The FRTIB administers the Thrift Savings Plan (TSP), which was established by the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. The TSP is a tax-deferred retirement savings plan for Federal civilian employees and members of the uniformed services. The TSP is similar to cash or deferred arrangements established for private-sector employees under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).

TSP participants who have separated from service have three basic methods of withdrawing money from their TSP accounts: (1) Installment payments; (2) single withdrawals; and (3) annuity purchases. A separated participant who elects to receive all or a portion of his or her account balance in the form of installment payments must choose the frequency of those payments (monthly, quarterly, or annual) and whether to receive fixed dollar payments or payments calculated based on life expectancy.

Currently, a separated TSP participant may change the amount and frequency of his or her fixed dollar installment payments at any time throughout the year. This includes the ability of a participant to make a one-time election to change from installment payments calculated based on life expectancy to fixed dollar installment payments. However, under existing rules, once a participant makes an election to receive fixed dollar installment payments, he or she may not switch to life-expectancy-based installment payments. In addition, although a TSP participant receiving installment payments may stop these payments at any time, if he or she stops life-expectancy-based installment payments, the participant may not elect to restart life-expectancy-based installment payments at a later date.

Internal Revenue Service (“IRS”) rules regarding required minimum distributions (“RMDs”) apply to TSP participants. Under these rules, a TSP participant must receive RMDs beginning on April 1 of the year following the year in which the participant reaches age 72 and is separated from service and annually thereafter. However, on March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Public Law 116-136 (134 Stat. 281). Among other things, the CARES Act waives the requirement for any RMD that is required to be paid in 2020.

The COVID-19 pandemic caused a steep and sudden decline in the stock markets and put a severe strain on many household budgets. In order to give time for TSP account balances to recover, as authorized by the CARES Act, the TSP will not send any automatic RMD payments for 2020. However, the TSP will continue to send elected installment payments in 2020 unless the participant makes an affirmative election to stop installment payments.

Many separated TSP participants who are required to receive RMDs elect to receive life-expectancy-based installment payments as a way to ensure they satisfy this requirement. The existing restrictions on life-expectancy-based installment payments put these participants in an untenable situation—they must either continue to receive payments and forego the chance to let their account balances recover, or stop their payments and forego the ability to restart life-expectancy-based payments in the future. Moreover, over the years, separated participants of all ages have expressed a desire for more flexibility to change between fixed dollar and life-expectancy-based installment payments. Therefore, effective January 1, 2021, the FRTIB is removing the restrictions on life-expectancy-based installment payments described above.

The removal of these restrictions allows TSP participants who are eligible for installment payments to elect to receive payments based on life expectancy whether or not they previously started and then stopped installment payments. In order for a TSP participant who is currently receiving fixed dollar installment payments to receive installment payments calculated based on life expectancy, the participant must first stop his or her existing installment payments. The participant can then make a new withdrawal election to receive life-expectancy-based installment payments. (Participants who are currently receiving payments based on life expectancy will continue to have the ability to switch to fixed dollar payments simply by requesting a specific dollar amount.) This new withdrawal election is subject to the spousal consent rules set forth at 5 U.S.C. 8435(a)(1)(B).

The FRTIB recognizes the value of giving TSP participants more flexibility with respect to installment payments. However, TSP participants should be aware of potential tax consequences mandated by the Internal Revenue Code (Code) that may result from stopping installment payments calculated based on life expectancy.

TSP participants who separate from service before the age of 55 and choose to receive installment payments may be subject to a 10% early withdrawal penalty under Code section 72(t). Installment payments based on life expectancy are an exception to the rule. However, the penalty can be applied retroactively if the participant does any of the following within five years of beginning payments or before reaching age 59 1/2 : (1) Stopping life-expectancy-based payments; (2) switching life-expectancy-based payments to payments of a fixed dollar amount; or (3) withdrawing money in addition to the life-expectancy based payments. Doing any of these things in that period of time will make the participant liable for the penalty tax on the payments he or she previously received. These tax consequences are mandated by the Code and are not eliminated by this FRTIB rule change.

The FRTIB is publishing this regulation as a direct final rule. In a direct final rulemaking, an agency publishes its rule in the Federal Register along with a statement that the rule will become effective unless the agency receives significant adverse comment within a specified period.

The content of this direct final rule relieves a restriction on a TSP participant's ability to make a post-separation withdrawal election to receive installment payments based on life expectancy. Therefore, pursuant to 5 U.S.C. 553, notice and comment are not required, and this rule may become effective after publication in the Federal Register without public comment.

Nevertheless, the FRTIB appreciates that members of the public may have perspectives or information that could impact the FRTIB's views with respect to the removal of these restrictions. The FRTIB, therefore, is providing a 30-day public comment period, and intends to consider all comments submitted during that period. The FRTIB will withdraw the rule if it receives significant adverse comment. Comments that are not adverse may be considered for modifications to part 1650 at a future date. If no significant adverse comment is received, the rule will become effective 40 days after publication, without additional notice.

I certify that this regulation will not have a significant economic impact on a substantial number of small entities. This regulation will affect Federal employees and members of the uniformed services who participate in the Thrift Savings Plan, which is a Federal defined contribution retirement savings plan created under the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514, and which is administered by the FRTIB.

I certify that these regulations do not require additional reporting under the criteria of the Paperwork Reduction Act.

Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602, 632, 653, 1501-1571, the effects of this regulation on state, local, and tribal governments and the private sector have been assessed. This regulation will not compel the expenditure in any one year of $100 million or more by state, local, and tribal governments, in the aggregate, or by the private sector. Therefore, a statement under section 1532 is not required.

Pursuant to 5 U.S.C. 810(a)(1)(A), the FRTIB submitted a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States before publication of this rule in the Federal Register . This rule is not a major rule as defined at 5 U.S.C. 804(2).

For the reasons stated in the preamble, the FRTIB amends 5 CFR Chapter VI as follows:

FCIC serves America's agricultural producers through effective, market-based risk management tools to strengthen the economic stability of agricultural producers and rural communities. The Risk Management Agency (RMA) administers the FCIC regulations. FCIC is committed to increasing the availability and effectiveness of Federal crop insurance as a risk management tool. Approved Insurance Providers (AIPs) sell and service Federal crop insurance policies in every state and in Puerto Rico through a public-private partnership. FCIC reinsures the AIPs who share the risk associated with catastrophic losses due to major weather events. FCIC's vision is to secure the future of agriculture by providing world class risk management tools to rural America.

Federal crop insurance policies typically consist of the Basic Provisions, the Crop Provisions, the Special Provisions, the Commodity Exchange Price Provisions, if applicable, other applicable endorsements or options, the actuarial documents for the insured agricultural commodity, the Catastrophic Risk Protection Endorsement, if applicable, and the applicable regulations published in 7 CFR chapter IV.

FCIC amends the ARPI Basic Provisions, the CCIP Basic Provisions, the Sunflower Seed Crop Provisions, and the Dry Pea Crop Provisions. The changes to the policy made in this rule are applicable for the 2021 and succeeding crop years for crops with a contract change date on or after November 30, 2020. For all other crops the changes to the policy made in this rule are applicable for the 2022 and succeeding crop years.

The changes to the ARPI Basic Provisions (7 CFR part 407) are:

FCIC is revising sections 23(d)(1), (2), and (5)(i) of the ARPI Basic Provisions to clarify the responsibility is on the producer to start dispute resolution through arbitration when the producer disagrees with an AIP determination. There has been confusion that this provision could require both the producer and the AIP to start arbitration prior to litigation.

FCIC is also making non-substantive changes to the regulation. Examples include making references consistent, making grammatical corrections, and clarifying word changes. These revisions are editorial in nature and are intended to provide clarity to the regulation.

The changes to the CCIP Basic Provisions (7 CFR part 457.8) are:

FCIC is revising section 3(l) to allow a producer that qualifies as a beginning farmer or rancher (BFR), or veteran farmer or rancher (VFR), to receive a yield based on the actual production history (APH) of the previous producer of the crop or livestock on the acreage, if the BFR or VFR was previously involved in the decision-making or physical activities of the crop or livestock on any farm. Previously, the provisions specified that the APH history of the acreage could only be used if the BFR or VFR was previously involved on the specific acreage acquired.

Prevented planting is a feature of many crop insurance plans that provides a partial payment to cover certain pre-plant costs for a crop that was prevented from being planted due to an insurable cause of loss. After unprecedented prevented planting in 2019, FCIC examined how to improve the prevented planting coverage within a policy. FCIC held discussions with stakeholders via a Prevented Planting Taskforce that included FCIC and industry representatives. The taskforce reviewed the previous policy, discussed impacts, and explored policy improvements. The goal of the taskforce was to improve coverage for producers when needed most, but not replace market incentives with government incentives, while maintaining program integrity. The taskforce identified several issues that are extremely uncommon but could occur in years when prevented planting is catastrophic and widespread. The following lists the changes in section 17 of the CCIP Basic Provisions:

FCIC is revising section 17(e)(1)(i) to add a reference to the new provisions in section 17(e)(1)(ii)(E).

FCIC is revising section 17(e)(1)(ii) to allow the use of an intended acreage report for the first 2 consecutive crop years the producer farms in a new county, instead of only the first year.

The CCIP Basic Provisions define “intended acreage report” as a report of the acreage a producer intends to plant, by crop, for the current crop year and used solely for the purpose of establishing eligible prevented planting acreage, as required in section 17. Further, section 17 states that if the insured did not plant any crop in the county for which prevented planting coverage was available in the 4 most recent crop years, the producer must complete and submit an intended acreage report to the AIP by the sales closing date, or within 10 days of land acquisition after the sales closing date, to establish the potential maximum number of eligible prevented planting acres.

Based on the previous provision, when a producer adds new land in a new county, the producer could only indicate intended acres for the first year. An issue arises in the second year if the producer, following good farming practices for crop rotation, intends to plant a different crop. Because the producer only has 1 year of history in the county, the producer is limited in the amount of acreage (and type of crop) that can be claimed for prevented planting purposes.

For example, a producer adds land in a new county. The first year, the producer files an intended acreage report for wheat and plants the entire acreage to wheat. The second year, the producer intends to plant corn, but is prevented from planting due to an insurable cause of loss. Under the previous regulations, the producer would not have any eligible prevented planting acreage for corn because they only have eligible wheat acres based on their first year's history in their APH database. The producer would receive a prevented planting payment based on the eligible wheat acres. This would result in a different prevented planting payment than the intended corn crop, which may not be reflective of their pre-plant costs.

As specified above, FCIC will revise section 17(e)(1)(ii) to allow the producer to submit an intended acreage report for the first 2 consecutive crop years the producer farms in a new county. In the above scenario, this will allow the producer to receive a prevented planting payment based on the acres contained on the intended acreage report for the second year and the payment will be based on corn. This change acknowledges rotational practices are a good farming practice. It will also result in more accurate prevented planting payments because they will be based on the producer's actual intended plantings for that year.

FCIC is revising section 17(e)(2) to provide that if following a failed first insured crop, an uninsured second crop is planted on the same acres within the same crop year, the planted acres of the uninsured crop will not be subtracted from the eligible prevented planting acreage.

Section 17(e)(2) of the CCIP Basic Provisions previously stated, “Any eligible acreage determined in accordance with section 17(e)(1) will be reduced by subtracting the number of acres of the crop (insured and uninsured) that are timely and late planted, including acreage specified in section 16(b).” If following a failed first insured crop, the producer plants an uninsured second crop on the same acres within the same crop year; acres from both plantings (first insured crop and second uninsured crop) are subtracted from the eligible prevented planting acreage, even though it is the same physical land subtracted twice. On occasion, this can lead to the producer having acres that do not receive a prevented planting payment due to inadequate eligible prevented planting acres. This occurrence is extremely rare, but it affected a small number of producers in the 2019 crop year. To illustrate the rarity of these circumstances, for the reduction to apply under the previous regulation, all of the following must have been true for the producer:

(1) Planted a first crop that fails,

(2) Planted a second crop on the same acreage following the failed crop, and

(3) Exhausted eligible prevented planting acres available to pay a claim.

The underlying concern is that the same physical acres are subtracted twice from overall prevented planting eligible acres. To illustrate the inequity of the double subtraction, the following is a simple example of the previous provisions. A producer has 100 total acres of cropland (fields A & B) and intends to plant all 100 acres to corn. Based on production history, the producer also has 100 prevented planting eligible acres (50 for corn and 50 for soybeans). The producer plants 50 acres of corn in field A, resulting in 50 corn acres subtracted from eligible prevented planting acres. At this point, there are 50 soybean eligible prevented planting acres and zero corn eligible prevented planting acres. A flood destroys the 50 acres of corn in field A, the AIP determines it is not practical to replant, and the producer does not have to replant to retain insurance. The producer files a claim for indemnity for the crop loss and receives an indemnity for the field A 50 destroyed corn acres. Later, the producer plants the 50 acres in field A to soybeans that are not insured. The second planting of field A (uninsured soybeans) would result in the subtraction of 50 acres of eligible prevented planting acres of soybeans. This equates to 100 eligible prevented planting acres being subtracted from the same 50 physical acres (field A); leaving 0 eligible prevented planting acres remaining for the 50 physical acres prevented from planting in field B that remains unplanted.

FCIC is removing the double subtraction on field A by no longer subtracting the uninsured second planting from eligible prevented planting acres. This would allow a prevented planting payment on field B, if those acres were unable to be planted, and if other policy provisions for prevented planting claims are met.

To illustrate the inequity of the previous provisions in a different way, see the following scenarios below. These scenarios show the disparate treatment of two producers in the same situation, except that their 100 prevented planting eligible acres are for different crops. Scenario 1: Producer has 100 acres of corn prevented planting eligible acres and 0 acres of soybean prevented planting eligibility. There is no impact on prevented planting eligibility for field B. Since there are 0 acres of soybean eligible prevented planting acres, the 50 planted acres of uninsured soybeans (field A) would not be subtracted from prevented planting eligibility. In this case, the producer would remain eligible for a prevented planting payment on the 50 acres of corn (field B) that were prevented from being planted.

Scenario 2: A producer has 50 acres of prevented planting corn eligibility and 50 acres of prevented planting soybean eligibility; prevented planting eligibility is eliminated on field B. Previously, prevented planting eligible acres are reduced by planted acres of insured and uninsured crops, and the 50 acres of planted and then failed corn in field A would exhaust corn prevented planting eligibility. The planting of 50 acres of uninsured soybeans in field A would exhaust the soybean prevented planting eligibility as well. There would be no remaining eligible prevented planting acres for the 50 acres of corn prevented from being planted in field B.

Regulation change: For this example, the change to the regulation results in Scenario 2 having the same result as Scenario 1 with 50 eligible acres of prevented planting soybeans which can be used to make the corn payment claimed. Changing this to not subtract the uninsured acres of soybeans planted on field A will be a more equitable treatment of producers under catastrophic loss conditions.

FCIC is revising section 17(f)(1) to provide an exception if the producer can prove intent to plant based on inputs applied or available to apply, rotation, etc., the producer could then be paid a prevented planting payment based on their intended crop, even if it's different than the crop that was planted in the field.

Previously, section 17(f)(1) of the CCIP Basic Provisions stated, “Any prevented planting acreage within a field that contains planted acreage will be considered to be acreage of the same crop, type, and practice that is planted in the field.”

For example, a producer intends to plant a 100-acre field to corn, but it is too wet prior to the final plant date. Prior to the end of the late planting period for corn, she begins planting the field to soybeans. She planted 20 acres of soybeans before getting rained out. The producer submits a claim for the remaining 80 acres as prevented planting corn. The producer does not have history of producing both corn and soybeans in the same field in the same crop year. Prevented planting is common to the area and the producer has adequate corn prevented planting eligible acres to cover the 80 acres prevented from planting.

As a result, the producer has receipts for seed and other inputs to prove intent to plant corn. She expects to be paid prevented planting for corn at a higher per acre amount on 80 acres. However, because she planted 20 acres of soybeans in the same field as her prevented planting claim, section 17(f)(1) requires the 80 acres to be considered soybeans and be paid at a lower per acre amount. The previous provision may have incentivized the producer to not plant soybeans in order to maintain the higher prevented planting payment on corn. Revising the provision could reduce prevented planting payments when this situation arises in the future.

