AANA during the three-month calculation period (“month-end AANA calculation method”). In adopting the CFTC Margin Rule, the Commission acknowledged that the use of the month-end AANA calculation method would be consistent with BCBS/IOSCO's approach. Nonetheless, the CFTC, along with the U.S prudential regulators, adopted the daily AANA calculation method. In the preamble to the CFTC Margin Rule, the Commission explained that a daily average AANA calculation would provide a more comprehensive assessment of an FEU's participation in the swaps market in determining whether the FEU has MSE and would address the possibility of window dressing of exposures by market participants that might seek to avoid the CFTC's margin requirements. 43

In the Margin Subcommittee Report, the GMAC subcommittee stated that the daily AANA calculation method entails more work for smaller counterparties and that the method is only used in the United States, noting that in the United States, daily AANA calculations over the three-month calculation period for Phase 5 required 64 observations while global determinations based on month-end AANA calculations required only three observations. 44 The Report further stated that a month-end AANA calculation, by accounting for three periodic dates on which AANA would be calculated, would mitigate the risk that market participants would adjust exposures to avoid the CFTC's margin requirements, and that it would be neither practicable nor financially desirable for parties to tear-up their positions on a recurring basis prior to each month-end AANA calculation, as it would interfere with their hedging strategies and cause them to incur realized profit and loss. 45

The Commission believes that it is appropriate to propose the month-end AANA calculation method to determine whether an FEU has MSE because such method of calculation would align the CFTC's approach with the BCBS/IOSCO Framework and that of other major market jurisdictions. The Commission notes that there is the risk that market participants that are counterparties to CSEs may “window dress” their exposures by adjusting their exposures as they approach the month-end date for the calculation of AANA. In doing so, an FEU would no longer have to post and collect IM with all CSEs for all its uncleared swaps for at least twelve months from the date on which compliance with the IM requirements would have been initially required. 46 The Commission believes that it has sufficient tools at its disposal to address the “window dressing” concern. In particular, the Commission notes that Commission regulation 23.402(a)(ii) requires CSEs to have written policies and procedures to prevent their evasion, or participation in or facilitation of an evasion, of any provision of the CEA or the Commission regulations. 47 The Commission also reminds market participants that are counterparties to CSEs that section 4b of the CEA prohibits any person entering into a swap with another person from cheating or defrauding or willfully deceiving or attempting to deceive the other person. 48

The Commission acknowledges that replacing the daily AANA calculation method with the month-end AANA calculation method for determining MSE could result in an AANA calculation that is not fully representative of an entity's participation in the swap markets. The current definition of MSE provides that AANA must be calculated counting uncleared swaps, uncleared security-based swaps, foreign exchange forwards, or foreign exchange swaps. Some of these financial products because of their terms, such as tenure and time of execution, may be undercounted or excluded from the AANA calculation if month-end dates are used to determine MSE. 49 The proposed month-end AANA calculation method therefore may not account for products that are required to be included in the calculation.

The Commission preliminarily believes that the notional amounts associated with products that may be excluded from the AANA calculation may be relatively low and that their contribution to the AANA calculation for the purpose of determining MSE may be insignificant. In this regard, in an exercise undertaken by the Commission's Office of the Chief Economist (“OCE”) on a sample of days, the OCE estimated (setting aside the window dressing issue) that calculations based on end-of-month AANA would yield fairly similar results as calculations based on the current daily AANA approach. Based on 2020 swap data, the OCE estimated that 492 entities of the 514 entities that would come into scope during Phase 6 based on the current methodology would also come into scope in the event that the Commission were to adopt the proposed methodology. Put differently, all but 22 of the entities that are above MSE under the current methodology would also be above MSE under the proposed methodology. In addition, there are 20 entities that would be in scope under the proposed methodology, but would not be in scope under the current methodology, so that the aggregate number of Phase 6 entities under the current and proposed methodologies differs only by two. In aggregate, the two methodologies would capture quite similar sets of entities. In addition, the entities that fall out of scope applying the month-end methodology tend to be among the smallest of the Phase 6 entities. That is, entities that are in-scope under the current methodology but not the proposed methodology average $6.95 billion in AANA, compared to $20 billion for all Phase 6 entities. 50

In the Commission's preliminary view, based on the OCE analysis discussed above, switching from daily AANA calculations to month-end calculations for the purpose of determining MSE would likely have a limited impact on the protections provided by the CFTC Margin Rule. The Commission also preliminary believes that the benefits of aligning with the BCBS/IOSCO Framework and the approach of other major market jurisdictions outweigh the window dressing concerns. 51

The Commission requests comments regarding the general approach proposed for changes to Commission regulation 23.151. The Commission also specifically requests comment on the following questions:

• Are the proposed amendments appropriate in light of the CFTC's overall approach to uncleared margin requirements and the manner in which firms currently undertake the calculation of AANA to determine MSE? Should the Commission consider any alternative to aligning with the BCBS/IOSCO Framework with respect to the methodology for the AANA calculation and the timing for compliance after the last phase of compliance?

• Should the Commission proceed to adopt the proposed amendments if the U.S. prudential regulators do not adopt similar regulatory changes? Would this divergence between the CFTC and the prudential regulators' margin requirements for uncleared swaps affect market participants? Is there a potential for industry confusion if that were to be the case?

• In adopting the CFTC Margin Rule, the Commission stated that the daily AANA calculation method was intended to provide a more comprehensive assessment of an FEU's participation in the swaps markets. Would the proposed month-end AANA calculation method requiring the averaging of month-end dates during the three-month calculation period be representative of a market participant's participation in the swaps markets? Is it possible that the proposed month-end calculation would result in the exclusion or undercounting of certain products because of their terms, such as tenure and time of execution, or for any other reason, that are required to be included in the AANA calculation? Could the calculation lead to skewed results for entities that have an AANA calculation on the three end-of-month dates that is uncharacteristically high compared to their typical positions?

• How likely and significant is the risk that market participants may “window dress” their exposures to avoid the CFTC's margin requirements? In the event that this is a significant impediment to an accurate calculation of AANA over a three month period, are the existing tools at the Commission's disposal sufficient to address this concern? Are there additional steps the Commission should consider if the Commission were to implement the month-end calculation methodology?

The CFTC Margin Rule requires CSEs to collect and post IM with covered counterparties. 52 Commission regulation 23.154(a) directs CSEs to calculate, on a daily basis, the IM amount to be collected from covered counterparties and to be posted to FEU counterparties with MSE. 53 CSEs have the option to calculate the IM amount by using either a risk-based model or the standardized IM table set forth in Commission regulation 23.154(c)(1). 54 For a CSE that elects to use a risk-based model to calculate IM, Commission regulation 23.154(b)(1) requires the CSE to obtain the written approval of the Commission or a registered futures association  55 to use the model to calculate IM required by the Commission's margin requirements for uncleared swaps. 56

The Commission is proposing to amend Commission regulation 23.154(a) along the lines of Letter 19-29 by adding proposed paragraph (a)(5). The proposed paragraph would permit a CSE that enters into uncleared swaps with a swap entity to use the swap entity's risk-based model calculation of IM in lieu of its own IM calculation. The risk-based model used for the calculation of IM would need to satisfy the requirements set out in Commission regulation 23.154(b) or would need to be approved by the swap entity's prudential regulator.