With the revisions to section 17(f)(1) to provide an exception if the producer can prove intent to plant by inputs applied or available to apply, rotation, etc., in the example, the producer could provide documentation that fertilizer application, seed purchases, historical crop rotation patterns, etc. were consistent with intentions to plant corn. The producer could then be paid using available corn prevented planting acres, rather than having to consider the prevented planting acres soybeans.

FCIC is adding a new section 17(f)(5)(iii) to clarify prevented planting coverage will not be provided if the act of haying or grazing a cover crop contributed to the acreage being prevented from planting or the cover crop was otherwise harvested prior to the end of the late planting period. In a previous final rule, section 17(f)(5)(ii) was revised to remove the words “or cover” following the word “volunteer,”. In addition, FCIC removed a Special Provisions statement that read: “In lieu of Section 17(f)(5)(ii) of the Common Crop Insurance Basic Provisions, haying or grazing a cover crop will not impact eligibility for a prevented planting payment provided such action did not contribute to the acreage being prevented from planting.” FCIC received comments regarding concerns this change could lead to misunderstanding and unforeseen consequences. Some may interpret this to mean that a cover crop could be hayed or grazed even if the act contributed to the acreage being prevented from planting or that a cover crop could be otherwise harvested prior to the end of the late planting period. Therefore, the additional language incorporates the previous Special Provisions statements.

FCIC is revising section 17(f)(8) to implement the “1 in 4” requirement nationwide (beyond just the Prairie Pothole National Priority Area discussed below). Acreage must be physically available for planting to be eligible for a prevented planting payment. The “1 in 4” requirement is contained in a Special Provisions statement and is an extension of the CCIP Basic Provisions that the acreage must be physically available for planting. The “1 in 4” requirement states that the acreage must have been planted to a crop, insured, and harvested (or if not harvested, adjusted for claim purposes due to an insurable cause of loss) in at least 1 out of the previous 4 crop years.

The “1 in 4” requirement has been in place since the 2012 crop year in the Prairie Pothole National Priority Area, which encompasses the states of Iowa, Minnesota, Montana, North Dakota, and South Dakota. The requirement in that area addressed prevented planting payments that were repeatedly made on acreage not physically available for planting (that is, acreage that is perpetually wet, such as potholes). Adding the language to the CCIP Basic Provisions for national applicability will allow for equal treatment for all areas of the United States and further mitigate waste, fraud and abuse for all acreage that is not physically available for planting to a crop to be insured. The Special Provisions statement had a requirement that the acreage must have been harvested, or if not harvested, was adjusted for claim purposes under the authority of the Act due to an insured cause of loss (other than a cause of loss related to flood or excess moisture). FCIC identified perpetual drought conditions as a vulnerability and received requests to expand the “1 in 4” requirement in previous years. Therefore, FCIC added that in order to meet the “1 in 4” requirement, claim purposes could not be “due to drought” to address prevented planting payments that were repeatedly made on acreage not physically available for planting on perpetually dry acreage when a crop was not harvested. This incorporates provisions from a Special Provisions statement and as a result, the Special Provisions statement is removed.

FCIC is revising section 20(a) and 20(b)(1) to clarify the responsibility is on the producer to start dispute resolution through arbitration when the producer disagrees with an AIP determination. The AIP is the only party that makes a determination so the producer is the only party to the contract that could disagree with the determination the AIP made. There has been confusion that this provision could require both the producer and the AIP to start arbitration prior to litigation.

FCIC is also making non-substantive changes to the regulation. Examples include making references consistent, making grammatical corrections, and clarifying word changes. These revisions are editorial in nature and are intended to provide clarity to the regulation.

FCIC is revising section 4 of the Sunflower Seed Crop Insurance Provisions (7 CFR part 457.108) to change the cancellation and termination dates in 4 Texas counties from March 15 to January 31 to align with the January 31 sales closing date in these counties. This change is being made after a data mining exercise where FCIC identified that the sales closing date and cancellation/termination date did not match in these 4 counties.

FCIC is also making non-substantive changes to the regulation, including removing commas and correcting a spelling error.

FCIC is making non-substantive changes in the Dry Pea Crop Insurance Provisions (7 CFR part 457.140). Examples include making technical corrections and clarifying language changes. Changes were made to the Dry Pea Crop Insurance Provisions in a Final rule with request for comments, published in the Federal Register on June 26, 2020 (85 FR 38276). In reviewing the changes made, FCIC found some of the changes described in that rule were not made in the Code of Federal Regulations. Additionally, FCIC received comments to that final rule and is making revisions that are editorial in nature are intended to provide clarity to the regulation. There are other comments that FCIC received in response to the final rule published June 26, 2020, that FCIC is continuing to review.

The Administrative Procedure Act (APA, 5 U.S.C. 553) provides that the notice and comment and 30-day delay in the effective date provisions do not apply when the rule involves specified actions, including matters relating to contracts. This rule governs contracts for crop insurance policies and therefore falls within that exemption. Although not required by APA or any other law, FCIC has chosen to request comments on this rule.

For major rules, the Congressional Review Act requires a delay to the effective date of 60 days after publication to allow for Congressional review. This rule is not a major rule under the Congressional Review Act, as defined by 5 U.S.C. 804(2). Therefore, this final rule is effective November 30, 2020.

Executive Order 12866, “Regulatory Planning and Review,” and Executive Order 13563, “Improving Regulation and Regulatory Review,” 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 emphasized the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13777, “Enforcing the Regulatory Reform Agenda,” established a federal policy to alleviate unnecessary regulatory burdens on the American people.

The Office of Management and Budget (OMB) designated this rule as not significant under Executive Order 12866, “Regulatory Planning and Review,” and therefore, OMB has not reviewed this rule and analysis of the costs and benefits is not required under either Executive Order 12866 or 13563.

Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs,” requires that in order to manage the private costs required to comply with Federal regulations that for every new significant or economically significant regulation issued, the new costs must be offset by savings from deregulatory actions. As this rule is designated as not significant, it is not subject to Executive Order 13771. In a general response to the requirements of Executive Order 13777, USDA created a Regulatory Reform Task Force, and USDA agencies were directed to remove barriers, reduce burdens, and provide better customer service both as part of the regulatory reform of existing regulations and as an ongoing approach. FCIC reviewed this regulation and made changes to improve any provision that was determined to be outdated, unnecessary, or ineffective.

Executive Order 12866, as supplemented by Executive Order 13563, requires each agency to write all rules in plain language. In addition to your substantive comments on this rule, we invite your comments on how to make the rule easier to understand. For example:

• Are the requirements in the rule clearly stated? Are the scope and intent of the rule clear?

• Does the rule contain technical language or jargon that is not clear?

• Is the material logically organized?

• Would changing the grouping or order of sections or adding headings make the rule easier to understand?

• Could we improve clarity by adding tables, lists, or diagrams?

• Would more, but shorter, sections be better? Are there specific sections that are too long or confusing?

• What else could we do to make the rule easier to understand?

The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by SBREFA, generally requires an agency to prepare a regulatory analysis of any rule whenever an agency is required by APA or any other law to publish a proposed rule, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule is not subject to the Regulatory Flexibility Act because as noted above, this rule is exempt from APA and no other law requires that a proposed rule be published for this rulemaking initiative.

In general, the environmental impacts of rules are to be considered in a manner consistent with the provisions of the National Environmental Policy Act (NEPA, 42 U.S.C. 4321-4347) and the regulations of the Council on Environmental Quality (40 CFR parts 1500-1508). FCIC conducts programs and activities that have been determined to have no individual or cumulative effect on the human environment. As specified in 7 CFR 1b.4, FCIC is categorically excluded from the preparation of an Environmental Analysis or Environmental Impact Statement unless the FCIC Manager (agency head) determines that an action may have a significant environmental effect. The FCIC Manager has determined this rule will not have a significant environmental effect. Therefore, FCIC will not prepare an environmental assessment or environmental impact statement for this action and this rule serves as documentation of the programmatic environmental compliance decision.

Executive Order 12372, “Intergovernmental Review of Federal Programs,” requires consultation with State and local officials that would be directly affected by proposed Federal financial assistance. The objectives of the Executive Order are to foster an intergovernmental partnership and a strengthened Federalism, by relying on State and local processes for State and local government coordination and review of proposed Federal financial assistance and direct Federal development. For reasons specified in the final rule related notice regarding 7 CFR part 3015, subpart V (48 FR 29115, June 24, 1983), the programs and activities in this rule are excluded from the scope of Executive Order 12372.

This rule has been reviewed under Executive Order 12988, “Civil Justice Reform.” This rule will not preempt State or local laws, regulations, or policies unless they represent an irreconcilable conflict with this rule. Before any judicial actions may be brought regarding the provisions of this rule, the administrative appeal provisions of 7 CFR part 11 are to be exhausted.

This rule has been reviewed under Executive Order 13132, “Federalism.” The policies contained in this rule do not have any substantial direct effect on States, on the relationship between the Federal government and the States, or on the distribution of power and responsibilities among the various levels of government, except as required by law. Nor does this rule impose substantial direct compliance costs on State and local governments. Therefore, consultation with the States is not required.

This rule has been reviewed in accordance with the requirements of Executive Order 13175, “Consultation and Coordination with Indian Tribal Governments.” Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

RMA has assessed the impact of this rule on Indian Tribes and determined that this rule does not, to our knowledge, have Tribal implications that require Tribal consultation under E.O. 13175. The regulation changes do not have Tribal implications that preempt Tribal law and are not expected have a substantial direct effect on one or more Indian Tribes. If a Tribe requests consultation, RMA will work with the USDA Office of Tribal Relations to ensure meaningful consultation is provided where changes, additions and modifications identified in this rule are not expressly mandated by Congress.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 104-4) requires Federal agencies to assess the effects of their regulatory actions of State, local, and Tribal governments or the private sector. Agencies generally must prepare a written statement, including cost benefits analysis, for proposed and final rules with Federal mandates that may result in expenditures of $100 million or more in any 1 year for State, local or Tribal governments, in the aggregate, or to the private sector. UMRA generally requires agencies to consider alternatives and adopt the more cost effective or least burdensome alternative that achieves the objectives of the rule. This rule contains no Federal mandates, as defined in Title II of UMRA, for State, local, and Tribal governments or the private sector. Therefore, this rule is not subject to the requirements of sections 202 and 205 of UMRA.

The title and number of the Federal Domestic Assistance Program listed in the Catalog of Federal Domestic Assistance to which this rule applies is No. 10.450—Crop Insurance.

In accordance with the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35, subchapter I), the rule does not change the information collection approved by OMB under control numbers 0563-0053.

FCIC is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

For the reasons discussed above, FCIC amends 7 CFR parts 407 and 457, effective for the 2021 and succeeding crop years for crops with a contract change date on or after November 30, 2020, and for the 2022 and succeeding crop years for all other crops, as follows:

On May 9, 2017, the Commission published in the Federal Register a request for information seeking suggestions from the public for simplifying the Commission's regulations and practices, removing unnecessary burdens, and reducing costs. 1 In response, a number of commenters asked the Commission to codify certain staff no-action letters and Commission guidance, including those that are the subject of this rulemaking. 2 The Commission also engaged in an agency-wide review of its regulations and practices to make them simpler, less burdensome, and less costly.

On May 12, 2020, the Commission published a notice of proposed rulemaking  3 that would exempt from the swap clearing requirement (1) swaps entered into by certain central banks, sovereign entities, and international financial institutions (IFIs), as set forth in the preamble to the 2012 End-User Exception final rule;  4 (2) swaps entered into by four additional IFIs that previously received staff no-action letters from the Commission's Division of Clearing and Risk (DCR) in 2013 and 2017;  5 and (3) swaps entered into by certain bank holding companies and savings and loan holding companies, as well as community development financial institutions (CDFIs). 6

The Commission also proposed revisions to part 50 intended to simplify the requirements and minimize compliance burdens for market participants. The Commission proposed to add a compliance date chart for all swaps that the Commission has determined are required to be cleared under Commission regulation § 50.4. 7 In addition, the Commission proposed improvements to the structure and organization of 17 CFR part 50 through heading changes and restructuring amendments. 8 Finally, the Commission proposed the creation of a new subpart D to distinguish 17 CFR part 50 exemptions that apply to specific swaps from the exceptions and exemptions for market participants eligible to elect an exception or exemption under subpart C. 9

Title 17 CFR part 50 of the Commission's regulations implements the swap clearing requirement under section 2(h) of the CEA. The swap clearing requirement under section 2(h)(1)(A) of the CEA states that if the Commission requires a swap to be cleared, then it is unlawful for any person to engage in that swap unless the swap is submitted for clearing to a derivatives clearing organization (DCO) that is registered under the CEA or a DCO that the Commission has exempted from registration. The Commission has adopted swap clearing requirement determinations for certain classes of interest rate swaps and credit default swaps. 10 Swaps that are subject to the Commission's swap clearing requirement are described in Commission regulation § 50.4 (Clearing Requirement).

Title 17 CFR part 50 of the Commission's regulations also includes a number of exceptions to and exemptions from the Clearing Requirement. Certain of these exceptions or exemptions are based on statutory principles ( e.g., the end-user exception), 11 and others were adopted pursuant to the Commission's public interest exemption authority ( e.g., the exemption for swaps entered into by certain cooperatives and the exemption for swaps between affiliated entities). 12

In the preamble to the 2012 End-User Exception, the Commission determined that foreign central banks, foreign governments, and IFIs should not be subject to the swap clearing requirement set forth in section 2(h)(1) of the CEA. 13 This determination was based on considerations of comity and was in keeping with the traditions of the international system. 14 The Commission also stated that the Bank for International Settlements (BIS), of which the Federal Reserve and foreign central banks are members, should be considered to be a foreign central bank, and, therefore, swaps entered into by the BIS should not be subject to the Clearing Requirement. 15

The Commission provided several reasons in support of its determination. First, the Federal Reserve Banks and the Federal Government are not subject to the Clearing Requirement under the CEA. 16 Therefore, the Commission stated it would expect that if any part of the Federal Government, the Federal Reserve Banks, or IFIs of which the United States is a member were to engage in swaps in a foreign jurisdiction, the actions of those entities with respect to those swaps should not be subject to foreign regulation. 17 Second, the Commission stated that canons of statutory construction “assume that legislators take account of the legitimate sovereign interests of other nations when they write American laws.”  18 Third, the Commission noted that IFIs operate with the benefit of certain privileges and immunities under U.S. law, which indicates that such entities may be treated similarly under certain circumstances. 19 Finally, the Commission stated that there is nothing in the text or legislative history of the swap-related provisions of the Dodd-Frank Act to establish that Congress intended to deviate from the traditions of the international system by subjecting foreign central banks, foreign governments, or IFIs to the Clearing Requirement set forth in section 2(h)(1) of the CEA. 20

In the preamble to the 2012 End-User Exception, the Commission also determined that the IFIs that would be exempt from the Clearing Requirement to be those institutions defined as such in section 262r(c)(2) of Title 22 of the U.S. Code, 21 and the multilateral development banks (MDBs) included in the Proposal for the Regulation of the European Parliament and of the Council of the European Union Final Compromise Text, Article 1(4a(a)) (March 19, 2012). 22 Under EMIR, European authorities exempted 12 MDBs from all requirements apart from reporting obligations. 23 Based on these two sources, the Commission identified 17 IFIs that would not be subject to the Clearing Requirement under its policy determination. 24

Based on the Commission's action in the preamble to the 2012 End-User Exception, DCR issued staff no-action letters to four additional IFIs stating that the division would not recommend the Commission take enforcement action against such entities for not clearing swaps that otherwise would be subject to the Clearing Requirement, provided the IFIs satisfied certain conditions. 25 These institutions include: (1) The Corporación Andina de Fomento (CAF), an economic development financing institution established pursuant to a treaty among 10 Latin American countries;  26 (2) Banco Centroamericano de Integración Económica (CABEI), an economic development financing institution established pursuant to a treaty among 11 Latin American countries, Spain, and Taiwan;  27 (3) the European Stability Mechanism (ESM), a lending institution established by European Union member states to provide emergency financial assistance to member states located in the Eurozone;  28 and (4) the North American Development Bank (NADB), a financing institution established by the United States and Mexico under the auspices of the North American Free Trade Agreement to finance environmentally sustainable infrastructure projects in the region along the U.S.-Mexican border. 29 In their request letters, CAF, CABEI, ESM, and NADB each stated that their functions, missions, and ownership structures are analogous to the functions, missions, and ownership structures of the IFIs included in the 2012 End-User Exception. 30

In 2016, DCR staff issued a no-action letter providing that the division would not recommend enforcement action against certain bank holding companies and savings and loan holding companies for not clearing swaps subject to the Clearing Requirement if such entities satisfy certain conditions. 31 At the same time, staff issued a no-action letter providing that DCR would not recommend enforcement action against CDFIs for not clearing certain swaps subject to the Clearing Requirement, under specific conditions. 32 These bank holding companies, savings and loan holding companies, and CDFIs were not eligible to elect an exception to the Clearing Requirement under Commission regulation § 50.50(d) because they are not depository institutions.

The 2016 DCR no-action letter for bank holding companies and savings and loan holding companies applies only to holding companies with no more than $10 billion in consolidated assets. 33 This limitation is consistent with the statutory provisions under section 2(h)(7)(C)(ii) of the CEA and Commission regulation § 50.50(d) applicable to depository institutions and savings associations. The DCR letter also requires that such a holding company be using swaps to hedge or mitigate commercial risk and notify the Commission how it generally meets the obligations associated with entering into uncleared swaps. 34 Many bank holding companies and savings and loan holding companies enter into interest rate swaps to hedge interest rate risk that they incur as a result of issuing debt securities or making loans to finance their subsidiary banks or savings associations. 35 In addition, these swaps generally have a notional amount of $10 million or less, and the bank holding companies and savings and loan holding companies enter into swaps less frequently than other swap counterparties. Further, the bank holding company or savings and loan holding company, rather than the subsidiary bank or savings association, must enter into the swap in order to gain hedge accounting treatment. 36

Also, in 2016, in response to a request from a coalition of CDFIs, DCR staff issued a no-action letter providing that the division would not recommend that the Commission take enforcement action against a CDFI for failure to comply with the Clearing Requirement, provided certain conditions are met. 37 DCR limited the letter to CDFIs certified as such by the U.S. Department of the Treasury that engage in no more than 10 interest rate swaps per year, with an aggregate notional value cap of $200 million per year. 38 However, DCR recognized that there are public interest benefits that may be served by permitting CDFIs to engage in limited swaps activity that serves smaller, local communities. 39 DCR also was persuaded that status as a CDFI, pursuant to certification by the Treasury Department's Community Development Financial Institutions Fund (CDFI Fund), would ensure that CDFIs operate under a specific community development organizational mission and provide financial and community development services to a targeted market. 40

On May 12, 2020, the Commission proposed amendments to Part 50 of the Commission's regulations to create new exemptions from required clearing consistent with the policy statements made by the Commission in the 2012 End-User Exception and six no-action letters issued by DCR beginning in 2013, to add a compliance date chart, and to make other non-substantive technical amendments. The Commission requested comments from market participants on all aspects of the May 2020 Proposal.

The Commission received ten comment letters in response to the May 2020 Proposal. 41 Nearly all the comments letters supported the Commission's proposal. Specific aspects of these comments, including suggested changes to the rule text and other clarifications, are discussed in detail below.

One commenter, Better Markets, expressed opposition to the proposed exemptions for a number of reasons. Better Markets stated that the Commission's proposal to permit financial entities to elect not to clear swaps subject to the Clearing Requirement is unnecessarily complex, undermines the Dodd-Frank Act's financial reform effort, and could serve as a drain on liquidity in the cleared swap market. The Commission believes that the final rules make the overall regulatory framework for cleared swaps less complex, codify longstanding practice, and are narrowly tailored to limit any impact on cleared swaps market liquidity.

In the May 2020 Proposal, the Commission proposed to codify its determination that swaps entered into by central banks, sovereign entities, and IFIs, set forth in the preamble to the 2012 End-User Exception final rule, 42 are not subject to the Clearing Requirement under section 2(h)(1) of the CEA. 43 The Commission received six comment letters addressing this aspect of the proposal. 44 After considering the comments, the Commission is adopting the rules largely as proposed. The final regulations are consistent with the policy the Commission set out in the preamble to the 2012 End-User Exception, and in finalizing the exemption for swaps entered into by central banks and sovereign entities in regulation § 50.75 and the exemption for swaps entered into by IFIs in regulation § 50.76, the Commission is providing legal certainty that such swaps entered into by a narrow group of entities are not subject to the Clearing Requirement.

In response to comments received, the Commission is making one important modification to the final regulations to clarify that the exemption is not dependent on the exempted swaps being reported to a swap data repository under Commission regulation §§ 45.3 and 45.4, and this reporting obligation does not fall to central banks, sovereign entities, or IFIs. 45 As discussed further below, the Commission did not intend this result and is modifying the rule text accordingly.

The Commission proposed to define “central bank” to mean a reserve bank or monetary authority of a central government (including the Board or Governors of the Federal Reserve System or any of the Federal Reserve Banks) or the Bank for International Settlements. The Commission did not receive any comment on its proposed definition of central bank and is adopting the definition for “central bank” as proposed.

The Commission proposed to define “sovereign entity” to mean a central government (including the U.S. Government), or an agency, department, or ministry of a central government. In the 2012 End-User Exception final rule, the Commission referred to certain exempt swap counterparties as “foreign governments.” The term “foreign government” is intended to refer to sovereigns, similar to the U.S. Federal Government, that are located outside of the United States. Because the Commission distinguished the Federal Government from state and local government entities, the term “foreign government” is intended to apply only to the Federal level of governmental organizations. 46

The Commission requested comment on the scope of the proposed definition and whether an alternative definition should be adopted. The Commission received one comment from New South Wales Treasury Corporation addressing this issue and proposing alternative definitions for consideration.

The commenter stated that comity and the traditions of the international system support including foreign states and instrumentalities (such as agencies, departments, or ministries) under the definition of “sovereign entity.” The commenter further stated that the Commission should not limit its concept of “sovereign entities” based on the American distinction between states and the Federal Government because this would adversely impact foreign governments that operate under systems where the Federal and state governments exist as independent bodies but operate within a financially integrated system. The commenter proposed that the Commission consider alternative definitions of “sovereign entity” including: (1) A definition that includes all foreign state governments, agencies, departments, and ministries; (2) a definition that includes named jurisdictions that have a constitutional basis for sovereign authority based on a comparable recognition of the foreign state or public authority as a “sovereign” under national laws; (3) a definition based on recognition of foreign public sector entities based on government (state or Federal) ownership; or (4) a definition based on the alignment of an entity with capital adequacy standards under foreign laws.

The Commission considered this comment and its proposed alternative definitions of “sovereign entity.” The Commission believes the definition of “sovereign entity” adopted in this final rule appropriately limits the exemption in a manner that is consistent with the 2012 End-User Exception and provides clarity regarding the scope of swaps that are not subject to the Clearing Requirement. The second and fourth alternatives proposed by the commenter would require the Commission periodically to reassess which entities are included in the definition based on geopolitical events or whether a specific entity meets capital adequacy standards under foreign law. The Commission does not believe that these alternatives provide standards that are feasible to implement; nor are they helpful in identifying foreign government entities that are similar to the U.S. Federal Government. Rather, the Commission has purposefully defined the term “sovereign entity” so that it excludes the concept of “state governments.”

The first and third alternatives proposed by the commenter would add references to foreign state governments or entities based on state government ownership. Under the best reading of section 2(h)(7) of the CEA, it is appropriate to limit the exemption from the Clearing Requirement to national governments thereby excluding state, regional, provincial, or municipal governments. This limitation applies equally to U.S. and non-U.S. governmental entities. The Commission continues to believe, as it did in 2012, that most governmental entities are predominantly engaged in non-banking and non-financial activities related to their core public functions and, therefore, are not likely to be “financial entities” ineligible to elect an exception from the Clearing Requirement under section 2(h)(7)(C) of the CEA. 47 The activities of state and local government entities in the United States and internationally that might be in the business of banking or financial in nature under section 2(h)(7)(C)(i)(VIII) of the CEA “are likely to be incidental, not primary, activities of those entities.”  48 Nevertheless, because some state or local government entity's swap activity may be commercial in nature, the Commission does not believe that a per se exclusion for state and local government entities from the Clearing Requirement is appropriate. Accordingly, the Commission has determined not to include these entities or any of the four suggested alternatives in the definition of “sovereign entity” and is adopting the definition of “sovereign entity” as proposed.

In addition, adopting any of the alternative definitions of “sovereign entity” proposed by the commenter would diverge from the approach taken by the Commission in the margin for uncleared swaps rules under Part 23. Maintaining consistency between the application of the Clearing Requirement and the application of the margin for uncleared swaps regulations avoids introducing unnecessary complication and possible confusion for swap market participants due to the interrelationship between the two sets of regulations.

As proposed, regulation 50.76 would define “international financial institution” to mean the 17 entities the Commission identified in the 2012 End-User Exception final rule, 49 the four entities to whom DCR issued no-action letters in 2013 and 2017, 50 the Islamic Development Bank, 51 and any other entity that provides financing for national or regional development in which the U.S. Government is a shareholder or contributing member.

The Commission received one comment on the definition of IFI. The Asian Infrastructure Investment Bank (AIIB) requested that it be included as an IFI because it is similar to other IFIs under proposed regulation § 50.76(b). 52 According to AIIB, inclusion on the list would encourage international comity and promote cross-border cooperation, particularly with regard to European Union authorities because AIIB is exempt from the clearing obligation under European law. 53 AIIB also states that the CEA does not require that the U.S. Government be a shareholder or contributing member of a foreign institution in order to qualify for an exemption from the Clearing Requirement, and ten of the 22 institutions included in regulation 50.76 do not have the U.S. Government as a shareholder or contributing member. 54 AIIB argues that it is comparable to the other IFIs under the proposed rule and should be afforded similar treatment. 55

The Commission does not believe it would be appropriate to include AIIB as an IFI for purposes of an exemption from the Clearing Requirement for a number of reasons. First, the CEA does not prescribe that the swaps of all foreign central banks, foreign sovereign entities, or IFIs should be exempt from the Clearing Requirement. Rather, pursuant to section 4(c) of the CEA, the Commission must find that exempting swaps entered into with AIIB from required clearing is consistent with public interest, taking into account principles of international comity.

In the 2012 End-User Exception, the Commission did not exempt all IFIs from the Clearing Requirement. Rather, the Commission based its identification of IFIs on the expectation that if any of the Federal Government, Federal Reserve Banks, or international financial institutions of which the United States is a member were to engage in swap transactions in foreign jurisdictions, the actions of those entities with respect to those transactions would not be subject to foreign regulation. 56 As explained above, the Commission determined that the exemption from the Clearing Requirement would apply to IFIs defined under 22 U.S.C. 262r(c)(2) and the IFIs defined as MDBs under the proposal for the regulation that became Regulation (EU) No 648/2012, of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (EMIR). 57

The IFIs defined in 22 U.S.C. 262r(c)(2) are entities in which the United States is a direct shareholder (or member) and therefore is able to influence the IFI and promote U.S. foreign policy, economic interests, and national security interests abroad. 58 Thus, while there is no requirement in the CEA that the U.S. Government be a shareholder or contributing member of an IFI in order to qualify for an exemption from the Clearing Requirement, the 2012 End-User Exception established a policy that recognized the importance of furthering U.S. policy goals when the Commission listed IFIs of which the United States is a member as the type of entity it would expect to be entitled to relief from mandatory clearing in foreign jurisdictions.

Further, it is appropriate to exempt the swaps entered into by CAF, CABEI, ESM, and NADB from the Clearing Requirement. 59 Each of these entities is sufficiently similar to the IFIs identified in the 2012 End-User Exception in that each entity's function, mission, and ownership structure ( i.e., comprised of national authorities) is analogous to those IFIs. In addition, it is appropriate to include the Islamic Development Bank as an IFI because it is included as a MDB under Commission regulation § 23.151, the definitions section for the margin for uncleared swaps rules. As noted above, consistency between the regulations for required clearing and margin for uncleared swaps helps avoid unnecessary complication and reduce possible confusion among market participants due to the interrelationship between the two sets of regulations.

AIIB differs from the other IFIs in two important respects. First, as AIIB notes, the United States is not a shareholder under AIIB's Articles of Agreement, 60 and the Commission has indicated that the exemption from the Clearing Requirement should apply to IFIs of which the United States is a member. The United States made a determination not to become a shareholder or contributing member of AIIB. 61 This decision was based on, among other things, concerns that the goals of AIIB may not necessarily align with the interest of U.S. foreign policy, economic interests, and national security interests. It would not now be appropriate for the Commission to treat AIIB as if the United Stated had elected to become a member of AIIB. Further, with respect to the IFIs included in regulation 50.76, the member governments generally have a collective majority control and governance over the entities. In AIIB, China is the largest shareholder (controlling 297,804 of 1,000,000 shares), with no other member government holding a block of shares that could realistically influence policy. 62

Second, AIIB's stated purpose appears to be broader than the entities added pursuant to DCR no-action letters. The stated purpose of CAF is “to promote sustainable development and regional integration, by providing multiple financial services to clients in the public and private sectors of its Shareholder Countries.”  63 CABEI's objective is “to promote the economic integration and the balanced economic and social development of the Central American region.”  64 ESM's purpose is “to mobilize funding and provide stability support under strict conditionality, appropriate to the financial assistance instrument chosen, to the benefit of ESM Members which are experiencing, or are threatened by, severe financing problems, if indispensable to safeguard the financial stability of the euro area as a whole and of its Member States.”  65

By contrast, AIIB's purpose is to “foster sustainable economic development, create wealth and improve infrastructure connectivity in Asia by investing in infrastructure and other productive sectors” and “promote regional cooperation and partnership in addressing development challenges by working in close cooperation with other multilateral and bilateral development banks.”  66 The Commission notes AIIB's broader purpose—particularly to create wealth—along with AIIB's comments that “AIIB is posed to be a major issuer in the international capital markets” and “will be required to negotiate a significant volume of swaps in connection with issuances under this program” goes beyond other IFIs that serve the public interest needs of developing countries through lending capital. 67

Finally, the Commission is not persuaded by AIIB's argument that international comity with European authorities will be enhanced by exempting AIIB's swaps from the CFTC's Clearing Requirement. Global authorities, including the CFTC and European authorities, have long acknowledged that there will be differences in the scope of products and participants covered by their respective mandatory clearing regimes. 68 In addition, the relevant country for purposes of considering international comity with regard to AIIB is more likely to be China given that AIIB's headquarters are in Beijing. The Commission notes that China has issued a clearing mandate for Renminbi interest rate swaps, however, the Commission has not determined that such swaps are required to be cleared.

For these reasons, the exclusion of AIIB from the definition of “international financial institution” for purposes of the Clearing Requirement is an appropriate exercise of the Commission's discretion under section 4(c) of the CEA and is consistent with the 2012 End-User Exception. 69

Proposed regulation 50.75(a) would exempt from the Clearing Requirement swaps entered into by central banks and sovereign entities. Proposed regulation 50.76(a) would exempt from the Clearing Requirement swaps entered into with IFIs. Under both proposed rules, the Commission included the phrase “and this part if reported to a swap data repository pursuant to §§ 45.3 and 45.4 of this chapter.”

The Commission received two comments on the inclusion of this reporting requirement. Both commenters, the BIS and the Commenting IFIs, supported the codification of the proposed exemptions from the Clearing Requirement, but noted that the Commission did not impose a reporting requirement on central banks, sovereign entities and IFIs in the 2012 End-User Exception. Rather, the commenters explained that under current market practice their swap counterparties report the swap to a swap data repository. The commenters stated that the Commission should clarify that the eligibility to claim an exemption is not conditioned on: (i) The central bank, sovereign entity, or IFI itself reporting the swap to a swap data repository; or (ii) its counterparty reporting the swap to a swap data repository. 70

The Commission agrees with the comments received and did not intend to impose a reporting requirement on central banks, sovereign entities, or IFIs under regulations 50.75(a) and 50.76(a). The Commission is revising the text of the regulation to delete the reference to swap data repository reporting. 71 This edit also is intended to respond to commenters concerns that a counterparty's failure to report a swap to a swap data repository could make those swaps ineligible for the exemption, even if the central bank, sovereign entity, or IFI had no knowledge of the counterparty's failure to report appropriately. The removal of the citation to part 45 reporting from the regulation is intended to permit current practice to continue regarding which counterparty reports the swap to a swap data repository. The removal of the citation is not intended to relieve any swap counterparty's independent obligation to report the swap to a swap data repository under Commission regulation §§ 45.3 and 45.4.