Letter 19-29 sets out certain situations in which DSIO would not recommend an enforcement action under Commission regulation 23.154(a)(1), which requires CSEs to calculate, on a daily basis, IM to be collected from a covered counterparty, including swap entities and FEUs with MSE. Letter 19-29 conveyed the staff's view that Cargill, the requester for relief, could use the risk-based model calculation of IM of a counterparty that is a swap entity to determine the amount of IM to be collected from that counterparty and to determine whether the IM threshold amount has been exceeded, which would require the parties to have documentation addressing the collection, posting, and custody of IM. The proposed amendment, consistent with Letter 19-29, would modify the requirement that CSEs calculate the IM to be collected from a swap entity counterparty and would give CSEs the option to use such counterparty's risk-based IM calculation to determine the amount of IM to be collected from the counterparty.

The Commission acknowledges that expanding the use of the alternative method in Letter 19-29 to a wider group of CSEs could raise some concerns. Being able to rely on the IM risk-based calculation of a swap entity counterparty, as would be permitted under the proposal, CSEs may forgo altogether the adoption of a risk-based model and may be less incentivized to monitor IM exposures on a regular basis. Without a model to compute its own IM, a CSE may lack reasonable means to verify the IM provided by its counterparty or recognize any shortfalls in the IM calculation or flaws in the counterparty's risk-based model. As a result, the CSE may collect insufficient amounts of IM to offset counterparty risk. There is also the concern that the swap entity calculating the IM for the CSE may be conflicted, 57 as it may have a bias in favor of calculating and posting lower amounts of IM to its CSE counterparty.

In light of these concerns, Letter 19-29 imposed certain conditions for the application of the relief. 58 The Commission believes that it is appropriate that the proposed amendment incorporate in the rule text two conditions set forth in the no-action letter. Other conditions from the no-action letter would not be reflected in the rule text, because the Commission believes that the conditions are adequately addressed by existing requirements under the Commission's regulations, as explained below. In addition, if the proposed amendment is adopted, the Commission notes that it will monitor its implementation by CSEs and may consider further rulemaking as appropriate.

First, consistent with Letter 19-29, the proposed rule text would require that the applicable model meet the requirements of Commission regulation 23.154(b) (requiring the approval of the use of the model by either the Commission or the NFA), or that it be approved by a prudential regulator. 59

Second, the proposed rule text would provide that the CSE would be able to use the risk-based model calculation of IM of a swap entity counterparty only if the uncleared swaps for which IM is calculated are entered into for the purpose of hedging the CSE's own risk. In this context, the risk to be hedged would be the risk that the CSE would incur when entering into swaps with non-swap entity counterparties. By proposing to limit the application of this alternative method of calculation of IM only to uncleared swaps entered into for the purpose of hedging risk arising from swaps entered into with non-swap entities, the Commission would ensure its narrow application.

The Commission contrasts the risk of customer-facing swaps with the risk that CSEs incur when entering into a swap in a dealing capacity “to accommodate the demand” of a swap entity counterparty. 60 The Commission believes that it would be inappropriate to allow a CSE to use the IM calculation of the swap entity counterparty in this latter case. The Commission notes that the latter case ( i.e., where the CSE is acting in a dealing capacity for a counterparty that is itself calculating IM) would occur in the inter-dealer market for swaps. The Commission believes that a CSE participating in the inter-dealer market in a dealing capacity should have the capacity to develop, implement, and use an approved risk-based model.

The Commission expects that the alternative method of calculation would be used primarily by CSEs that are not obtaining approval to use a risk-based model for the calculation of IM but rather elect to use the table-based calculation described in Commission regulation 23.154(c) for swaps with non-swap entity counterparties. The Commission anticipates that such CSEs would enter into uncleared swaps mostly with end-user, non-swap entity counterparties, and would then hedge the risk of those swaps with uncleared swaps entered into with a few swap entity counterparties. The CSEs and their swap entity counterparties would be required to exchange IM for the uncleared swaps entered into for the purpose of hedging. Because maintaining a model would impose a disproportionate burden on the CSEs relative to the discrete and limited nature of their uncleared swap activities, the CSEs may not have a risk-based model for the calculation of IM and may opt to use instead the risk-based model calculation of their swap entity counterparties.

To obtain relief under Letter 19-29, Cargill, prior to using the risk-based model calculation of IM of a swap entity counterparty, must agree with the counterparty in writing that the IM calculation will be provided to Cargill in a manner and time frame that would allow Cargill to comply with the CFTC Margin Rule and other applicable Commission regulations, and that the calculation will be used to determine the amount of IM to be collected from the counterparty and to determine whether the IM threshold amount has been exceeded, which would require documentation addressing the posting, collection, and custody of IM. The Commission preliminarily believes that the documentation requirements in Commission regulations 23.158 and 23.504 address this no-action letter condition.

Commission regulation 23.158(a) requires CSEs to comply with the documentation requirements set forth in Commission regulation 23.504. 61 In turn, Commission regulation 23.504(b)(4)(i) requires CSEs to have written documentation reflecting the agreement with a counterparty concerning methods, procedures, rules, and inputs, for determining the value of each swap at any time from execution to the termination, maturity, or expiration of such swap for the purposes of complying with the margin requirements under section 4s(e) of the Act and regulations under this part. 62 Regulation 23.504(b)(3)(i) also provides that the documentation shall include credit support arrangements, including initial and variation margin requirements, if any. 63

The last two conditions of Letter 19-29  64 were designed to ensure that Cargill would undertake adequate risk management of its uncleared swaps, notwithstanding the lack of a proprietary risk-based model and hence the inability to calculate IM, which is representative of potential future exposure of uncleared swaps. 65 The Commission believes that these conditions are addressed by CSEs' risk management obligations under the CEA and the Commission's regulations. Section 4s(j)(2) of the CEA requires SDs and MSPs, including CSEs, to establish robust and professional risk management systems adequate for the management of their day-to-day swap business. 66 In addition, Commission regulation 23.600 requires SDs and MSPs to establish and maintain a risk management program to monitor and manage risk associated with their swap activities. 67

To obtain relief under Letter 19-29, Cargill also must “keep track of exceedances” and “[if] the exceedances indicate that the Approved IM Calculation Method fails to meet the relevant regulators' standards, [Cargill] must take appropriate steps to ensure compliance with its risk management obligations and address exceedances with its SD counterparty.”  68 The purpose of this requirement is to ensure that Cargill monitors, identifies, and addresses potential shortfalls in the amount of IM generated by the counterparty. Cargill must also report to the CFTC “any adjustments and enhancements . . . applied to the amount of IM calculated pursuant to the Approved IM Calculation Method to ensure [Cargill's] collection of adequate amounts of IM.”

The Commission preliminarily believes that Commission regulation 23.600 addresses these concerns by requiring SDs and MSPs to account for credit risk in conducting their risk oversight and to ensure compliance with the CFTC margin requirements. In the case of a CSE relying on the provisions of proposed paragraph (a)(5), adequate risk oversight would include steps by the CSE to monitor, identify, and address potential shortfalls in the amounts of IM generated by the counterparty on whose IM model the CSE is relying. While the Commission does not propose to prescribe the CSE's oversight process, it believes that a risk management program that is unable to identify or to address shortfalls in IM would be insufficient to comply with Regulation 23.600.

Moreover, Commission regulation 23.600 requires SDs and MSPs to furnish to the Commission risk exposure reports setting forth credit risk exposures and any other applicable risk exposures relating to their swap activities. Here again, the Commission believes that an adequate risk exposure report pursuant to Regulation 23.600 would require a CSE to identify any adjustments and enhancements to the amount of IM calculated pursuant to the risk-based model of its swap entity counterparty to ensure the CSE's collection of adequate amounts of IM.

The Commission requests comment regarding the proposed amendment to Commission regulation 23.154(a). The Commission also specifically requests comment on the following questions:

• The proposed amendment to Regulation 23.154(a) would allow a CSE to use the risk-based model calculation of IM of a swap entity counterparty to comply with Regulation 23.154(a)(1), which requires CSEs to calculate IM to be collected from counterparties. The alternative method of IM calculation would be available only with respect to uncleared swaps entered into for the purpose of hedging. Should this restriction be eliminated, narrowed, or expanded? If the restriction should be narrowed or expanded, please describe any appropriate modifications to the restriction. If it should be eliminated, please explain why.