The Commission requested comment on the data it presented regarding the use of swaps by IFIs from the Depository Trust & Clearing Corporation's (DTCC's) swap data repository, DTCC Data Repository (DDR). As the Commission noted in the May 2020 Proposal, from January 1, 2018 to December 31, 2018, 16 IFIs named in proposed regulation 50.76 were counterparties to a swap that was entered into and reported to DDR during that time period. Overall, the 16 IFIs entered into approximately 2,500 uncleared interest rate swaps with an estimated total notional value of $220 billion. Of those 16, four IFIs entered into more than one hundred swaps during calendar year 2018. Compared to data that the Commission gathered from DDR during calendar year 2017, the number of IFIs entering into interest rate swaps increased from nine to 16, and the total number and total notional value of all uncleared interest rate swaps entered into by IFIs increased from 381 swaps totaling $59.8 billion to approximately 2,500 swaps totaling $220 billion.

The Commission did not receive any comments on the data and has no reason to believe this data is not an accurate representation of swaps entered into by IFIs. Based on this data, the scope of swaps entered into by IFIs and eligible for this exemption is quantifiable and does not represent a significant shift in swaps away from the Clearing Requirement. The data also reflects continued interest from IFIs in entering into uncleared swaps with their counterparties.

The Commission proposed to exempt from the Clearing Requirement swaps entered into to hedge or mitigate commercial risk if one of the counterparties to the swap is either (a) a bank holding company or savings and loan holding company, each having no more than $10 billion in consolidated assets, or (b) CDFI transacting in certain types and quantities of swaps. 72 Such an exemption would be consistent with Commission regulation § 50.50(d), which permits banks, savings associations, farm credit system institutions, and credit unions with total assets of $10 billion or less (small financial institutions) to elect not to clear their swaps that are used to hedge or mitigate commercial risk. 73

In adopting Commission regulation § 50.50(d), the Commission noted that small financial institutions tend to serve smaller, local markets, and are well situated to provide swaps to the customers in their markets for the purpose of hedging commercial risk. 74 The Commission also noted that small financial institutions typically hedge customer swaps by entering into matching swaps, and if those swaps had to be cleared, small financial institutions would have to post margin to satisfy the requirements of the DCO, which could raise the costs associated with hedging the risks of their swaps with customers. 75 In addition, the Commission acknowledged that some of these small financial institutions may incur initial and annual fixed clearing fees and other expenses that may be incrementally higher relative to the number of swaps executed over a given period of time. 76 Finally, the Commission stated that given the relatively low notional volume of swap books held by these small institutions, and the commercial customer purposes these swaps satisfy, the swaps executed by these entities were what Congress was considering when it directed the Commission to consider the exemption for small financial entities. 77

The proposed amendments would codify two no-action letters issued by DCR in 2016. 78 The Commission believes that codifying both of these staff no-action letters is consistent with the policy rationale behind the exemption from the Clearing Requirement that the Commission granted for swaps entered into by banks, savings associations, farm credit institutions, and credit unions in the 2012 End-User Exception. 79

The Commission received four comments letters on this aspect of the proposal. 80 While most of the comments were supportive, Better Markets opposed the Commission's use of its public interest exemptive authority to exempt from the Clearing Requirement swaps entered into by these entities. As discussed below, the Commission is adopting the regulations as proposed with one minor clarification.

The Commission proposed to define “community development financial institution” to mean a CDFI, as defined in section 103(5) of the Community Development Banking and Financial Institutions Act of 1994, that is certified by the Treasury Department's Community Development Financial Institution Fund under the requirements set forth in 12 CFR 180.201(b). 81 CDFIs certified by the Treasury Department must meet certain community development finance criteria intended to show they promote economic revitalization and community development in low-income communities that lack adequate access to affordable financial products and services. 82 The Commission did not receive any comment on its proposed definition and is adopting the definition as proposed.

The Commission proposed to define “bank holding company” to mean an entity that is organized as a bank holding company, as defined in section 2 of the Bank Holding Company Act of 1956. 83 This definition represents the accepted meaning for “bank holding company.” The Commission did not receive any comments on the proposed definition and is adopting the definition as proposed.

The Commission proposed to define “savings and loan holding company” to mean an entity that is organized as a savings and loan holding company, as defined in section 10 of the Home Owners' Loan Act of 1933. 84 This definition represents the accepted meaning for “savings and loan holding company.” The Commission did not receive any comments on the proposed definition and is adopting the definition as proposed.

The Commission proposed to exempt swaps entered into by a CDFI from the Clearing Requirement if: (1) The swap is a U.S. dollar denominated interest rate swap in the fixed-to-floating class or the forward rate agreement class that would otherwise be subject to the Clearing Requirement under Commission regulation § 50.4(a); (2) the total aggregate notional value of the all swaps entered into by the CDFI during the 365 calendar days prior to the day of execution of the swap is less than or equal to $200,000,000; (3) the swap is one of ten or fewer swap transactions that the CDFI enters into within a period of 365 calendar days; (4) one of the counterparties to the swap reports the swap to a swap data repository pursuant to Commission regulation §§ 45.3 and 45.4, and reports all information described under Commission regulation § 50.50(b) to a swap data repository; and (5) the swap is used to hedge or mitigate commercial risk as defined under Commission regulation § 50.50(c). The proposal is consistent with the 2016 DCR no-action relief previously afforded CDFIs. 85

The Commission received strong support for the proposal. The CDFI Coalition supported the proposal because interest rate swaps help CDFIs manage risk, and CDFIs borrow funds at floating rates and lend to customers at fixed rates. The floating rate leaves the CDFI exposed to future adverse interest rate moves, and interest rate swaps allow the CDFI to hedge its interest rate exposure by converting that exposure to a fixed rate thereby enhancing its ability to lend to customers and fund projects. 86 The CDFI Coalition stated that an exemption from the Clearing Requirement will eliminate the costs of clearing (posting of margin, cost of initial and annual fixed clearing fees and other expenses) and free up the time, effort, and resources that would be necessary to establish intermediary and clearinghouse access. The CDFI Coalition stated that “while the potential volume of interest rate swap activity may increase in the future, it will not reach the level of systemic importance.”  87

The CDFI Coalition also confirmed that CDFIs enter into swaps to hedge risk from financing transactions infrequently and have relatively low notional volume swap books. 88 As was the case when the Commission provided an exception for the small banks, farm credit system institutions, and credit unions under regulation 50.50(d), the CDFI Coalition stressed the public interest benefits that will be served by permitting CDFIs to engage in tailored and limited swaps to pursue their public interest goals without incurring the costs of central clearing.

Better Markets opposed the exemption for CDFIs, as well as for bank holding companies, and savings and loan holding companies, as unnecessary and detrimental to the derivatives reforms of the Dodd-Frank Act. Better Markets stated that under section 2(h)(7)(C)(ii) the CFTC may consider excluding only certain categories of financial entities and that Congress intended to insure financial institutions broadly mitigate risks through the derivatives clearing system. 89 Better Markets is concerned that these exemptions will permit swaps activities to occur outside of regulated, transparent, impartially access markets, and will draw liquidity away from markets. 90

The Commission disagrees with Better Markets' view that the proposed exemption for CDFI is not permitted because Congress did not include CDFIs under section 2(h)(7)(C)(ii) of the CEA. As discussed further in Section V, below, Congress did not exclude section 2(h) from the Commission's statutory authority under section 4(c) of the CEA if the Commission finds an exemption from the Clearing Requirement to be in the public interest.

CDFIs are sufficiently similar to the type of entities Congress included when it directed the Commission to consider an exemption from the Clearing Requirement for small banks and savings associations. 91 CDFIs certified by the CDFI Fund serve rural and urban low-income communities across the nation that lack adequate access to affordable financial products and services. 92 Through financial assistance and grants from the CDFI Fund, CDFIs are able to make loans and investments, and to provide related services for the benefit of designated investment areas, target populations, or both. 93 CDFIs enter into a limited number of interest rate swaps and forward rate agreement swaps in order to hedge interest rate risk incurred as a result of issuing debt securities or making loans in pursuit of their organizational missions. 94

The CDFI Coalition requested that the Commission clarify that regulation 50.77(b)(1) applies equally to both fixed-to-floating and floating-to-fixed interest rate swaps. The Commission confirms that the regulation is intended to apply to both fixed-to-floating and floating-to-fixed interest rate swaps, and that both formulations are included within the fixed-to-floating swap class that is subject to the Clearing Requirement according to the specifications outlined in Table 1a to Commission regulation § 50.4(a). 95 Given that the same language is used elsewhere in part 50 to describe the fixed-to-floating interest rate swap class, the Commission declines to amend regulation § 50.77(b)(1). However, the Commission confirms that both fixed-to-floating and floating-to-fixed interest rate swaps are covered by regulation § 50.77 for swaps entered into by CDFIs.

The Commission also believes that the conditions set forth in proposed regulation § 50.77(b)(1) through (5) are consistent with the conditions under regulation § 50.50(d). By limiting the product scope to U.S. dollar interest rate swaps in the fixed-to-floating swap class and forward rate agreement class, the Commission is recognizing the need for CDFIs to hedge or mitigate interest rate risk created by the loans, investments, and financial services provided to their target populations. In addition, limiting the total aggregate notional value of all swaps and forward rate agreements entered into during the 365 calendar days prior to the day of execution to less than or equal to $200,000,000 ensures that the swaps are being used to hedge or mitigate commercial risk. In that same regard, the requirement that a given CDFI enter into ten or fewer swaps over the course of 365 calendar days will prevent these entities from arbitrarily increasing the number of swaps into which they enter. Lastly, the reporting requirement will permit the Commission to verify that the exemption is being used in the manner intended.

The Commission did not receive any comments on the proposed conditions set forth in proposed rule 50.77(b)(2) through (5), and is adopting those conditions as proposed.

As described above, the Commission proposed to codify the 2016 staff no-action letter extending relief from the Clearing Requirement to certain bank holding companies and savings and loan holding companies that otherwise would have qualified for the exception for small banks and savings associations under regulation 50.50(d). 96 In response to this proposal, the Commission received one comment from the American Bankers Association stating its support, 97 and as discussed above, one comment letter from Better Markets generally opposing the proposed exemptions.

Better Markets states that section 2(h)(7)(C)(ii) of the CEA does not cover bank holding companies or savings and loan holding companies and that if Congress intended to authorize such an exemption, it would have done so explicitly. 98 The Commission disagrees with Better Markets that the exemptions for bank holding companies and savings and loan holding companies are not permitted because the entities are not specifically listed under section 2(h)(7)(C)(ii) of the CEA. Bank holding companies and savings and loan holding companies with consolidated assets of no more than $10 billion are sufficiently similar to the type of entities Congress was considering when it directed the Commission to consider an exemption from the Clearing Requirement for small banks. 99 Because Congress allowed the Commission to exempt small banks and small savings and loan associations with assets of no more than $10 billion from the Clearing Requirement, it follows that the parent companies of such small entities, when subject to the same size limit, should be eligible for a similar exemption from the Clearing Requirement under an appropriate exercise of the Commission's exemptive authority under section 4(c).

Bank holding companies and savings and loan holding companies generally enter into interest rate swaps to hedge interest rate risk that they incur as a result of making loans or issuing debt securities, the proceeds of which are generally used to finance their subsidiaries, which are themselves small financial institutions exempt from the Clearing Requirement under regulation 50.50(d), renumbered as Commission regulation § 50.53. These entities enter into swaps to hedge risk from financing transactions infrequently and have relatively low notional volume swap books. These entities also pose less counterparty credit risk insofar as they generally enter into swaps with a notional amount of $10 million or less. 100 As discussed further below, commenters relied on data in the supplemental proposal regarding the number of swaps entered into by eligible bank holding companies and savings and loan holding companies to complete their own analyses related to swap market effects of the proposal. 101

Regulation §§ 50.78(b)(2) and 50.79(b)(2) require that the information described in paragraph (b) of Commission regulation § 50.50 be reported to a swap data repository. Commission regulation § 50.50(b) requires that the electing counterparty notify the Commission of how it generally meets its financial obligations associated with its non-cleared swaps. This reporting requirement is needed in order to verify that the exemption from the Clearing Requirement is being used in the manner intended by the Commission and the exception is not being misused. 102

Regulation §§ 50.78(b)(3) and 50.79(b)(3) also require that only swaps used to hedge or mitigate commercial risk, as defined under paragraph (c) of Commission regulation § 50.50, may be exempt from the Clearing Requirement. This limitation appropriately reflects how these entities use swaps and also responds to Better Market's comment that the Commission does not have the authority to exempt swaps entered into by bank holding companies and savings and loan holding companies from the Clearing Requirement. 103

Congress saw the benefit in exempting small banks, savings associations, farm credit system institutions, and credit unions from the Clearing Requirement when it allowed the Commission to consider such an exemption. The Commission issued such an exemption in the 2012 End-User Exception provided that such swaps are used for hedging and not speculation and are reported to a swap data repository. 104 Since 2016, by virtue of a staff no-action letter, small bank holding companies and savings and loan holding companies have been permitted to elect the exemption under regulation § 50.50(d) on behalf of their underlying small bank or savings and loan. In the intervening four years, the Commission has not discovered or been made aware of any abuse of this no-action letter. Accordingly, the Commission believes that the extension of the 2012 End-User Exception's exemption for small banks to bank holding companies and savings and loan holding companies subject to this new regulation is appropriate and consistent with Congressional intent. The Commission is adopting regulation §§ 50.78 and 50.79 as proposed.

As the Commission did in the May 2020 Proposal, it is including a discussion of data related to past swaps activity to provide context for this final rule. All interest rate swaps data included in this section was reported to DDR as events-based data and was analyzed by Commission staff. 105

During the time period between January 1, 2018, and December 31, 2018, eight different CDFIs entered into interest rate swaps and four of those entities entered into more than one swap. Over this one year, CDFIs entered into thirteen uncleared interest rate swaps with an aggregate notional value of almost $84 million. According to this data, more CDFIs entered into uncleared interest rate swaps during the calendar year 2018 than during the previous 18-month time period between January 2017 and June 2018. 106 At the same time, the aggregate notional value of all uncleared interest rate swaps entered into during calendar year 2018 ($83.9 million) was less than the aggregate notional value of swaps entered into by CDFIs during the 18-month time period between January 2017 and June 2018 ($251.6 million). The CDFI Coalition agreed with the data presented by the Commission in the May 2020 Proposal related to CDFI swaps activities. 107

Similarly, the Commission provided data in the May 2020 Proposal regarding the number of swaps entered into by eligible bank holding companies and savings and loan holding companies. Between January 1, 2018 and December 31, 2018, eleven bank holding companies executed 18 interest rate swaps with an aggregate notional value of $152.5 million. 108 Seven of these bank holding companies entered into more than one swap during the calendar year 2018. In calendar year 2018 the aggregate notional value of all swaps entered into by eligible bank holding companies increased substantially ($152.5 million in 2018 compared to $68.6 million in 2017), but this increase was also the result of more eligible bank holding companies entering into uncleared interest rate swaps.

Based on this data, Better Markets concluded that the scope of the exemptions was limited and not likely to dramatically shift the level of swap clearing pursuant to the Clearing Requirement. 109 The data, together with the market observations and statements by commenters, demonstrates that these entities have an ongoing interest in entering into uncleared swaps and likely will benefit from the Commission's codification of the relief currently afforded under CFTC staff letters.

The creation of subpart D is part of an effort to distinguish exemptions that apply to specific swaps from the exceptions and exemptions for market participants eligible to elect an exception or exemption under subpart C of Part 50. This distinction is important because the exemptions for swaps under subpart D are not eligible for an exemption from margin for uncleared swaps, as discussed further below. Additionally, some of the exemptions for swaps are more limited and, in some cases, have additional conditions.