• The proposed amendment to Regulation 23.154(a) intends to provide an alternative method for the calculation of IM for CSEs with highly specialized and discrete swap business models that primarily enter into swaps with non-SDs or MSPs but, enter into offsetting swaps with SDs and MSPs to hedge the risk of such customer-facing swaps, and opt to use the standardized IM table set forth in Commission regulation 23.154(c) rather than adopt and maintain a risk-based model for the calculation of IM. As such, the use of the alternative method of calculation is not expected to be widespread. Is this a reasonable expectation, or would this alternative method of IM calculation be likely to be used by all CSEs or a larger subset of CSEs than anticipated under the proposed rule? If a larger subset, please describe the characteristics of this wider group. Should the availability of this alternative method of IM calculation include all classes of swaps, or only a subset ( e.g., commodity swaps)?

• How many CSEs would likely take advantage of this amendment? How many of these CSEs do not trade uncleared swaps currently? How many use the standardized IM table? How many use a model developed by a third-party vendor? How many of the Phase 5 entities are likely to take advantage of this amendment? What might they do for IM calculation absent the amendment? To the extent possible, please provide a basis for these estimates.

• The Commission believes that the requirement to furnish risk exposure reports under Commission regulation 23.600, while not matching exactly all the terms of the CFTC notification required by Letter 19-29, addresses the overall purpose of the requirement. Should the Commission include a more tailored reporting requirement in the proposed amendment?

• Does the proposed amendment to effectively codify Letter 19-29 include sufficient risk management tools in place to guard against any potential conflict of interest arising from the fact that a CSE will rely on its swap entity counterparty's IM calculation to determine the amount of IM to be collected from such counterparty?

• Should the Commission proceed to adopt the proposed amendment to effectively codify Letter 19-29 if the U.S. prudential regulators do not adopt similar regulatory changes? Would this divergence between the CFTC and the prudential regulators' margin requirements for uncleared swaps impact market participants? Is there a potential for industry confusion if that were to be the case?

The Regulatory Flexibility Act (“RFA”) requires Federal agencies to consider whether the rules they propose will have a significant economic impact on a substantial number of small entities and, if so, provide a regulatory flexibility analysis respecting the impact. 69 Whenever an agency publishes a general notice of proposed rulemaking for any rule, pursuant to the notice-and-comment provisions of the Administrative Procedure Act, 70 a regulatory flexibility analysis or certification typically is required. 71 The Commission previously has established certain definitions of “small entities” to be used in evaluating the impact of its regulations on small entities in accordance with the RFA. 72 The proposed amendments only affect certain SDs and MSPs and their counterparties, which must be eligible contract participants (“ECPs”). 73 The Commission has previously established that SDs, MSPs and ECPs are not small entities for purposes of the RFA. 74

Accordingly, the Chairman, on behalf of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that the proposed amendments will not have a significant economic impact on a substantial number of small entities.

The Paperwork Reduction Act of 1995 (“PRA”)  75 imposes certain requirements on Federal agencies, including the Commission, in connection with their conducting or sponsoring any collection of information, as defined by the PRA. The Commission may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid Office of Management and Budget control number. The proposed amendments contain no requirements subject to the PRA.

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. 76 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, and seeks comments from interested persons regarding the nature and extent of such costs and benefits.

The Commission is proposing to amend the CFTC Margin Rule to revise the method for calculating AANA for determining whether an FEU has MSE and the timing for determining whether an FEU has MSE after the end of the phased compliance schedule (“timing of post-phase-in compliance”). These amendments would align the CFTC Margin Rule with the BCBS/IOSCO Framework with respect to these matters.

The Commission is also proposing to amend Commission regulation 23.154(a) along the lines of Letter 19-29, and thus allow CSEs to use the risk-based model calculation of IM of a counterparty that is a swap entity. 77 The proposed rule would make this accommodation available only with respect to uncleared swaps entered into for the purpose of hedging swap risk.

The baseline against which the benefits and costs associated with the proposed amendments are compared is the uncleared swaps markets as they exist today and the currently applicable timing for compliance with the IM requirements after the expiration of the phased compliance schedule. Concerning the amendment of Commission regulation 23.154(a), the Commission believes that to the extent market participants may have relied on Letter 19-29, the actual costs and benefits of the proposed amendment, as realized by the market, may not be as significant at a practical level. With respect to the proposed amendment to align aspects of the CFTC Margin Rule with the BCBS/IOSCO Framework, the Commission acknowledges that the Dodd-Frank Act calls on the CFTC to “consult and coordinate on the establishment of consistent international standards” with respect to the regulation of swaps. 78 The proposed rule therefore would advance the Congressional mandate to harmonize the CFTC's requirements with international standards, thereby removing a regulatory impediment that might hinder the competitiveness of the U.S. swaps industry. 79

The Commission notes that the consideration of costs and benefits below is based on the understanding that the markets function internationally, with many transactions involving U.S. firms taking place across international boundaries; with some Commission registrants being organized outside of the United States; with leading industry members typically conducting operations both within and outside the United States; and with industry members commonly following substantially similar business practices wherever located. Where the Commission does not specifically refer to matters of location, the below discussion of costs and benefits refers to the effects of these proposed amendments on all activity subject to the proposed amended regulations, whether by virtue of the activity's physical location in the United States or by virtue of the activity's connection with activities in, or effect on, U.S. commerce under section 2(i) of the CEA. 80

By harmonizing the method for calculating AANA for determining MSE and the timing of post-phase-in compliance with the BCBS/IOSCO Framework, the proposed amendment would create a benefit because it would reduce complexity—for example, the proposed AANA month-end calculation would require consideration of only three observation dates rather than daily AANAs over the three-month calculation period—and the potential for confusion in the application of the margin requirements. Firms would no longer need to undertake separate AANA calculations using different calculation periods, nor would they need to conform to two separate compliance timings, varying according to the location of their swap counterparties and jurisdictional requirements applicable to the counterparties.

The proposed amendment would impact FEUs with average AANA between $8 billion and $50 billion (Phase 6 entities) that come into the scope of compliance with the IM requirements under the CFTC Margin Rule in the last compliance phase beginning on September 1, 2021, as well as those entities that come into scope after the end of the last compliance phase. The Commission believes that the proposed amendment would benefit these entities, which, given their level of swap activity, pose a lower risk to the uncleared swaps market and the U.S financial system in general than entities who came into scope in earlier phases. The OCE has estimated that there are approximately 514 of such entities representing 4% of total AANA across all phases. 81 This means that the proposed amendment addresses entities that tend to engage in less uncleared swap trading activity and, and in the aggregate, pose less systemic risk than entities in previous phases. Because these entities are smaller, they presumably have fewer resources to devote to IM compliance and hence would benefit from the alignment of the method of calculation of AANA across jurisdictions without contributing substantially to systemic risk.

For Phase 6 entities with average AANA between $8 billion and $50 billion that will begin collecting initial margin on September 1, 2021, moving the calculation period from June, July, and August 2020 to March, April, and May 2021 would better align with current practices. While the Commission cannot anticipate exactly how the second quarter of 2021 will differ from the third quarter of 2020, based on comparable past experience, the OCE estimates that approximately 75-100 entities would come into scope, and a similar number would fall below the threshold by virtue of moving the calculation period. The adjusted calculation period would reduce the regulatory burden for firms that have reduced their MSE below the $8 billion threshold while requiring the collection of margin for those firms that have increased their swaps business above the threshold. While aggregate AANA for firms that fall into or out of scope is small relative to the overall market (less than one percent of total aggregate AANA), moving the calculation period close to the compliance date may have a significant impact on the entities that have reduced their MSE.

The Commission also notes that the benefits of alignment with the BCBS/IOSCO Framework will continue to accrue in future years, as the determination of MSE for an FEU under the CFTC Margin Rule is an annual undertaking, triggered by the entry into an uncleared swap between the FEU and a CSE counterparty and the need to determine whether the FEU has MSE, which triggers the application of the IM requirements and the exchange of regulatory IM between a CSE and a FEU for their uncleared swap transactions.

With respect to the amendment of Commission regulation 23.154(a), the Commission believes that the uncleared swap markets would benefit from the extension of the targeted relief provided to Cargill, the requester in Letter 19-29, to a wider group of CSEs with similar unique swap business models. In taking a no-action position, DSIO took account of Cargill's representation that its swap trading activity primarily involved physical agricultural commodities and certain other asset classes and that it “may maintain positions that require collection of IM from SDs.” Cargill further stated that given the highly specialized and discrete nature of its swap business, risk-based modeling would impose a disproportionate burden.

The more widespread availability of the alternative method of calculation of IM provided by regulation 23.154(a), as proposed to be amended, may incentivize some market participants to expand their swap business. In particular, given that certain market participants would have the option to forgo the cost of risk-based modeling, this potential reduction in compliance costs may encourage certain entities to increase their swaps trading. This may be especially true after September 1, 2021, as a large number of entities will be newly-subject to mandatory margin. 82 By increasing the pool of potential swap counterparties, the proposed amendment could enhance competition, increase overall liquidity, and facilitate price discovery in the uncleared swaps markets.

While the proposed changes to the CFTC Margin Rule would have the effect of creating efficiencies for market participants, the Commission acknowledges that the changes would also result in some costs. Among other things, the proposed revision of the AANA calculation period for determining MSE to align it with the BCBS/IOSCO AANA calculation period would reduce the time frame for determining whether an FEU is subject to the IM requirements and for preparing for compliance with the requirements during the final phase-in period of 2021.

Under the current margin requirements, in the period leading to the final phase-in date of September 1, 2021, FEUs would have a full year to prepare, as MSE for an FEU would be determined by using the AANA for June, July and August of the prior year. However, the proposed amendment to the period of calculation of AANA for determining MSE would result in entities only having a three-month advance notice in 2021, as AANA would be calculated using the March, April and May period of that year. Entities would have a shorter time frame to engage in preparations to comply with IM requirements, including, among other things, procuring rule-compliant documentation, establishing processes for the exchange of regulatory IM, and setting up IM custodial arrangements. Because the proposed amendment would align the AANA calculation for determining MSE with BCBS/IOSCO's AANA calculation and the compliance date would remain unchanged, the Commission believes that the cost would be mitigated. In particular, the Commission notes market participants' statements indicating that the differences in the U.S. regulations could create complexity and confusion and lead to additional effort, cost and compliance challenges for smaller market participants that are generally subject to margin requirements in multiple global jurisdictions. 83

The Commission further notes that the proposed amendment to the timing of post-phase-in compliance would defer compliance with the IM requirements with respect to uncleared swaps entered into by a CSE with an FEU that comes into the scope of IM compliance after the end of the last compliance phase. Under the current rule, FEUs with MSE as measured in June, July, and August 2021 would come into the scope of compliance post-phase-in beginning on January 1, 2022. On the other hand, under the proposed amendment, FEUs with MSE as measured in March, April, and May 2022 would be subject to compliance beginning on September 1, 2022. As a result, for FEUs with MSE in both periods, less collateral for uncleared swaps may be collected between January 1, 2022, and September 1, 2022, rendering uncleared swap positions entered into during the nine-month period riskier, which could increase the risk of contagion and the potential for systemic risk. Conversely, under the proposed amendment, a CSE would be required to exchange IM with a previously in-scope FEU that fell below the MSE level by January 1, 2022, for nine months longer than the otherwise required.

With respect to changing the daily AANA calculation method to a month-end calculation method for determining MSE, the Commission acknowledges that there are potential costs. The utilization of a month-end calculation method could result in an AANA calculation that is not representative of a market participant's participation in the swaps markets. As previously discussed, the proposed AANA month-end calculation may result in the exclusion or undercounting of certain financial contracts that are required to be included in the calculation ( e.g., uncleared swaps, uncleared security-based swaps, foreign exchange forwards, or foreign exchange swaps) because of certain combinations of tenure and time of execution, such as those often present in some intra-month natural gas and electricity swaps. 84 The Commission also notes the potential that market participants might “window dress” their exposures to avoid MSE status and compliance with the CFTC's margin requirements. At the same time, it is possible that the month-end methodology, which uses only three data points, could result in some entities having an AANA calculation on the three end-of-month dates that is uncharacteristically high relative to their typical positions.

If products are excluded from the AANA calculation, or if exposures are “window dressed,” the month-end calculation may have the effect of deferring the time by which market participants meet the MSE classification resulting in additional swaps between market participants and CSEs being deemed legacy swaps that are not subject to the IM requirements. 85 This may increase the level of counterparty credit risk to the financial system. While potentially meaningful, this risk would be mitigated because the legacy swap portfolios would be entered into with FEUs that engage in lower levels of notional trading.

Finally, given the possibility that the U.S. prudential regulators may not adopt the changes to the method of calculation of AANA proposed in this rulemaking, there is the potential that firms that engage in swaps transactions with both CSEs and swaps dealers subject to the margin requirements of the U.S. prudential regulators may incur additional costs by continuing to have to undertake their AANA calculations under two different methods of calculation.

However, the Commission preliminarily is of the view that the benefits of aligning with the BCBS/IOSCO Framework outweigh these potential costs. In this regard, in the aforementioned OCE exercise utilizing a sample of days, the OCE estimated that calculations based on end-of-month AANA would yield fairly similar results as the calculations based on the current daily AANA approach (setting aside the window dressing issue). Based on 2020 swap data, the OCE estimated that approximately 492 entities of 514 entities that would come into scope during Phase 6 based on the current methodology would also come into scope based on the proposed methodology. Put differently, all but 22 of the entities that are above MSE under the current methodology would also be above MSE under the proposed methodology. In addition, there are 20 entities that would be in scope under the proposed methodology, but would not be under the current methodology, so that the aggregate number of Phase 6 entities differs only by two. In aggregate, the two methodologies would capture quite similar sets of entities. In addition, the entities that fall out of scope when one changes methodology tend to be among the smallest of the Phase 6 entities. That is, entities that are in-scope under the current methodology but not the proposed methodology average $6.95 billion in AANA, compared to $20 billion for all Phase 6 entities. 86

Taking account of the small number of FEUs that would therefore have MSE and thus be subject to the Commission's IM requirements, the Commission believes that the potential exclusion of certain financial products in determining MSE would have a limited impact on the effectiveness of the CFTC Margin Rule. In addition, with respect to the potential that a market participant might “window dress” its exposure, the Commission has sufficient regulatory authority, including anti-fraud powers under section 4b of the CEA, 87 to take appropriate enforcement actions against any market participant that may engage in deceptive conduct with respect to the AANA calculation, and CSEs must also have written policies and procedures in place to prevent evasion or the facilitation of an evasion by an FEU counterparty. 88

Roughly 514 entities, as estimated by the OCE, would come into the scope of the IM requirements beginning on September 1, 2021, and would be affected by the foregoing proposed amendments. In advance of the September 1, 2021 compliance date, many of these entities may engage in planning and preparations relating to the exchange of regulatory IM. With the revision of the AANA method of calculation, these entities may need to adjust their systems to reflect changes in the calculation and update related financial infrastructure arrangements. While requesting comments on this issue, the Commission believes that the cost of shifting the MSE calculation period to the new time frame would be negligible, and the adoption of the month-end AANA calculation method would likely be cost-reducing for impacted firms.