The exemptions in subpart D are intended to be consistent with the Commission's determinations set forth in the 2012 End-User Exception and do not limit the applicability of any CEA provision or Commission regulation to any person or transaction, except as provided in this final rulemaking. The exemptions in subpart D will include transactions with central banks, sovereign entities, IFIs, bank holding companies, savings and loan holding companies, and CDFIs, as defined in the regulations. The same policy reasons that the Commission considered when exempting these institutions in the 2012 End-User Exception final rule support the adoption of subpart D.

The Commission implemented the Clearing Requirement through two separate rulemakings: (i) The 2012 Clearing Requirement Determination; and (ii) the 2016 Clearing Requirement Determination. Under each of these final rules, the Commission made the decision to phase-in the compliance requirement. Neither clearing requirement determination required compliance by all market participants for all swaps included in Commission regulation § 50.4 on a single date. The Commission proposed to improve transparency and to provide the information about compliance dates for both the 2012 Clearing Requirement and the 2016 Clearing Requirement in one location that would be convenient for market participants to reference.

The Commission did not receive any comments on proposed regulation § 50.26. The compliance schedule is adopted as proposed.

The Commission proposed technical amendments to subpart C of part 50 to reorganize the subpart by re-codifying the existing regulatory provision for certain banks, savings associations, farm credit system institutions, and credit unions to create a new numbered section and heading, proposed regulation § 50.53. The Commission believed that a stand-alone regulation for this exemption would facilitate swap counterparties' use and understanding of Part 50 of the Commission's regulations by separating this exemption from the non-financial entities' exception.

The Commission views this as a non-substantive change, and the minor changes to the text of the regulations serve to clarify and update the requirements in light of current swap reporting conventions, specifically related to swap data reporting by entities eligible for an exception or exemption from the Clearing Requirement. The Commission did not receive any comments on the proposed changes. The change is adopted as proposed, and the Commission is changing cross-references to Commission regulation § 50.50(d) to new regulation § 50.53 throughout part 50.

Section 4(c) of the CEA provides the Commission with the authority to exempt certain transactions from the requirements of the CEA if the Commission determines that the exemption is consistent with the public interest. Section 4(c)(1) of the CEA authorizes the Commission to “promote responsible economic or financial innovation and fair competition” by exempting any transaction or class of transactions, including swaps, from any of the provisions of the CEA (subject to exceptions not relevant here). 110 In enacting CEA section 4(c)(1), Congress noted that the goal of the provision “is to give the Commission a means of providing certainty and stability to existing and emerging markets so that financial innovation and market development can proceed in an effective and competitive manner.”  111

Section 4(c)(2) of the CEA further provides that the Commission may not grant exemptive relief unless it determines that: (A) The exemption is consistent with the public interest and the purposes of the CEA; and (B) the transaction will be entered into solely between “appropriate persons” and the exemption will not have a materially adverse effect on the ability of the Commission or any contract market to discharge its regulatory or self-regulatory responsibilities under the CEA. 112 Section 4(c)(3) of the CEA includes within the term “appropriate person” a number of specified categories of persons, including any governmental entity (including the United States, any state, or any foreign government) or political subdivision thereof, or any multinational or supranational entity or any instrumentality, agency, or department of any of the foregoing, 113 banks, 114 savings associations, 115 and such other persons that the Commission determines to be appropriate in light of their financial or other qualifications, or the applicability of appropriate regulatory protections. 116

The Commission requested comment regarding whether the proposed amendments would be an appropriate exercise of the Commission's authority under section 4(c) of the CEA, including whether the proposal promotes the public interest. 117 The Commission also requested comment on whether there are any entities that would not be “appropriate persons” under section 4(c)(3) of the CEA, and on whether the Proposals provide certainty and stability to existing and emerging markets so that financial innovation and market development can proceed in an effective and competitive manner. 118

The Commission received one comment generally opposing the Commission's exercise of its authority under section 4(c) to exempt from the Clearing Requirement swaps entered into with CDFIs, bank holding companies, and savings and loan holding companies, but the commenter stated that the Commission was correct to condition the exemptions to limit their scope and provide oversight of financial institutions relying on the exemptions. 119 The Commission did not receive any comment on its proposed exercise of its authority under section 4(c) to exempt from the Clearing Requirement swaps entered into with central banks, sovereign entities, and IFIs. As discussed in detail above, the Commission believes that the exemptions from the Clearing Requirement for swaps entered into by central banks, sovereign entities, IFIs, banks holding companies, savings and loan holding companies, and CDFIs are a proper exercise of its exemptive authority under section 4(c) of the CEA.

The Commission believes that it is consistent with the public interest and the purposes of the CEA to exempt from the Clearing Requirement swaps entered into with central banks, sovereign entities, and certain IFIs under its broad exemption authority under section 4(c) of the CEA. In 2012, the Commission established a policy that transactions with central banks, sovereign entities (then referred to as foreign governments), and certain IFIs should be exempt from the Clearing Requirement on the basis of comity and in keeping with the traditions of the international system. The Commission continues to believe, as it did in 2012, that based on the canons of statutory construction and considerations of comity, and in keeping with the traditions of the international system, sovereign entities and central banks should not be subject to section 2(h)(1) of the CEA. 120 With respect to IFIs, these entities serve an important public policy purpose. The member governments of IFIs generally have majority control and governance over these entities. The Commission therefore continues to believe that an exemption is appropriate because, in a real sense, an IFI is not separable from its government owners. Codifying the Commission's 2012 policy determination through a section 4(c) exemption provides clarity and certainty for market participants. 121

The amendments to exempt swaps entered into by central banks, sovereign entities, and certain IFIs from the Clearing Requirement are available only to “appropriate persons” under section 4(c)(3)(H) of the CEA. No commenter disputed that these entities are “appropriate persons” under section 4(c)(3)(H) of the CEA, which states that any governmental entity (including the United States, any state, or any foreign government), or political subdivision thereof, or any multinational or supranational entity or any instrumentality, agency, or department of any of the foregoing.

The Commission also notes that these entities are considered ECPs as set forth in section 1a(18)(A)(vii) of the CEA. Given that only ECPs are permitted to enter into uncleared swaps, and that the ECP definition is generally more restrictive than the comparable elements of the “appropriate persons” definition of section 4(c)(3)(H) of the CEA, the Commission believes that there is no risk that the exemption could be used by any entity other than an ECP or “appropriate person.” Accordingly, the class of persons eligible to rely on regulation §§ 50.75 and 50.76 is limited to appropriate persons within the scope of section 4(c) of the CEA.

Additionally, the Commission notes that the applicable central banks, sovereign entities and IFIs have been relying on the language in the preamble to the 2012 End-User Exception and the DCR no-action letters for many years. The Commission is not aware of any increase in counterparty risk attributable to the affected entities' reliance on the 2012 preamble language and the staff no-action letters.

Finally, the exemptions for swaps entered into with central banks, sovereign entities, and certain IFIs will not have a materially adverse effect on the ability of the Commission to discharge its regulatory responsibilities under the CEA. The exemptions from the Clearing Requirement are limited to swaps entered into with specific central banks, sovereign entities, and IFIs and do not limit the applicability of any other CEA provision or Commission regulation except as discussed above. The Commission will continue to have access to information regarding the exempted swaps because the non-electing counterparty to the swap must report the swap to a swap data repository. Uncleared swaps with a counterparty that is otherwise subject to the CEA and Commission regulations with regard to such swaps must comply with the CEA and Commission regulations as they pertain to uncleared swaps. Additionally, the Commission retains its special call, anti-fraud, and anti-evasion authorities, which enables the Commission to adequately discharge its regulatory responsibilities under the CEA.

The Commission believes it is consistent with the public interest and the purposes of the CEA to exempt from the Clearing Requirement swaps entered into by CDFIs, bank holding companies, and savings and loan holding companies under section 4(c) of the CEA. The Commission believes that the same policy reasons that Congress considered in directing the Commission to consider exempting swaps entered into with small financial institutions (small banks, savings associations, farm credit system institutions, and credit unions) from the financial entity definition, making them eligible for the End-User Exception of section 2(h)(7)(c)(ii) of the CEA, support an exemption for swaps entered into by CDFIs, bank holding companies, and savings and loan holding companies. 122

In the 2012 End-User Exception, the Commission determined that the small financial institutions should be excepted from the financial entity definition because these entities tend to serve smaller, local markets, and the swaps executed by the small financial institutions likely hedge interest rate risk associated with making commercial loans. 123 Small financial institutions typically hedge their swaps with customers by entering into matching swaps in the swap market, and if those matched swaps had to be centrally cleared, the small financial institutions would have to post margin to satisfy the requirements of the DCOs. The Commission determined that mandatory clearing could raise the costs for small financial institutions and such costs may be prohibitively high given the small number of swaps such entities execute over a given period of time. 124

Swaps are an important risk management tool, and CDFIs, bank holding companies, and savings and loan holding companies should be afforded the means to hedge their capital costs economically in order to promote the public interest objectives of smaller financial institutions serving smaller, local markets. Commenters agreed with the Commission that the swaps entered into by CDFIs, bank holding companies, and savings and loan holding companies have smaller notional amounts and that these financial entities use swaps infrequently. 125 While the Commission recognizes that these entities may enter into more swaps to hedge against rising interest rates, the conditions on the exemption make it unlikely that the volume of swaps entered into by these entities will reach a systemic level.

These exemptions from the Clearing Requirement may serve to promote responsible financial innovation and fair competition due to the substantial fixed costs associated with clearing swaps. The cost of clearing on a per-swap basis cannot be supported by the small number of trades into which the entities eligible to elect these exemptions enter. While the Commission did not receive any comments on the cost of clearing, the Commission notes that in 2012, the cost estimate for small financial institutions included between $2,500 and $25,000 in legal fees related to reviewing and negotiating clearing-related documents, and a minimum of between $75,000 and $125,000 per year on fees paid to each futures commission merchant with which it maintains a relationship. 126 The Commission believes an exemption from the Clearing Requirement for CDFIs, bank holding companies, and savings and loan holding companies will lower costs, which enables these entities to better manage their financing risks and provide cost-effective loans to their subsidiaries, as well as to small and middle market businesses. In addition, this exemption from the Clearing Requirement may support commercial lending and depository activities of the holding company's subsidiaries.

The Commission believes that the specific amendments to exempt swaps entered into by CDFIs, bank holding companies, and savings and loan holding companies from the Clearing Requirement are available to only “appropriate persons.” Under section 4(c)(3)(A) and (B) of the CEA, “appropriate person” includes a bank or a trust, and a savings association. The extension of the term “appropriate person” to include CDFIs, bank holding companies, and savings and loan holding companies aligns with the statute's determination that banks and savings associations are “appropriate persons.” The Commission did not receive any comments on whether these entities are “appropriate persons.”

The bank holding companies, savings and loan holding companies, and CDFIs eligible to elect these exemptions are ECPs pursuant to section 1a(18)(A)(i) of the CEA. 127 Given that only ECPs are permitted to enter into uncleared swaps, and that the ECP definition is generally more restrictive than the comparable elements of the enumerated “appropriate person” definition, there is no risk that a non-ECP or a person who does not satisfy the requirements for an “appropriate person” could enter into an uncleared swap using these exemptions from the Clearing Requirement. Accordingly, the Commission believes that the class of persons eligible to rely on the exemptions codified in new regulation §§ 50.75 through 50.79 will be limited to “appropriate persons” within the scope of section 4(c) of the CEA.

The Commission notes that the CDFIs, bank holding companies, and savings and loan holding companies have been relying on the DCR no-action letters since 2016. The Commission is not aware of any increase in counterparty risk attributable to affected entities' reliance on the staff no-action letters, and commenters did not point to any instances of increased counterparty risk. These exemptions from the Clearing Requirement are limited in scope, and the Commission will continue to have access to information regarding the swaps subject to these exemptions because such swaps will be reported to a swap data repository by one of the counterparties to the swap. 128

The Commission further notes that the exemptions are intended to be consistent with the Commission's policy determinations set forth in the 2012 End-User Exception with respect to the exception from the Clearing Requirement for small financial institutions, and do not limit the applicability of any CEA provision or Commission regulation to any person or transaction except as provided in this final rulemaking. In addition, the Commission retains its special call, anti-fraud, and anti-evasion authorities, which will enable it to adequately discharge its regulatory responsibilities under the CEA. The Commission therefore believes the exemptions will not have a materially adverse effect on the ability of the Commission to discharge its regulatory responsibilities under the CEA.

For the reasons discussed above, it is appropriate and consistent with the public interest to adopt new regulation §§ 50.75 through 50.79 as set forth in subpart D.

In the Proposals, the Commission explained that these exemptions, if finalized, would not affect the Commission's margin requirements for uncleared swaps. 129 The Commission did not receive any comments on the effect of the exemptions on the Commission's margin requirements for uncleared swaps.

The Commission affirms its position as set forth in the Proposals. Under Commission regulation § 23.150(b)(1), the margin requirements for uncleared swaps under part 23 of the Commission's regulations do not apply to a swap if the counterparty qualifies for an exception from clearing under section 2(h)(7)(A) and implementing regulations. 130 Commission regulation § 23.150(b) was added to the final margin rules after the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA)  131 amended section 731 of the Dodd-Frank Act by adding section 4s(e)(4) to the CEA to provide that the initial and variation margin requirements will not apply to an uncleared swap in which a non-financial entity (including a small financial institution and a captive finance company) qualifies for an exception under section 2(h)(7)(A) of the CEA, as well as two exemptions from the Clearing Requirement that are not relevant in this context. 132

The final rules are not implementing section 2(h)(7)(A) of the CEA. Instead, the Commission, pursuant to its 4(c) authority (as discussed above), is exempting swaps entered into by central banks, sovereign entities, IFIs, bank holding companies, savings and loan holding companies, and CDFIs from the Clearing Requirement. The Commission is not excluding these entities from the “financial entity” definition of section 2(h)(7)(C) of the CEA. Therefore, these entities are not eligible to elect the End-User Exception under Commission regulation § 50.50, and they remain financial entities under the definition of financial entity of section 2(h)(7)(C) of the CEA. For these reasons, the new regulation §§ 50.75 through 50.79 do not implicate any of the provisions of section 4s(e)(4) of the CEA or Commission regulation § 23.150. 133

This document and additional information concerning OFAC are available on OFAC's website ( www.treasury.gov/ofac ).

On March 8, 2015, the President, invoking the authority of, inter alia, the International Emergency Economic Powers Act (50 U.S.C. 1701-1706), issued Executive Order (E.O.) 13692 of March 8, 2015, “Blocking Property and Suspending Entry of Certain Persons Contributing to the Situation in Venezuela” (80 FR 12747, March 11, 2015). In E.O. 13692, the President found that the situation in Venezuela, including the Government of Venezuela's erosion of human rights guarantees, persecution of political opponents, curtailment of press freedoms, use of violence and human rights violations and abuses in response to antigovernment protests, and arbitrary arrest and detention of antigovernment protestors, as well as the exacerbating presence of significant public corruption, constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States, and declared a national emergency to deal with that threat.

The President has issued six additional Executive Orders pursuant to the national emergency declared in E.O. 13692: E.O. 13808 of August 24, 2017, “Imposing Additional Sanctions With Respect to the Situation in Venezuela” (82 FR 41155, August 29, 2017); E.O. 13827 of March 19, 2018, “Taking Additional Steps to Address the Situation in Venezuela” (83 FR 12469, March 21, 2018); E.O. 13835 of May 21, 2018, “Prohibiting Certain Additional Transactions With Respect to Venezuela” (83 FR 24001, May 24, 2018); E.O. 13850 of November 1, 2018, “Blocking Property of Additional Persons Contributing to the Situation in Venezuela” (83 FR 55243, November 2, 2018); E.O. 13857 of January 25, 2019, “Taking Additional Steps To Address the National Emergency With Respect to Venezuela” (84 FR 509, January 30, 2019); and E.O. 13884 of August 5, 2019, “Blocking Property of the Government of Venezuela” (84 FR 38843, August 7, 2019).