Regarding the amendment of Commission regulation 23.154(a), there may be associated costs, as CSEs would be allowed to rely on the risk-based model calculation of IM computed by a swap entity counterparty. Specifically, the safeguard of requiring both the CSE and its SD counterparty to maintain a margin model for any swap transaction that does not utilize the table-based method would be eliminated. A CSE that relies on a counterparty's risk-based model calculations would thus avoid rigorous Commission requirements relating to risk-based modeling, 89 which may undercut the effectiveness of the CSE's risk oversight. 90

In addition, the safeguard of private market discipline that is inherent in having each counterparty develop its own IM model, and therefore the ability for the parties to scrutinize each other's IM model and output, will not be present given that under the proposed rule, a CSE would be permitted to rely on the risk-based model calculation of a swap entity counterparty. As a result, there is the potential that insufficient amounts of IM would be generated by the swap entity counterparty, which may be attributable to a deficiency in the model or the fact that the swap entity may be inherently conflicted and interested in generating lower amounts of IM collectable by the CSE. 91 Given that the CSE without a model may lack adequate means to verify the amount of IM produced by the swap entity counterparty, the CSE may not be capable to contest it. As a result, insufficient amounts of IM may be collected by the CSE to protect itself against the risk of default by the swap entity counterparty, increasing the risk of contagion and the potential for systemic risk.

The Commission, however, believes that these costs are mitigated by the proposed rule, which would be narrowly tailored to make available the alternative method of IM calculation set forth in Letter 19-29 only with respect to uncleared swaps entered into for the purpose of hedging. In addition, the Commission notes that there are other requirements in the Commission's regulations that address the monitoring of exposures and swap risk.

In light of the foregoing, the CFTC has evaluated the costs and benefits of the proposal pursuant to the five considerations identified in section 15(a) of the CEA as follows:

The proposed rule would align the CFTC Margin Rule's method for calculating AANA for determining MSE and the timing of post-phase-in compliance with the BCBS/IOSCO Framework. By aligning these requirements with the international standard, the proposed rule would reduce the potential for complexity and confusion that can result from using different AANA calculation methods and different compliance schedules for market participants that may be subject to margin requirements in multiple jurisdictions. At the same time, the Commission recognizes that some firms may have already begun preparations to undertake AANA calculations under the existing requirements. The proposed rule may require them to adjust their calculations to reflect the new proposed method for calculating AANA for determining MSE and to update infrastructure arrangements, increasing the overall cost of compliance with the margin requirements.

Under the existing CFTC Margin Rule, firms that are FEUs, beginning in Phase 6, which starts on September 1, 2021, would look back to the 2020 June-August period to determine whether they have MSE. As such, the firms would have no less than twelve months to engage in preparations for the exchange of regulatory IM, by, among other things, procuring rule-compliant documentation, establishing processes and systems for the calculation, collection and posting of IM collateral, and setting up custodial arrangements. If the Commission determines to adopt the proposed amendment changing the AANA calculation period for determining MSE to March-May of the current year, such firms would have only a three-month window to engage in preparations to exchange IM. Nevertheless, the Commission notes that, under the existing requirements, after the end of the phased compliance schedule, firms would only have four months in subsequent years since the calculation period for determining MSE status would be June through August of the prior year, with compliance starting January 1 of the following year. In addition, because the proposed amendment would require only averaging three month-end dates rather than averaging all business days during the three-month calculation period, the potential burdens of a shorter preparatory period for Phase 6 entities may be offset by the adoption of the BCBS/IOSCO Framework's less onerous calculation method.

Moreover, the proposed amendment would shift the timing of post-phase-in compliance to September 1 of each year. As such, entities that otherwise would be required to exchange IM beginning January 1, 2022, would be able to defer compliance to September 1, 2022. 92 As a result, less collateral for uncleared swaps may be collected between January 1, 2022, and September 1, 2022, rendering the parties' positions riskier during that nine-month period, which could raise the risk of contagion and increase the potential for systemic risk. Firms that would have fallen out of scope by January 1, 2022 would also be subject to compliance for an additional nine months.

Notwithstanding these potential costs, the Commission believes that the proposed changes advance the Commission's goal, pursuant to statutory direction, of coordination and harmonization with international regulators. The costs that may arise as a result of the proposed changes, as discussed above, would be mitigated by the overall cost savings, as the need to undertake separate calculations of MSE to address different requirements in different jurisdictions would be obviated with respect to most jurisdictions.

The amendment of Commission regulation 23.154(a) would allow a CSE to use the risk-based model calculation of IM of a counterparty that is a swap entity. Without an alternative model, the CSE may not be able to challenge the amounts generated by the swap entity counterparty, which may be insufficient because of model error or malfunction or because the swap entity may be inherently conflicted and may be interested in generating low amounts of IM collectable by the CSE. In turn, insufficient amounts of IM may be collected by the CSE to offset the risk of counterparty default, increasing the risk of contagion and the potential for systemic risk.

The Commission believes that these risks would be mitigated by the proposed rule, which would be narrowly tailored to permit reliance on a swap entity counterparty's risk-based model calculation only with respect to uncleared swaps entered into for the purpose of hedging. In addition, there are other requirements in the Commission's regulations that address the monitoring of exposures and swap risk ( i.e., Commission regulation 23.600, which requires SDs and MSPs to adopt a robust risk management program for the monitoring and management of risk related to their swap activities).

The proposed rule would align the CFTC Margin Rule's AANA calculation method for determining MSE and the timing of post-phase-in compliance with the BCBS/IOSCO Framework. As such, the proposed rule would reduce the need, at least for entities not also undertaking swaps with U.S. prudentially regulated SDs, to undertake separate AANA calculations accounting for different calculation methods and to conform to separate compliance timings, varying according to the location of swap counterparties and jurisdictional requirements applicable to the counterparties. As such, the proposed changes would promote market efficiency and would even the playing field for market players, fostering competitiveness and reducing the incentive to engage in regulatory arbitrage by identifying more accommodating margin frameworks.

The amendment of Commission regulation 23.154(a) would allow CSEs to rely on a swap entity counterparty's IM risk-based model calculations. Without a model, the CSE would lack effective means to verify its counterparty's IM calculations. As a result, if there are shortfalls in the output, the CSE may collect less IM collateral to offset the risk of default by the counterparty, which could increase the risk of contagion, threatening the integrity of the U.S. financial markets. The Commission, however, believes that the proposed rule is sufficiently targeted to mitigate these risks. The proposed amendment would apply only when uncleared swaps are entered into for hedging, thus limiting widespread use and the potential for uncollateralized uncleared swap risk.

In addition, by providing an alternative to risk-based modeling and the associated costs, the proposed rule could encourage some market participants to expand their swap business. The proposed amendment would thus promote efficiency in the uncleared swaps market by increasing the pool of swap counterparties and fostering competition. On the other hand, the availability of an alternative less costly method of IM calculation may encourage entities to shift their trading to uncleared swaps from swaps that can be cleared, potentially reducing liquidity in the cleared swap markets.

By aligning the CFTC Margin Rule and the BCBS/IOSCO Framework with respect to the AANA calculation method for determining MSE and post-phase-in compliance timing, the proposed rule would reduce the burden and confusion inherent in implementing separate measures and processes to address compliance in different jurisdictions. The proposed rule could thus incentivize more firms to enter into uncleared swap transactions, which would increase liquidity and lead to more robust pricing that reflects market fundamentals.

By amending Commission regulation 23.154(a), the Commission would relieve certain CSEs from having to adopt a risk-based margin model to calculate IM or use the standardized IM table. Being able to rely on a counterparty's risk-based model calculation of IM may encourage entities to increase trading in uncleared swaps. As a result, firms may take a more active role in the uncleared swap markets, which would lead to increase liquidity and enhance price discovery. On the other hand, the proposed amendment may encourage entities to shift their trading from swaps that can be cleared, potentially reducing liquidity and price discovery in those markets.

The proposed rule would reduce the need for firms to undertake separate AANA calculations using different methods and to conform to separate compliance timing, allowing firms to engage in sound risk management by focusing on more substantive requirements.

Under the current rule, after the last phase of compliance, FEUs would be subject to IM compliance beginning on January 1, 2022. The proposed rule would defer such compliance until September 1, 2022. Uncleared swaps entered between January 1, 2022, and September 1, 2022, may be uncollateralized. As such, less collateral may be collected, and positions created during that nine-month period may be riskier, increasing the risk of contagion and systemic risk. The Commission notes, however, that keeping the January 1, 2022 compliance date could likewise result in the collection of less collateral. Some FEUs, after coming into scope during the last phase of compliance, may exit MSE status on January 1, 2022, as their AANA during the relevant calculation period may decline below the MSE threshold, and CSEs entering into uncleared swaps with these FEUs would no longer be required to exchange IM with the FEUs.

Also, it is possible that under the proposed month-end method for calculating AANA to determine MSE, FEUs trading certain financial products may avoid MSE status, as month-end calculations may not capture certain financial products that are required to be included in the calculation. As result, CSEs transactions with such FEUs would not be subject to the IM requirements and may be insufficiently collateralized, increasing the risk of contagion and systemic risk. Conversely, because more than 96% of FEUs are unlikely to have MSE, as estimated by the OCE, and come within the scope of the IM requirements, the exclusion of such products would have a limited impact on the effectiveness of the Commission's IM requirements.

Moreover, month-end AANA calculations compared to daily AANA calculations may be more susceptible to “window dressing” and less conducive to sound risk management. FEUs may manage their exposures as they approach the month-end date during the three month calculation period to avoid MSE status. The Commission, however, notes that it has sufficient regulatory authority, including anti-fraud powers under section 4b of the CEA, to take appropriate enforcement actions against any market participant that may engage in deceptive conduct with respect to the AANA calculation, and CSEs must also have written policies and procedures in place to prevent evasion or the facilitation of an evasion by an FEU counterparty.

By allowing CSEs to use the risk-based model calculation of a swap entity counterparty consistent with Letter 19-29, CSEs may no longer be incentivized to adopt their own risk-based models. If a CSE uses a counterparty's IM model calculation without developing its own model, the CSE may lack reasonable means to verify the IM provided by its counterparty, recognize shortfalls in the IM calculation, and identify potential flaws in the swap entity counterparty's risk-based model. As a result, insufficient amounts of IM may be collected by the CSE to protect itself against the risk of default by the swap entity counterparty, increasing the risk of contagion and the potential for systemic risk. The Commission, however, believes that these risks are mitigated because, under the proposed amendment, CSEs would be able to use a counterparty's risk-based model IM calculation only with respect to uncleared swaps entered into for the purpose of hedging. In addition, the Commission notes that there are other requirements in the Commission's regulations that address the monitoring of exposures and swap risk.

The Commission believes that the proposed amendments to align the CFTC Margin Rule with the BCBS/IOSCO Framework would promote harmonization with international regulatory requirements and would reduce the potential for regulatory arbitrage. However, given that the U.S. prudential regulators may not amend their margin requirements in line with the proposed amendments, the possibility exists that the CFTC and U.S. prudential regulators' differing rules may induce certain firms to undertake swaps with particular SDs based on which U.S. regulatory agency is responsible for setting margin requirements for such SDs.

Request for Comments on Cost-Benefit Considerations. 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 they may have quantifying or qualifying the costs and benefits of the proposed amendments.

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 this Act, in issuing any order or adopting any Commission rule or regulation (including any exemption under section 4(c) or 4c(b)), or in requiring or approving any bylaw, rule or regulation of a contract market or registered futures association established pursuant to section 17 of this Act. 93

The Commission believes that the public interest to be protected by the antitrust laws is generally to protect competition. The Commission requests comment on whether the proposed amendments implicate any other specific public interest to be protected by the antitrust laws.

The Commission has considered the proposed amendments to determine whether they are anticompetitive, and has preliminarily identified no anticompetitive effects. The Commission requests comment on whether these rule proposals are anticompetitive and, if they are, what the anticompetitive effects are.

Because the Commission has preliminarily determined that the proposed amendments are not anticompetitive and have no anticompetitive effects, the Commission has not identified any less competitive means of achieving the purposes of the Act. The Commission requests comment on whether there are less anticompetitive means of achieving the relevant purposes of the Act that would otherwise be served by adopting the proposed amendments.

For the reasons stated in the preamble, the Commodity Futures Trading Commission proposes to amend 17 CFR part 23 as set forth below:

FDA is proposing to amend its existing regulations (§§ 201.128 and 801.4 (21 CFR 201.128 and 801.4)) describing the types of evidence relevant to determining a product's intended uses under the FD&C Act, the PHS Act, and FDA's implementing regulations, including whether a product meets the definition of a drug or device and whether an approved or cleared medical product is intended for a new use. The Agency issued a proposed rule in 2015 and a final rule in 2017 revising the language of these intended use regulations, with the intent to conform them to the Agency's current practice in applying the regulations (see final rule, “Clarification of When Products Made or Derived From Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding `Intended Uses'” (82 FR 2193, January 9, 2017)). These amendments did not reflect a change in FDA's approach regarding types of evidence of intended use for drugs and devices. However, after receiving a petition that requested the Agency reconsider these amendments, FDA delayed the effective date of the final rule and reopened the docket to invite public comment. A number of comments submitted during the reopening raised questions and concerns about the amendments. On March 18, 2018, FDA delayed the effective date of the intended use amendments until further notice to allow further consideration of the substantive issues raised in the comments received.

After considering the issues raised in the petition and comments submitted during the reopening, FDA is proposing to repeal the portions of the final rule issued on January 9, 2017, that never became effective and to issue a new rule to provide more clarity regarding the types of evidence that are relevant in determining a product's intended uses. This action is intended to provide direction and clarity to regulated industry and other stakeholders.

FDA proposes to amend its intended use regulations for medical products (§§ 201.128 and 801.4) to better reflect the Agency's current practices in evaluating whether a product is intended for use as a drug or device, including whether an approved or cleared medical product is intended for a new use. Some firms have expressed concern that the last sentence of § 201.128 could be read to mean that a firm's mere knowledge of an unapproved use of its approved drug product automatically triggers requirements for new labeling that in turn renders distribution of that approved product unlawful without approval of a supplemental application. Section 801.4 contains comparable language regarding medical devices. The Agency is proposing to delete the last sentence of §§ 201.128 and 801.4 and to insert a new clause in the body of the regulations (“provided, however, that a firm would not be regarded as intending an unapproved new use for an [approved or cleared medical product] based solely on that firm's knowledge that such [product] was being prescribed or used by health care providers for such use”) to clarify that a firm's knowledge that health care providers are prescribing or using its approved or cleared medical product for an unapproved use would not, by itself, automatically trigger obligations for the firm to provide labeling for that unapproved use. In addition, FDA proposes amending the text of §§ 201.128 and 801.4 to provide additional clarification regarding the types of evidence that are relevant to determining a product's intended uses. Additional clarification is provided in the preamble.