OFAC, in consultation with the Department of State, issued Venezuela-related General License (GL) 5 on July 19, 2018, pursuant to E.O. 13835, to authorize certain transactions related to the Petróleos de Venezuela S.A. 2020 8.5 Percent Bond that were prohibited by Subsection 1(a)(iii) of E.O. 13835. On October 24, 2019, OFAC issued GL 5A, which replaced and superseded GL 5. GL 5A delayed until January 22, 2020 the effectiveness of the authorization that was previously contained in GL 5. On January 17, 2020, OFAC issued GL 5B, which replaced and superseded GL 5A. GL 5B further delayed until April 22, 2020 the effectiveness of the authorization that was previously contained in GL 5. On April 10, 2020, OFAC issued GL 5C, which replaced and superseded GL 5B. GL 5C further delayed until July 22, 2020 the effectiveness of the authorization that was previously contained in GL 5. On July 15, 2020, OFAC issued GL 5D, which replaced and superseded GL 5C. GL 5D further delayed until October 20, 2020 the effectiveness of the authorization that was previously contained in GL 5. On October 6, 2020, OFAC issued GL 5E, which replaced and superseded GL 5D. GL 5E further delayed until January 19, 2021 the effectiveness of the authorization that was previously contained in GL 5. As a result, no transactions may be conducted pursuant to GL 5E until January 19, 2021. The texts of GL 5C, GL 5D, and GL 5E are provided below.

(a) Except as provided in paragraph (b) of this general license, on or after July 22, 2020, all transactions related to, the provision of financing for, and other dealings in the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond that would be prohibited by Subsection l(a)(iii) of Executive Order (E.O.) 13835 of May 21, 2018, as amended by E.O. 13857 of January 25, 2019, and incorporated into the Venezuela Sanctions Regulations, 31 CFR part 591 (the VSR), are authorized.

(b) This general license does not authorize any transactions or activities otherwise prohibited by the VSR, or any other part of 31 CFR chapter V.

(c) Effective April 10, 2020, General License No. 5B, dated January 21, 2020, is replaced and superseded in its entirety by this General License No. 5C.

(a) Except as provided in paragraph (b) of this general license, on or after October 20, 2020, all transactions related to, the provision of financing for, and other dealings in the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond that would be prohibited by Subsection l(a)(iii) of Executive Order (E.O.) 13835 of May 21, 2018, as amended by E.O. 13857 of January 25, 2019, and incorporated into the Venezuela Sanctions Regulations, 31 CFR part 591 (the VSR), are authorized.

(b) This general license does not authorize any transactions or activities otherwise prohibited by the VSR, or any other part of 31 CFR chapter V.

(c) Effective July 15, 2020, General License No. 5C, dated April 10, 2020, is replaced and superseded in its entirety by this General License No. 5D.

(a) Except as provided in paragraph (b) of this general license, on or after January 19, 2021, all transactions related to, the provision of financing for, and other dealings in the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond that would be prohibited by Subsection l(a)(iii) of Executive Order (E.O.) 13835 of May 21, 2018, as amended by E.O. 13857 of January 25, 2019, and incorporated into the Venezuela Sanctions Regulations, 31 CFR part 591 (the VSR), are authorized.

(b) This general license does not authorize any transactions or activities otherwise prohibited by the VSR, or any other part of 31 CFR chapter V.

(c) Effective October 6, 2020, General License No. 5D, dated July 15, 2020, is replaced and superseded in its entirety by this General License No. 5E.

In August 2020, the UHF Development Group informed the Coast Guard of their intention to plan an aerobatic airshow on the Neuse River in New Bern, North Carolina. The airshow will take place December 5, 2020, from 4 p.m. to 5:30 p.m. We are proposing to establish a temporary safety zone covering approximately one square mile of the Neuse River for the duration of the event. The Captain of the Port (COTP) North Carolina has determined that potential safety hazards associated with the aerobatic airshow would be a concern for anyone transiting this portion of the Neuse River during the show.

Under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . Delaying the effective date of this rule would be impracticable and contrary to public interest because immediate action is needed to protect persons and vessels from the hazards associated with this event on December 5, 2020.

The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231) The COTP North Carolina has determined that potential hazards associated with the New Bern Christmas Flotilla Airshow scheduled for 4 p.m. through 5:30 p.m. on December 5, 2020 is a safety concern for mariners during the time that aircraft perform aerobatic maneuvers directly above the Neuse River. This rule is necessary to protect safety of life from the potential hazards associated with the high-speed boat race.

This rule establishes a temporary safety zone on a portion of the Neuse River from December 5, 2020, from 4 p.m. to 5:30 p.m. The rule will be enforced for the duration of the event. The dates and times of enforcement will be broadcast locally over VHF-FM marine radio. The safety zone will include all navigable waters of the Neuse River in New Bern, North Carolina, inside an area starting from approximate positions: Latitude 35°06′32″ N, longitude 077°01′54″ W, then north to latitude 35°06′55″ N, longitude 077°02′04″ W, then east to latitude 35°07′06″ N, longitude 077°01′27″ W, then southeast to latitude 35°06′49″ N, longitude 077°01′12″ W, then south to latitude 35°06′08″ N, longitude 077°01′18″ W, then west to latitude 35°06′02″ N, longitude 077°01′57″ W, then north to the point of origin, for a total area of approximately 1 mile square. The airshow will consist of two separate performances and will last a total approximately 1.5 hours. The event will begin roughly 20 minutes before sunset and will last to approximately 30 minutes after sunset. All aircraft will remain at least 500 feet above the ground. Public spectators will be allowed to view the event from the waterway, however, for safety reasons, the aircraft will not perform if there are any vessels inside the safety zone. The duration of this safety zone is intended to protect participants and spectators on the navigable waters of the Neuse River during the airshow. Vessels may transit the area, so long as they remain outside the safety zone. No vessel or person will be permitted to enter the safety zone without obtaining permission from the COTP North Carolina or a designated representative.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. Executive Order 13771 directs agencies to control regulatory costs through a budgeting process. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB), and pursuant to OMB guidance it is exempt from the requirements of Executive Order 13771.

This regulatory action determination is based on the size, location, and duration of the safety zone. Vessel traffic will not be allowed to enter or transit a portion of the Neuse River during the airshow from 4 p.m. through 5:30 p.m. December 5, 2020. The Coast Guard will transmit a Broadcast Notice to Mariners via VHF-FM marine channel 16 regarding the enforcement area. This rule allows vessels to request permission to pass through the regulated area.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on the States, on the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves a safety zone lasting 1.5 hours that will prohibit entry within a 1 square mile area of the Neuse River on December 5, 2020, from 4 p.m. to 5:30 p.m. It is categorically excluded from further review under paragraph L60(a) of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

The National Defense Authorization Act of 2004, secs. 1501-07, Public Law 108-136, Stat. 1392, established the Veterans' Disability Benefits Commission (the “Commission”). Section 1502 of Public Law 108-136 mandated the Commission to study ways to improve the disability compensation system for military veterans. The Commission consulted with the Institute of Medicine (IOM) (now named the National Academy of Medicine) to review the medical aspects of current policies. In 2007, the IOM released its report titled “A 21st Century System for Evaluating Veterans for Disability Benefits.” (Micahel McGeary et al. eds. 2007).

The IOM report noted that the VA Rating Schedule for Disabilities was inadequate in areas because it contained obsolete information and did not sufficiently integrate current and accepted diagnostic procedures as well as the lack of current knowledge of the relationships between conditions and comorbidities. Following the release of the IOM report, VA created a musculoskeletal system workgroup to: (1) Improve and update the process that VA uses to assign levels of disability after it grants service connection; (2) improve the fairness in adjudicating disability benefits for service-connected veterans; and (3) invite public participation.

VA began rulemaking to remove obsolete diagnostic codes, modernize the names of selected diagnostic codes, revise descriptions and criteria, and add new diagnostic codes. VA published a proposed rule to revise the regulations involving the musculoskeletal system within VASRD on August 1, 2017 (82 FR 35719). Specifically, VA proposed to rename conditions to reflect current medicine, remove obsolete conditions, clarify ambiguities, and add conditions that previously did not have diagnostic codes. Interested persons were invited to submit comments on or before October 2, 2017. VA received comments from the National Organization of Veterans' Advocates, American Association of Nurse Practitioners, Paralyzed Veterans of America, and nine individuals. VA has made limited changes based on these comments, as discussed below.

Two separate comments recommending specific terminology changes were received.

One commenter suggested incorporating terminology used by claimants or seen in service treatment records into the VASRD regulations. The commenter stated that field medics do not always incorporate medical terminology or use treatises when entering information in a servicemember's medical record. The commenter also noted that individual claimants may not have sufficient medical training to utilize specific technical terminology when claiming a given disability. A stated intent of the current update to the rating schedule, as stated in the preamble to the proposed rule, is to employ current medical terminology in order to clarify and standardize the disability criteria. Accordingly, VA relies on medical standards and treatises when updating terminology.

As to the effect of technical terminology in part 4 on a veteran attempting to claim disability, there is none. Claimants are not required to possess medical knowledge or expertise when describing a claimed condition; they are simply required to describe their disability and/or symptoms as they experience and observe them. Brokowski v. Shinseki, 23 Vet. App. 79, 86-87 (2009). Moreover, VA reviews medical records with the understanding that different examiners, at different times, will not describe the same disability in the same language; it is the responsibility of the rating specialist to interpret reports of examination in the light of the whole recorded history, reconciling the various reports into a consistent picture so that the current rating may accurately reflect the elements of disability present. 38 CFR 4.2. Accordingly, VA reviews the entire evidentiary record in light of the disability claimed, circumstances of military service, and all other applicable records to create a cohesive picture of the disability in question; it is not the responsibility of the claimant or a military medical provider to employ terminology that necessarily matches the VASRD. Thus, VA makes no changes related to this comment.

Another commenter suggested use of the phrases “greater than or equal to” and “less than or equal to” rather than “limited to XX degrees or more” or “limited to XX degrees or less” for criteria based on numerical range of motion measurements. While this comment was taken into consideration, VA notes the phrases “limited to XX degrees or more” or “limited to XX degrees or less” are consistent with medically-accepted language used in the VASRD for range of motion measurement and elsewhere, and are well-understood and applied by VA claims processors efficiently and accurately. Accordingly, VA makes no changes based on this comment.

One commenter asked if there was a DC for infectious arthritis. While there is not a standalone DC for infectious arthritis, infectious arthritis may be evaluated under DCs 5004 through 5009, depending on the infection associated with the arthritic findings. VA makes no change based on this comment.

Another commenter requested that VA use the same non-exhaustive list of conditions listed in proposed DC 5002's Note (1) for other selected DCs (5054, 5055, and 5250-5255). The list of conditions in DC 5002 is being provided to further explain the change from this DC contemplating a specific condition to contemplating a category of conditions. The other DCs suggested by the commenter are unlike proposed DC 5002 because they employ criteria based on a specific procedure (DCs 5054 & 5055) or defined range of motion measurement (DCs 5250-5255). VA makes no changes based on this comment.

Lastly, a commenter expressed concern that the directive to “assign the higher evaluation” under DC 5002 could result in situations where an active disease process results in a lower evaluation than if the residuals of the disease itself were evaluated. The directive in proposed Note (3) for DC 5002 specifically addresses this concern. As indicated in the preamble to the proposed rule, the purpose of Note (3) is to prevent ratings for both residuals and active disease process at the same time; instead, the Note requires claims processors to assign the evaluation more advantageous to the claimant: An evaluation for active disease process OR an evaluation for the residual effects of the disease (including combined and/or bilateral factors, where applicable). Accordingly, VA makes no change based on this comment.

One commenter suggested that arthritis ratings under DC 5010 resulting from separate traumas should not receive a combined evaluation under 38 CFR 4.25. VA makes no changes based on this comment, as the evaluations under the VASRD are based on the average impairment in earnings due to disabilities resulting from military service; the specific incidents or causes during military service are generally immaterial to a rating. As a practical matter, attempting to categorize functional impairment by specific traumatic instances would prove ineffective and often impossible, as specific instances of trauma are not necessarily captured in the treatment record for an individual.

One commenter asked how DC 5011 would help evaluate a case of facial fractures, hearing loss, a collapsed sinus, eye injury and so forth. VA notes that DC 5011 does not provide specific evaluation criteria; rather, it serves as a standalone diagnostic code to track instances of decompression illness (also known as generalized barotrauma or the bends). As noted in the preamble to the proposed rule, residual manifestations of decompression illness often involve other body systems; the proposed evaluation criteria specifically directs claims processors to evaluate residuals under the appropriate body system. Accordingly, specific residual injuries will be evaluated under the most appropriate diagnostic code in the VASRD, in accordance with the findings and disability present. VA makes no changes based on this comment.

Another commenter questioned what effect the changes to DCs 5010, 5013 and 5014 would have on determinations under 38 CFR 3.309. 38 CFR 3.309 identifies diseases subject to presumptive service connection where certain circumstances of military service are otherwise met. This section pertains to establishing service connection; it does not involve the evaluation of any specified disability. The current rulemaking has no impact on the provisions of section 3.309 and therefore VA makes no changes based on this comment.

Another commenter recommended using the phrase “medically-directed therapy” as opposed to “prescribed therapeutic procedure” in the Note to DC 5012. While this comment was taken into consideration, VA's selected term has a specific meaning and indicates a prescribed course of treatment, as determined by a qualified medical professional, as evidence of the severity of the disability and disease, in the professional opinion of the provider. “Medically-directed” does not have the same meaning as “prescribed” and its use here would leave open for interpretation therapies that are either suggested at a lower level of necessity or directed by someone who is not licensed/qualified to prescribe treatment for malignancies. VA makes no changes based on this comment.

One commenter suggested adding a Note to DC 5014 indicating that, if medical evidence does not specifically indicate or state there are no residuals, there is insufficient evidence to apply the provisions of DC 5014. VA appreciates this comment but notes that 38 CFR 4.2 specifically instructs claims processors to return examinations as inadequate for evaluation purposes if the examination report does not contain sufficient detail or if a diagnosis is not supported by the findings on examination. Accordingly, the suggested Note would be duplicative of current regulations and VA makes no change.

Also, a commenter suggested adding notes to indicate where hydrarthrosis, synovitis, and periostitis could be evaluated since VA proposed removing specific DCs for these conditions. As noted in the preamble to the proposed rule, hydrarthrosis and synovitis are signs of underlying conditions that are already captured within the evaluation criteria of other DCs. Likewise, periostitis is a non-specific inflammatory process caused by underlying conditions that can be rated in accordance with the primary diagnosis. VA sees no need to limit these signs to specific DCs; they will be evaluated with an underlying diagnosis. VA makes no changes based on this comment.

Finally, on further review, the sentence following DC 5024 is more aptly described as a Note to DCs 5013 through 5024. As such, the final rule recharacterizes it as a Note and removes as unnecessary the proposed limitation that gout only be evaluated under DC 5003.

One commenter requested clarification as to why joint resurfacing and total joint replacement qualify for 100 percent disability compensation during the convalescent period, but partial joint replacement does not. VA recognizes that partial joint replacement (more accurately referred to as subtotal joint replacement) may result in disability in a manner similar to joint resurfacing and/or total joint replacement. However, VA currently lacks sufficient data to determine that partial joint replacement warrants a temporary post-surgical rating in lieu of a rating based on the effects of the underlying disability. To that end, VA will consider adding criteria specific to subtotal joint replacement in a future rulemaking, once sufficient evidence is received and reviewed to provide adequate evaluation criteria.

One commenter asked if revision procedures were eligible for the same compensation as the original procedures. While this comment was asked about hip replacement, it could be applied to all of the prosthetic replacement DCs. If the original complete prosthetic component is replaced, or, in addition to replacement of the original component, additional components are installed, then the revision procedure should be evaluated in the same manner as the initial procedure. In other words, if the revision fully replaces the original total prosthetic joint replacement, VA treats the complete revision procedure in the same manner as the initial total joint replacement. To that end, in this final rule, VA has recharacterized the proposed note at the beginning of the “Prosthetic Implants and Resurfacing” subsection as Note (1) and added a Note (2) that directs claim processors to only evaluate revision procedures in the same manner as the original procedure if the revision completely replaces the original components.

For organization and clarity, VA has also moved three other notes to the beginning of the “Prosthetic Implants and Resurfacing” subsection and added a clarifying instruction. Specifically, the note immediately following DC 5111 has been moved to the beginning of the subsection and redesignated as Note (3). DC 5053's note and DC 5056's Note (1), which were identical, have been moved and redesignated as Note (4). An instruction that clarifies when the 100 percent evaluation period begins and ends for DCs 5054 and 5055 is provided as Note (5). And Note (2) under DC 5056 has been moved and redesignated as Note (6).

Multiple comments were received for DCs 5054 and 5055. Generalized objections included two commenters who shared their personal histories involving revision procedures/surgeries on their hips as the underlying basis for their objections. Two commenters also expressed reservations with the reduction in the convalescent period for these DCs because of non-sedentary or physically demanding occupations, as well as additional service-connected disabilities that potentially complicate the evaluation. In regard to using personal experiences to justify any objection to the proposed changes, VA notes that 38 U.S.C. 1155 (the statute that governs implementation of the ratings schedule) provides that ratings shall be based, as far as practicable, upon the average impairments of earning capacity resulting from such injuries in civilian occupations. Accordingly, VA formulates the VASRD based on average impairments in civil occupations, not isolated personal experiences or the demands of specific occupations. In addition, the reduction in convalescent periods is based on average recovery times, as noted in the proposed rulemaking and sources cited therein. There are provisions to address exceptional individual circumstances on a case-by-case basis that fall outside the scope of this rulemaking. No changes are made based on those comments.

Another commenter disputed the study cited in the preamble to the proposed rule. The commenter used a quotation from the authors characterizing the methodological quality as moderate to low and comparisons of rates and speeds of return to work being hampered by large variations in patient selection and measurement methods. VA disagrees that the limitations identified by the commenter should invalidate the justification to reduce the convalescent period from 12 months to 4 months for hip and knee replacements. There are multiple studies within the medical literature which demonstrate sufficient functional recovery well short of 12 months. The study cited in the proposed rule focused upon a specific outcome (return to work without restriction), rather than completion of the associated rehabilitation program. VA convalescence rates are awarded at the 100 percent level—which, in accordance with the criteria throughout 38 CFR part 4, equates to a complete inability to work. Following the convalescent period, VA assigns a non-convalescent evaluation based on residual functional impairment, the purpose of which is to assess residual disability and compensate for average earnings loss based on said residual disability.

One commenter proposed that a reduction in benefits for these DCs occur only after mandatory examination. Post-convalescence reductions for these conditions occur without a mandatory examination, due to the common nature of these medical procedures as well as the expected outcome and residuals, as supported by medical evidence cited in the preamble to the proposed rule. As stated in 38 CFR 4.1, the percentage ratings represent as far as can practicably be determined the average impairment in earning capacity resulting from such diseases and injuries and their residual conditions in civil occupations. VA acknowledges that there may be individual circumstances which require additional consideration due to worse-than-expected residuals or the factual need for additional convalescence. In these circumstances, a claimant may submit a claim with pertinent treatment records to support an increased evaluation for residuals or additional convalescence, all without requiring a mandatory examination. VA makes no changes based on this comment.

Another commenter proposed to extend the convalescent period whenever a revision procedure is performed. While a revision procedure may require additional time in the hospital following the procedure, this time typically amounts to a few days. Additionally, while the recovery may be potentially slower following a revision, VA is currently unaware of published medical literature which quantifies this recovery in a manner sufficient to identify a unique and/or extended period of convalescence for purposes of the VASRD. Should such evidence exist at a future date, VA will review it and consider revisions to the criteria as necessary. At this time, however, VA makes no changes based on this comment.

One commenter disagreed with the proposed reduction in the convalescent period because (1) there was little to no public support for such a reduction and (2) the studies used to support the reduction were not specific to veterans. The language in 38 U.S.C. 1155 specifically contemplates a schedule of ratings based on the average impairment in earnings from civil occupations, with revisions from time to time in accordance with experience. If a particular disability's effect on earnings capacity measurably changes (usually through a combination of improved medical management and job market changes), VA complies with its statutory authority by revising the criteria contained in the VASRD to ensure evaluations are consistent with available data. VA is unaware of any study pertinent to the disabilities at issue that quantifies a different impact of a specific disability or disabilities on the general population comparative to the veteran population. Should such information become available, VA will review it along with all other available scientific, medical, and economic data available to ensure the VASRD provides the most accurate and adequate evaluations. At this time, however, VA makes no revisions based on these comments.

One commenter offered an alternative schema to VA's proposal for DC 5054. This commenter recommended a separate DC be created for hip resurfacing. The commenter provided multiple sources to justify a minimum evaluation within the criteria for this alternative schema (citing multiple sources which compared resurfacing to prosthetic replacement). The commenter also criticized VA's proposed revision for DC 5054, asserting it was contradictory to government and industry standards. The commenter asserted that the purpose and advantage of hip resurfacing is bone preservation, not improved range of motion or activity. Finally, the commenter stated that VA should evaluate resurfacing and total arthroplasty under separate DCs.

VA makes no changes based on these comments for several reasons. First, VA disagrees with the statement that a minimum evaluation for hip resurfacing post convalescence similar to total arthroplasty is required. As noted in the preamble to the proposed rule, joint resurfacing preserves more of the original anatomy of the joint, leading to greater functional potential, and ultimately less occupational disability or impairment in earnings capacity compared to a total arthroplasty. Also, the sources cited by the commenter refer to the hip resurfacing procedure itself, the unique complications associated with resurfacing, and how it compares to total arthroplasty. While relevant in individual cases, potential complications in and of themselves do not consistently predict either residual occupational disability or average impairment in earnings capacity in a manner consistent with VA's authority to maintain and revise the VASRD. Additionally, as stated previously in response to similar comments, should individual complications arise, VA has the means to address these unique situations on a case-by-case basis either through additional convalescence or increased evaluations. With regard to the comment that VA's proposed revision is contrary to government and industry standards, VA notes that the commenter did not provide resources which establish either government or industry standards for the evaluation of resurfacing or residual disability in light of occupational impairment or earnings loss, and VA is unaware of an official government or industry standard upon which to base any changes to the proposed rule.

However, to further clarify VA's intent to provide a minimum evaluation following only total joint replacement, VA has added language to the Note following final DCs 5054 and 5055 clarifying that the minimum evaluation does not apply to resurfacing. Regarding the comment that range of motion as a residual for hip resurfacing would not be addressed under other DCs, VA notes that the (proposed and now final) rule directs the rater to use DCs 5250 through 5255 to evaluate such residuals. DCs 5251, 5252, and 5253 address decreased range of motion of the hip joint as a potential residual. Additionally, VA notes that the commenter's reference to “bone preservation” is consistent with VA's explanation in the preamble of the proposed rule (noting that resurfacing “preserves more of the original anatomy”). In any event, the intent of the VASRD is to assess and evaluate residual disability and occupational impairment. Currently, VA is unaware of medical or economic data to support an evaluation for hip resurfacing based on the quantity of bone preserved. Additionally, VA notes that a single DC for both resurfacing and prosthetic component replacement is more appropriate than having separate DCs, as the symptoms leading up to and resulting from both procedures are similar and predictable (loss of weight bearing capability, muscle strength/endurance, and range of motion due to complications such as component loosening, infection, etc.).

One commenter stated that the rating for disarticulation of the shoulder in DC 5120 may conflict with the rules for rating the shoulder muscles and ankylosed joints. VA notes that a disarticulation at the shoulder joint removes all the joints along with their associated muscles of the upper extremity. Thus, there would be no muscles or joints remaining, and therefore no evaluation based on ankylosis of the joint could be assigned.

Another commenter asked why VA removed prompts from certain DCs directing claims processors to consider eligibility for special monthly compensation (SMC). The removal of the prompts from DCs in the proposed rule was an unintentional error. Accordingly, VA has re-inserted the prompts to consider SMC for all applicable DCs.

One commenter questioned both the need and the basis for the proposed changes to DC 5170. The commenter disagreed with VA's proposed criteria modification to include different amputation degrees within one DC and argued that at least two different DCs was a more appropriate approach. As noted in the preamble to the proposed rule, VA is adding this terminology to incorporate a residual which causes a similar disability to the one captured by current DC 5170. Furthermore, the amputation levels captured in the (proposed and now final) DC cause similar effects on occupational disability and impairment of earnings capacity. By grouping conditions and injuries with similar functional impairment together, VA provides accurate and adequate evaluations that reflect actual functional impairment while also providing more efficient and timely delivery of benefits.

One commenter requested that VA include more medical diagnoses synonymous with intervertebral disc syndrome (IVDS) and arthritis because, in the commenter's view, claims processors are inconsistent with acknowledging other similar conditions/diagnoses that are not specifically labeled as IVDS, arthritis, or degenerative joint disease (DJD). VA's original intent was to classify disability associated with IVDS under DC 5243 and all other intervertebral disc disabilities under DC 5242. To clarify that issue, VA has added such an instruction to final DC 5243.

For newly proposed DC 5244, two commenters had questions, and one commenter offered to provide training assistance to claims processors learning how to evaluate this newly proposed DC. The issue of training is beyond the scope of this rulemaking and therefore VA does not respond. One commenter stated that using the term “paraplegia” was problematic because it lumped a number of disabilities together and because paraplegia has a legal meaning. Specifically, the commenter questioned if paraplegia under DC 5244 also applies to paraplegia caused by amyotrophic lateral sclerosis (ALS) or multiple sclerosis (MS) and whether anal and bladder sphincter control impairment is necessary for assigning paraplegia under this DC, as is required to qualify for SMC under 38 CFR 3.350(e)(2), which is titled Paraplegia. The other commenter asked if incomplete paralysis is compensable. First, VA intended DC 5244 to rate paralysis resulting from trauma, as indicated in the title. It is separate and distinct from paralysis caused by either ALS or MS, which are neurological diseases and are rated using the appropriate neurological DC hyphenated with DC 5110 (loss of use of both feet). Second, although paraplegia is the title of § 3.350(e)(2), that provision provides requirements for SMC; paraplegia awarded under DC 5244 does not require impairment of anal and bladder sphincter control. Third, with regard to the comment on incomplete versus complete paralysis, VA has provided a note in this final rule that, if traumatic paralysis does not cause loss of use of both hands or both feet, it is incomplete paralysis and must be rated using the appropriate diagnostic code ( e.g., 38 CFR 4.124a, Diseases of the Peripheral Nerves).

One commenter concurred with the proposed changes to DC 5255. VA thanks the commenter for the input. Other commenters (1) asked if patellofemoral pain syndrome (PFPS) was included in DC 5255; (2) asked what would happen to DCs 5258 and 5259, given the proposed changes to DC 5257; and (3) recommended that claims processors be provided additional guidance for evaluating malunion under DC 5255. First, PFPS is a symptom that may result from patellar instability, but is a less appropriate fit for DC 5255, which contains criteria requiring fractures or malunions. Second, VA intends no changes to DCs 5258 or 5259, as they involve different components of the knee; accordingly, the changes to DC 5257 have no impact on DCs 5258 and 5259. Lastly, VA will provide non-regulatory guidance and training to claims processors for evaluating malunion under DC 5255.

Four additional commenters had concerns with and suggested alternatives to the proposed criteria of DC 5257. The first commenter expressed concern that the term “physician prescribed” excludes nurse practitioners, though such prescriptions are well within their scope of practice. VA agrees, and has substituted “medical provider” in place of “physician” to indicate that such instructions are intended to include qualified medical providers such as nurse practicioners.

The second commenter argued that (1) there is subjectivity with measuring translation; and (2) operative intervention should not be the basis for distinguishing a 30 percent evaluation from a 20 percent evaluation. After review, VA agrees that using translation can add an unintended amount of subjectivity to the evaluation criteria. To that end, VA has revised the proposed criteria to remove the reference to translation, and, instead, will use the elements of ligament status, instability, and need for assistive devices/bracing. A 10 percent evaluation will be granted if a sprained, incompletely torn ligament, or completely torn ligament (whether repaired, unrepaired, or failed repair) causes persistent instability but does not require a prescription for either bracing or an assistive device for ambulation. A 20 percent evaluation will be granted under one of two circumstances: (a) In the presence of a sprained, incompletely torn ligament, or repaired completely torn ligament that causes persistent instability and a medical provider prescribes a brace and/or assistive device; or, (b) in the presence of an unrepaired completely torn ligament or completely torn ligament with failed repair that causes persistent instability and requires a prescription for either a brace or an assistive device for ambulation. A 30 percent evaluation will be granted for an unrepaired completely torn ligament or completely torn ligament with failed repair that requires a prescription for both a brace and an assistive device for ambulation. As to the original comment, this final rule considers both operative intervention and prescriptions as a basis for distinguishing the 30 percent and 20 percent evaluations. As a result of these changes, proposed Note (1), providing measurements of joint translation, has been withdrawn.

The third commenter felt that VA gave no explanation for the new criteria, that the criteria should include assistive devices and/or bracing whether prescribed by a provider or not, and that the criteria requiring both an assistive device and bracing was too restrictive. In the preamble to the proposed rule, VA provided a full explanation for the evaluation criteria for knee instability, citing multiple peer-reviewed medical sources which further support the criteria used. Regarding the requirement for provider-prescribed bracing, braces and other assistive devices are commonly and readily available for purchase without prescription; the use of such devices, without a prescription, does not always demonstrate the presence of a knee disability impairing earning capacity. A qualified medical professional's prescription, however, provides objective evidence of the instability. Accordingly, for purposes of assessing the severity of knee instability, this (proposed and final) rule considers bracing in its evaluation criteria only when the brace or assistive device is prescribed by a provider. Moreover, to the extent the commenter believes that requiring bracing and an assistive device is too restrictive, this final rule provides a 20% rating where only one of the two has been prescribed.

The fourth commenter asserted that the proposed changes to DC 5257 (1) will result in compensation that is either completely detached from functional loss or not commensurate with the functional loss being evaluated; (2) completely ignore functional loss and misplace emphasis on physical abnormalities and recommended treatment; and (3) did not consider knee instability caused by conditions other than ligament damage.

VA appreciates the comment, but disagrees with the commenter's first assertion. Per 38 U.S.C. 1155, the schedule and its ratings shall be based, as far as practicable, upon the average impairments of earning capacity resulting from such injuries in civil occupations. VA compensates for functional loss that results in an impairment of earning capacity. The criteria for DC 5257, as indicated in the preamble to the proposed rule, incorporate both functional loss elements (assistive devices & bracing), as well as diagnostic elements (sprain, incomplete ligament tear, complete ligament tear). These criteria, which rely upon published sources reflecting current medical standards, serve as accurate proxies for functional loss of the magnitude that negatively impacts earnings. Furthermore, the proposed (and now final) criteria are easily observed and measured. Additionally, given the progressive manner of the criteria, VA provides compensation commensurate with the severity of the disability.

As to the commenter's second assertion that the proposed criteria base evaluations on recommended treatment, that is not the case. The proposed (and now final) criteria compensate for residual disability after specific treatment interventions are prescribed, not on the prescribed treatment itself, as well as observable and measurable factors to create a more complete assessment for evaluation purposes.

Third, with regards to the causes for knee instability other than ligament damage, VA intended the evaluation for patellar instability to be limited to the patellofemoral complex only. Thus, this final rule clarifies the proposed criteria and requires a diagnosed condition involving the patellofemoral complex for a patellar instability evaluation. A history of surgical repair (or the lack thereof) and the prescriptions for the instability dictate whether that evaluation will be 10, 20, or 30 percent (consistent with the format for recurrent subluxation evaluations).

Given this revision, VA has added a note (Note (1)) explaining that the patellofemoral complex consists of the quadriceps tendon, patella (knee cap), and patellar tendon. Proposed Note (2), despite technical edits, still provides that certain surgical procedures do not qualify as surgical repair under the patellar instability provisions of this DC.

In further response to the commenter's contention, we note that knee instability resulting from muscle failure can be evaluated under DC 5313 or DC 5314. Furthermore, with regards to knee instability and specific occupations, which the commenter also raised, compensation is based on the average of impairment in earning capacity for civil occupations, not the severity of disability encountered in selected occupations. Lastly, the language alternatively proposed by the commenter, which stems from a 2003 VA proposal, does not accommodate patellar instability, a shortcoming VA is unwilling to accept. VA notes that the 2003 proposal was withdrawn specifically to address concerns and issues with the rulemaking and to develop a new proposal at a later date. 69 FR 22757. Therefore, VA makes no revisions based on this commenter's input.