FDA is also proposing to insert in §§ 201.128 and 801.4 a reference to § 1100.5 (21 CFR 1100.5), which describes when a product made or derived from tobacco that is intended for human consumption will be subject to regulation as a drug, device, or combination product. This change is being proposed to clarify the interplay between the drug and device intended use regulations and FDA's regulations governing products that are made or derived from tobacco and intended for human consumption.

Among the provisions that provide authority for this proposed rule are sections 201, 403(r), 503(g), and 701(a) of the FD&C Act (21 U.S.C. 321, 343(r), 353(g), 371(a)); section 5(b)(3) of the Orphan Drug Act (21 U.S.C. 360ee(b)(3)); and sections 215, 301, 351(i) and (j), and 361 of the PHS Act (42 U.S.C. 216, 241, 262(i) and (j), and 264).

The benefit of this proposed rule is the added clarity and certainty for firms and stakeholders regarding the evidence relevant to establishing whether a product is intended for use as a drug or device, including whether an approved or cleared medical product is intended for a new use. We do not have evidence that the proposed rule would impose costs on currently marketed products.

As used in this preamble, the following terms have the meanings noted below. 1

Throughout this document, the terms “we,” “us,” and “our” refer to the EPA.

Table 1 lists the rule addressed by this proposal, including the date on which it was adopted by the District and the date on which it was submitted to the EPA by the California Air Resources Board (CARB or “the State”). The Northern Sierra Air Quality Management District (NSAQMD) is the air pollution control agency for Nevada, Sierra, and Plumas Counties.

For areas designated nonattainment for one or more National Ambient Air Quality Standards (NAAQS), the applicable SIP must include preconstruction review and permitting requirements for new or modified major stationary sources of such nonattainment pollutant(s) under part D of title I of the Act, commonly referred to as Nonattainment New Source Review (NNSR). The rule listed in Table 1 contains the District's NNSR permit program applicable to new and modified major sources located in areas within the District that are designated nonattainment for any NAAQS for ozone or particulate matter equal to or less than 2.5 micrometers (PM 2.5 ).

We find that the submittal for Rule 428 meets the completeness criteria in 40 CFR part 51 Appendix V, which must be met before formal EPA review.

There are no previous versions of NSAQMD Rule 428 in the California SIP.

NSAQMD Rule 428 is intended to address the CAA's statutory and regulatory requirements for NNSR permit programs for major sources emitting nonattainment air pollutants and their precursors.

Because a part of Nevada County(“the western part”) is a federal ozone nonattainment area and part of Plumas County (“the Portola area”) is a federal PM 2.5 nonattainment area, 2 the CAA requires the NSAQMD to have a SIP-approved NNSR program for new and modified major sources in the ozone and PM 2.5 nonattainment areas that are under its jurisdiction. Below, we provide the area's nonattainment designation history for the ozone and PM 2.5 NAAQS, which forms the basis for the District's NNSR program needed to satisfy the NNSR requirements applicable to Serious ozone nonattainment areas and Moderate PM 2.5 nonattainment areas.

On July 18, 1997, the EPA issued a final rule revising the primary and secondary NAAQS for ozone to establish new 8-hour standards of 0.08 ppm. 3 On April 30, 2004, the EPA issued a final rule designating the western part of Nevada County as nonattainment for the 1997 8-hour ozone NAAQS. 4 On May 14, 2012, this area was reclassified as Moderate nonattainment for the 1997 ozone NAAQS. 5 On December 3, 2012, the EPA issued a final rule that determined that the western part of Nevada County had attained the 1997 ozone NAAQS by the extended attainment date. 6

On March 27, 2008, the EPA issued a final rule revising the NAAQS for ozone, reducing the standards to a level of 0.075 ppm. 7 On May 21, 2012, the EPA issued a final rule designating the western part of Nevada County as nonattainment for the 2008 8-hour ozone NAAQS, with a Marginal classification. 8 On May 4, 2016, the EPA issued a final rule that determined that the western part of Nevada County had not attained the 2008 ozone NAAQS by the attainment date and was therefore reclassified as a Moderate nonattainment area. 9 On August 23, 2019, the EPA issued a final rule that determined that the western part of Nevada County had not attained the 2008 ozone NAAQS by the attainment date and was therefore reclassified as a Serious ozone nonattainment area. 10

On October 26, 2015, the EPA issued a final rule revising the NAAQS for ozone, reducing the standards to a level of 0.070 ppm. 11 On June 4, 2018, the EPA issued a final rule designating the western part of Nevada County as nonattainment for the 2015 8-hour ozone NAAQS, with a Moderate classification. 12

On January 15, 2013, the EPA issued a final rule revising the NAAQS for PM 2.5 , reducing the primary annual standard to 12.0 micrograms per cubic meter. 13 On January 15, 2015, the EPA issued a final rule designating the Portola area as nonattainment for the 2012 primary annual PM 2.5 NAAQS, with a Moderate classification. 14

The designations of the western part of Nevada County as a federal ozone nonattainment area and the Portola area as a federal PM 2.5 nonattainment area triggered the requirement for the NSAQMD to develop and submit an NNSR program to the EPA for approval into the California SIP. 15 The District's NNSR program must satisfy the NNSR requirements applicable to Moderate PM 2.5 nonattainment areas and Serious ozone nonattainment areas, as these are the highest PM 2.5 and ozone nonattainment classifications to which the District is subject. 16

On February 19, 2020, CARB submitted to the EPA for SIP approval, via correspondence dated February 6, 2020, NSAQMD Rule 428, “NSR Requirements for New and Modified Major Sources in Nonattainment Areas,” which was adopted by the District on November 25, 2019.

The EPA reviewed NSAQMD Rule 428 for compliance with CAA requirements for: (1) Stationary source preconstruction permitting programs as set forth in CAA part D, including CAA sections 172(c)(5) and 173; (2) the review and modification of major sources in accordance with 40 CFR 51.160-51.165 as applicable in Serious ozone and Moderate PM 2.5 nonattainment areas; (3) the review of new major stationary sources or major modifications in a designated nonattainment area that may have an impact on visibility in any mandatory Class I Federal Area in accordance with 40 CFR 51.307; (4) SIPs in general as set forth in CAA section 110(a)(2), including 110(a)(2)(A) and 110(a)(2)(E)(i);  17 and (5) SIP revisions as set forth in CAA section 110(l)  18 and 193. 19 Our review evaluated the submittals for compliance with the NNSR requirements applicable to nonattainment areas designated Serious for ozone and nonattainment areas designated Moderate for PM 2.5 , and ensured that the submittals addressed the NNSR requirements for the 1997, 2008 and 2015 ozone NAAQS, and the 2012 Annual PM 2.5 NAAQS.

With respect to procedural requirements, CAA sections 110(a)(2) and 110(l) require that revisions to a SIP be adopted by the state after reasonable notice and public hearing. Based on our review of the public process documentation included in the February 19, 2020 submittal of NSAQMD Rule 428, we find that the NSAQMD has provided sufficient evidence of public notice, opportunity for comment and a public hearing prior to adoption and submittal of these rules to the EPA.

With respect to the substantive requirements found in CAA sections 172(c)(5) and 173, and 40 CFR 51.160-51.165, we have evaluated NSAQMD Rule 428 in accordance with the applicable CAA and regulatory requirements that apply to NNSR permit programs under part D of title I of the Act for all relevant ozone and PM 2.5 NAAQS, including the 2015 ozone NAAQS. We find that NSAQMD Rule 428 satisfies these requirements as they apply to sources subject to NNSR permit program requirements for ozone nonattainment areas classified as Serious and PM 2.5 nonattainment areas classified as Moderate. We have also determined that this rule satisfies the related visibility requirements in 40 CFR 51.307. In addition, we have determined that Rule 428 satisfies the requirement in CAA section 110(a)(2)(A) that requires regulations submitted to the EPA for SIP approval to be clear and legally enforceable, and have determined that the submittal demonstrates in accordance with CAA section 110(a)(2)(E)(i) that the District has adequate personnel, funding, and authority under state law to carry out these proposed SIP revisions.

Our Technical Support Document, which can be found in the docket for this rule, contains a more detailed discussion of our analysis of Rule 428.

As authorized in section 110(k)(3) of the Act, the EPA is proposing to approve the submitted rule because it fulfills all relevant CAA requirements. We have concluded that our approval of the submitted rule would comply with the relevant provisions of CAA sections 110(a)(2), 110(l), 172(c)(5), 173, and 193, and 40 CFR 51.160-51.165 and 40 CFR 51.307.

In support of this proposed action, we have concluded that our action would comply with section 110(l) of the Act because approval of NSAQMD Rule 428 will not interfere with any applicable requirement concerning attainment and reasonable further progress, or any other CAA applicable requirement. In addition, our approval of Rule 428 will not relax any pre-November 15, 1990 requirement in the SIP, and therefore changes to the SIP resulting from this action ensure greater or equivalent emission reductions of ozone, PM 2.5 , and their respective precursors in the District; accordingly, we have concluded that our action is consistent with the requirements of CAA section 193.

If we finalize this action as proposed, our action will be codified through revisions to 40 CFR 52.220a (Identification of plan-in part).

We will accept comments from the public on this proposal until October 23, 2020.

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 rule listed in Table 1 of this preamble. The EPA has made, and will continue to make, this document available electronically through https://www.regulations.gov and in hard copy at the EPA Region IX Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information).

Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the Act. Accordingly, this proposed action merely proposes to approve state law as meeting federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this proposed action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);

• Is not an Executive Order 13771 (82 FR 9339, February 3, 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 et seq. );

• 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 et seq. );

• 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 disproportionate human health or environmental effects with practical, appropriate, 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).

On November 26, 2019, we published a proposed rule (84 FR 65098) to remove the Nashville crayfish from the List ( i.e., “delist” the species). The proposed rule had a 60-day public comment period, ending January 27, 2020. During the comment period for the proposed rule, we received a request for a public hearing. We are, therefore, reopening the comment period for 30 days on our proposed rule to delist the Nashville crayfish (see DATES , above) to hold a public informational meeting and a public hearing and to allow the public an additional opportunity to provide comments on the proposed rule.

For a description of previous Federal actions concerning the Nashville crayfish, please refer to the November 26, 2019, proposed rule (84 FR 65098).

We will accept comments and information during this reopened comment period on our proposed rule to delist the Nashville crayfish. We will consider information and recommendations from all interested parties. We intend that any final action resulting from the proposal will be based on the best scientific and commercial data available and will be as accurate and as effective as possible. Our final determination will take into consideration all comments and any additional information we receive during all comment periods on the proposed rule. Therefore, the final decision may differ from the November 26, 2019, proposed rule (84 FR 65098), based on our review of all information we receive during the comment periods. For example, we may conclude that the species should remain listed as an endangered species instead of being removed from the List, or we may conclude that the species should be reclassified as a threatened species. Such final decisions would be a logical outgrowth of the proposal, as long as we: (a) Base the decisions on the best scientific and commercial data available after considering all of the relevant factors; (2) do not rely on factors Congress has not intended us to consider; and (3) articulate a rational connection between the facts found and the conclusions made, including why we changed our conclusion.

If you already submitted comments or information on the November 26, 2019, proposed rule (84 FR 65098), please do not resubmit them. Any such comments are incorporated as part of the public record of the rulemaking proceeding, and we will fully consider them in the preparation of our final determination.

Comments should be as specific as possible. Please include sufficient information with your submission (such as scientific journal articles or other publications) to allow us to verify any scientific or commercial information you assert. 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 directs that determinations as to whether any species is an endangered species or a threatened species must be made “solely on the basis of the best scientific and commercial data available.”

You may submit your comments and materials by one of the methods listed in ADDRESSES . We request that you send comments only by the methods described in ADDRESSES . You may also provide your comments through verbal testimony during the public hearing (see DATES , ADDRESSES , and Public Hearing in this document).

If you submit information via http://www.regulations.gov, your entire submission—including your personal identifying information—will be posted on the website. If your submission is made via a hardcopy that includes personal identifying information, you may request at the top of your document that we withhold this information from public review. However, we cannot guarantee that we will be able to do so. We will post all hardcopy submissions on http://www.regulations.gov.

Comments and materials we receive, as well as supporting documentation we used in preparing this proposed rule, will be available for public inspection on http://www.regulations.gov at Docket No. FWS-R4-ES-2018-0062.

We have scheduled a public informational meeting and public hearing on our November 26, 2019, proposed rule to delist the Nashville crayfish (84 FR 65098). We will hold the public informational meeting and public hearing on the date and at the times listed above under Public informational meeting and public hearing in DATES . We are holding the public informational meeting and public hearing via the Zoom online video platform and via teleconference so that participants can attend remotely. For security purposes, registration is required. To listen and view the meeting and hearing via Zoom, listen to the meeting and hearing by telephone, or provide oral public comments at the public hearing by Zoom or telephone, you must register. For information on how to register, or if you encounter problems joining Zoom the day of the meeting, visit http://www.fws.gov/cookeville/. Registrants will receive the Zoom link and the telephone number for the public informational meeting and public hearing. If applicable, interested members of the public not familiar with the Zoom platform should view the Zoom video tutorials ( https://support.zoom.us/hc/en-us/articles/206618765-Zoom-video-tutorials ) prior to the public informational meeting and public hearing.

The public hearing will provide interested parties an opportunity to present verbal testimony (formal, oral comments) regarding the November 26, 2019, proposed rule to delist the Nashville crayfish (84 FR 65098). While the public informational meeting will be an opportunity for dialogue with the Service, the public hearing is not; it is a forum for accepting formal verbal testimony. In the event there is a large attendance, the time allotted for oral statements may be limited. Therefore, anyone wishing to make an oral statement at the public hearing for the record is encouraged to provide a prepared written copy of their statement to us through the Federal eRulemaking Portal, U.S. mail, or hand-delivery (see ADDRESSES , above). There are no limits on the length of written comments submitted to us. Anyone wishing to make an oral statement at the public hearing must register before the hearing ( http://www.fws.gov/cookeville/ ). The use of a virtual public hearing is consistent with our regulations at 50 CFR 424.16(c)(3).

The Service is committed to providing access to the public informational meeting and public hearing for all participants. Closed captioning will be available during the public informational meeting and public hearing. Further, a full audio and video recording and transcript of the public hearing will be posted online at http://www.fws.gov/cookeville/ after the hearing. Participants will also have access to live audio during the public informational meeting and public hearing via their telephone or computer speakers. Persons with disabilities requiring reasonable accommodations to participate in the meeting and/or hearing should contact the person listed under FOR FURTHER INFORMATION CONTACT at least 5 business days prior to the date of the meeting and hearing to help ensure availability. An accessible version of the Service's public informational meeting presentation will also be posted online at http://www.fws.gov/cookeville/ prior to the meeting and hearing (see DATES , above). See http://www.fws.gov/cookeville/ for more information about reasonable accommodation.

The primary authors of this document are the Ecological Services staff of the Southeast Regional Office, U.S. Fish and Wildlife Service.

The authority for this action is the Endangered Species Act of 1973, as amended (16 U.S.C. 1531 et seq. ).