Unrelated to any particular comment, VA has revised the language of DC 5262 in this final rule to provide clarity on the specific criteria distinguishing the 30, 20, and 10 percent ratings for shin splints. Moreover, VA has decided not to adopt a rule that would require imaging evidence for a compensable rating; as the preamble to the proposed rule noted, shin splints are typically diagnosed—and can be properly assessed—by history and physical examination. M. Winters et al., “Medial tibial stress syndrome can be diagnosed reliably using history and physical examination,” 52(19) Br. J. Sports Med.1267-72 (2018).

As to the comments, one commenter asked two questions: (1) Is there ever a scenario where shin splints and fractured tibia/fibula do not have overlapping symptoms, and (2) Is a distal fracture rated as an ankle disability and shin splints as a knee disability? Whether or not symptoms from shin splints and a certain fracture may or may not overlap is a medical question for medical examiners in individual cases. Therefore, VA will not speculate on the answer to the first question here. In regard to the second question, VA's intent is that a tibia/fibula malunion be rated as either an ankle or knee disability. Beyond malunion, however, uncomplicated tibia/fibula fractures should still be rated under DC 5262.

Three commenters provided input for the proposed changes to these codes. Besides the commenters who concurred, one commenter disagreed with the criteria for proposed DC 5285, contending that veterans who are not surgical candidates are punished by the proposed 20 and 30 percent criteria. To address those veterans who would potentially benefit from surgical intervention, but who are not surgical candidates, VA is adding a Note (2) to DC 5285 indicating that a veteran who is recommended surgical intervention for plantar fasciitis but is not a surgical candidate would be eligible for either the 20 or 30 percent evaluation levels. The Note proposed in the proposed rule is recharacterized as Note (1). VA has also revised the wording of DC 5285 for clarity.

One commenter concurred with proposed DC 5330. VA thanks the commenter for the input.

Several commenters expressed support for particular revisions, as well as the rulemaking in general. Many of these comments, which were received from individuals as well as organizations in the veteran community, expressed appreciation for VA's action in updating the rating schedule for musculoskeletal disabilities. VA appreciates the time and effort expended by these commenters in reviewing the proposed rule and in submitting comments, as well as their support for this rulemaking.

One commenter requested public access to the information developed by the musculoskeletal system workgroup. In the preamble to the proposed rule, VA explained that the workgroup, comprised of subject matter experts from VA, the Department of Defense, and medical academia, held two public forums in August 2010 and June 2012, discussing possible revisions to the musculoskeletal regulations. A transcript of this public forum and all related materials are on file and available for public inspection in the Office of Regulation Policy and Management. (Contact information for that office is noted in the ADDRESSES section of the proposed rule. 82 FR at 35719.)

VA emphasizes that the workgroup did not participate in the deliberative rulemaking process; the workgroup discussed the general topic of the VASRD body system and provided feedback on the areas that were subject to advances since the last major revision of the body system. To this end, where changes to the scientific and/or medical nature of a given condition were made in the proposed rule, VA cited the published, publicly available source for these changes. Not only did this provide the public with access to the source for a given proposed change, it also confirmed that VA relied upon peer-reviewed scientific and medical information to support a given change. While similar information may have been presented by a workgroup member, VA relied upon the published document(s) as the primary source for a change and included such sources in the administrative record for this rulemaking. VA did not propose scientific and/or medical changes to the VASRD in the absence of publicly available, peer-reviewed sources.

Accordingly, references in the proposed rule to the workgroup serve as an explanatory background and introduction to the VASRD rewrite project; the changes made by this rulemaking are not a reflection of the workgroup or any workgroup member. All changes based on scientific and/or medical information are a reflection of cited, published materials which are available to the public. VA has made deliberative materials available (via citation in the rulemaking) and is providing access to materials from the public forum for public inspection at the Office of Regulation Policy and Management.

On review, the current rating schedule refers evaluations of inactive tuberculosis of the bones and joints (DC 5001) to 38 CFR 4.88b; however, § 4.88b was redesignated to § 4.88c in 1994. Therefore, the final rule simply corrects this reference.

In addition, the final rule revises the subheading for DCs 5051 to 5056 to “Prosthetic Implants and Resurfacing,” which the proposed rule noted in its regulatory text, but not in its preamble.

Also, DCs 5054 and 5055 have been reorganized to provide clarity to the applicability of the evaluation criteria. The 100 percent evaluation applies to both resurfacing and replacements. However, the 90, 70, 50, and 30 percent evaluations apply only to replacements. Therefore, the subheading referencing “replacement” in these DCs was relocated to the most appropriate location.

Lastly, VA made non-substantive edits to the parenthetical of DC 5242 and the proposed language for recurrent subluxation or instability under DC 5257.

VA received comments dealing with issues not directly related to proposed amendments to the rating schedule for musculoskeletal disabilities. One commenter suggested adding specified conditions to the list of presumptive disabilities for Former Prisoners of War (FPOW). Similarly, one commenter expressed concern over the impact of this rulemaking on the provisions for presumptive service connection for FPOWs in 38 CFR 3.309. Another commenter noted that the changes would assist in providing necessary treatment for the listed disabilities.

VA does not respond to these comments because they are either unrelated to this rulemaking or beyond its scope.

The Secretary hereby certifies that this final rule will not have a significant economic impact on a substantial number of small entities as they are defined in the Regulatory Flexibility Act, 5 U.S.C. 601-612. This final rule will not affect any small entities. The impact of this rulemaking results in cost savings to the VA's compensation and pension appropriations. There are no small entities involved, associated have an affilitation with VA's compensation and pension appropriations. Therefore, pursuant to 5 U.S.C. 605(b), the initial and final regulatory flexibility analysis requirements of 5 U.S.C. 603 and 604 do not apply.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, when regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, and other advantages; distributive impacts; and equity). Executive Order 13563 (Improving Regulation and Regulatory Review) emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The Office of Information and Regulatory Affairs has determined that this rule is an economically significant regulatory action under Executive Order 12866.

VA's impact analysis can be found as a supporting document at www.regulations.gov, usually within 48 hours after the rulemaking document is published. Additionally, a copy of this rulemaking and its impact analysis are available on VA's website at www.va.gov/orpm/, by following the link for VA Regulations Published from FY 2004 Through Fiscal Year to Date. This rule is not subject to the requirements of E.O. 13771 because this rule results in no more than de minimis costs.

The Unfunded Mandates Reform Act of 1995 requires, at 2 U.S.C. 1532, that agencies prepare an assessment of anticipated costs and benefits before issuing any rule that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more (adjusted annually for inflation) in any one year. This final rule will have no such effect on State, local, and tribal governments, or on the private sector.

This final rule contains no provisions constituting a collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3521).

The Catalog of Federal Domestic Assistance program numbers and titles for this rule are 64.013, Veterans Prosthetic Appliances; 64.104, Pension for Non-Service-Connected Disability for Veterans; 64.109, Veterans Compensation for Service-Connected Disability; and 64.110, Veterans Dependency and Indemnity Compensation for Service-Connected Death.

This regulatory action is a major rule under the Congressional Review Act, 5 U.S.C. 801-808, because it may result in an annual effect on the economy of $100 million or more. In accordance with 5 U.S.C. 801(a)(1), VA will submit to the Comptroller General and to Congress a copy of this regulatory action and VA's Regulatory Impact Analysis.

The Secretary of Veterans Affairs, or designee, approved this document and authorized the undersigned to sign and submit the document to the Office of the Federal Register for publication electronically as an official document of the Department of Veterans Affairs. Pamela Powers, Chief of Staff, Department of Veterans Affairs, approved this document on April 1, 2020, for publication.

For the reasons set out in the preamble, VA amends 38 CFR part 4, subpart B, as follows:

This is a summary of the Commission's Report and Order in WP Docket No. 07-100, FCC 20-137 adopted September 30, 2020 and released October 02, 2020. The full text of the Report and Order, including all Appendices, is available by downloading the text from the Commission's website at https://www.fcc.gov/document/fcc-expands-access-and-investment-49-ghz-band-0. Alternative formats are available for people with disabilities (braille, large print, electronic files, audio format), by sending an email to FCC504@fcc.gov or calling the Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

The Commission will send a copy of this Report in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

The Regulatory Flexibility Act (RFA) requires that an agency prepare a regulatory flexibility analysis for notice and comment rulemakings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” Accordingly, the Commission has prepared a Final Regulatory Flexibility Analysis (FRFA) concerning the possible impact of the rule changes contained in this Report and Order on small entities. As required by the Regulatory Flexibility Act of 1980, as amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was incorporated in the Sixth Further Notice of Proposed Rulemaking ( Sixth FNPRM ) released in March 2018 in this proceeding (83 FR 20011, May 7, 2018). The Commission sought written public comment on the proposals in the Sixth FNPRM, including comments on the IRFA. No comments were filed addressing the IRFA. This present Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

The requirements in § 90.1217 constitute new or modified collections subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-13. They will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the new or modified information collection requirements contained in this proceeding. In addition, the Commission notes that, pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), the Commission previously sought, but did not receive, specific comment on how the Commission might further reduce the information collection burden for small business concerns with fewer than 25 employees. The Commission describes impacts that might affect small businesses, which includes more businesses with fewer than 25 employees, in the Final Regulatory Flexibility Analysis.

The Commission has determined and the Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, concurs, that this rule is non-major under the Congressional Review Act, 5 U.S.C. 804(2). The Commission will send a copy of the Sixth Report and Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

1. Nearly two decades ago, the Commission designated 50 megahertz of spectrum at 4.9 GHz (4940-4990 MHz) for use in support of public safety. Over the past 18 years, the Commission, working with public safety entities and associations, has endeavored to increase investment in, and maximize use of, the band. These efforts notwithstanding, the 4.9 GHz band remains underused outside of major metropolitan areas, with stakeholders citing high equipment costs and limited availability of broadband equipment, among several barriers to its use. In this document, we begin to break down these barriers and expand access to the band by providing states the opportunity to lease 4.9 GHz band spectrum to commercial entities, critical infrastructure industry, including electric utilities, and other stakeholders.

2. Under our new framework, statewide incumbent licensees will be empowered with the authority to make decisions on how best to maximize the value and use of their spectrum based on market forces. States can continue to use the spectrum for their own public safety network operations; they can enter into one or more commercial arrangements for commercial deployment of public-safety communications services; they can lease the spectrum to a commercial service provider for deployment of mobile or fixed wireless internet service, private land mobile radio service or critical infrastructure connectivity; or they can pursue a combination of any of these scenarios (or any other arrangement that is allowed for pursuant to the service rules for the band and our Secondary Markets rules (69 FR 77521, Dec. 27, 2004)). The rule changes we adopt here will reverse the effects of the 4.9 GHz band's antiquated licensing framework that have led to its underuse.

3. Prior to the amendments in this document, access to the 4.9 GHz band was restricted to certain entities and use of the spectrum was limited to public safety purposes. Licensees also operate pursuant to a complicated sharing framework; there is no exclusive use of the band. This Sixth Report and Order allows states to enter into lease agreements voluntarily with other users (whether public safety or non-public safety) for access to the 4.9 GHz band in their territory. We place no restriction on the type of entity to which a state can lease or the type of services that the lessee can provide. This approach, especially when combined with the potential changes to licensing and coordination contemplated in the accompanying Seventh FNPRM, published elsewhere in this issue of the Federal Register , seeks to empower states to determine the best use of the 4.9 GHz band for their citizens, by enabling them to balance the needs of public safety and the benefits that can come from non-public safety use. We anticipate that this framework will facilitate more robust investment in this band across the entire country and drive down equipment costs, to the benefit of public safety and non-public safety entities seeking to deploy.

4. In the accompanying Seventh FNPRM, we propose a new state-based licensing regime for public safety operations in the 4.9 GHz band. We seek comment on a centralized structure of state oversight and coordination of public safety operations in the band, to work alongside the leasing regime we adopt in this document. We also seek comment on ways to maximize opportunities for leasing and otherwise encourage more robust use of this band.

5. Under our rules, to be eligible for a 4.9 GHz license, an entity must provide public safety services as defined under our part 90 rules. This includes state and local government entities, as well as nongovernmental organizations (NGOs) that operate their systems solely to transmit communications essential to the provision of services having the sole or principal purpose of protecting the safety of life, health or property. Licensees are also permitted to enter into sharing agreements with ineligible entities for use of this spectrum, but operations must be in support of public safety. 4.9 GHz licenses authorize operation on any channel over the entire 50 megahertz of the band and are issued for the geographic area encompassing the legal jurisdiction of the licensee. A key component of the 4.9 GHz band is that licenses are granted for shared use only and provide no exclusive rights. As a result, licenses often overlap: There may be one or more geographic area license covering a given location and licensed on the same spectrum, as well as fixed-site licenses. For example, a common scenario might involve a statewide license held by the state police, a county-wide license held by the sheriff's department, and fixed-site licenses operating in the same area by various public safety entities. Our 4.9 GHz rules do not specify a formal coordination requirement. Rather, licensees informally cooperate with one another to ensure that their operations do not cause interference with one another, and to resolve interference if it occurs. Public safety entities can also be licensed for fixed point-to-point and point-to-multipoint operations within their jurisdictions.

6. Nearly all licenses in this band contain a condition, consistent with our rules, specifying that operation is permitted only within the jurisdiction of the licensee, or that of the entity supporting the application of an NGO, regardless of the area specified on the license (which, due to legacy Universal Licensing System limitations, in some cases is depicted as larger than the relevant jurisdiction). A licensee has the authority to operate base stations and mobile units (including portables and handheld units) and/or temporary (one year or less) fixed stations anywhere within its authorized area.

7. Licensees are also permitted to operate base stations with mobile units and temporary fixed stations outside their authorized area with the permission of the other jurisdiction in which they will operate. Permanent fixed point-to-point and point-to-multipoint stations must be licensed individually on a site-by-site basis. Permanent fixed stations that connect base and mobile stations that are used to deliver broadband, or that are part of a public safety network using spectrum designated for broadband use, are accorded “primary” status under the rules.

8. There are 3,578 licenses currently issued in the band. This includes 142 statewide area licenses, 1,160 countywide area licenses, and 2,276 other licenses, either for geographic area licenses or other types (such as for a group of counties, a city, or parts of one or more cities) or for fixed sites. Most of the United States and U.S. territories are covered by at least one statewide license. In some states, multiple state entities hold statewide licenses. Operations, particularly fixed communications and connectivity, are used to facilitate video streaming, communications system backhaul, and data connections for advanced devices. Emerging uses of the band include robotics and airborne operations, as well as Internet of Things uses.

9. In March 2018, the Commission released the Sixth FNPRM, in which it sought comment on ways to stimulate expanded use of, and investment in, the 4.9 GHz band. The Commission noted that “[a]lthough nearly 90,000 public safety entities are eligible under our rules to obtain licenses in the band, there were only 2,442 licenses in use in 2012 and only 3,174 licenses in use nearly six years later in 2018.” With no more than 3.5% of potential licensees using the band, the Commission remained concerned that, as originally stated in 2012, the band has “fallen short of its potential.” Over two years later, the 4.9 GHz band continues to be underused. There are currently only 3,578 licenses issued, and in many instances the same licensee holds multiple licenses in its jurisdiction based on the 4.9 GHz licensing structure requiring geographic area licensees to obtain individual licenses for permanent fixed sites. Accordingly, there are currently only 2,094 individual licensees, whereas the number of eligible public safety entities as of the 2017 census is 90,075. Various commenters agree that the 4.9 GHz band remains underused. As one commenter noted, the lack of widespread use of the band “stands in stark contrast to other spectrum bands in which usage is increasing exponentially and the Commission is working at breakneck speed to provide access to support existing broadband services and provide opportunities for new services and applications.”

10. In the Sixth FNPRM, the Commission sought comment on a number of proposed rule changes and several options to increase use of this spectrum. These included allowing licensees additional flexibility to engage in spectrum leasing, as well as broadening of eligibility requirements for licensees, changes to technical rules governing the band, and proposals from NPSTC and APCO seeking revisions to the band's coordination requirements and band plan. The Commission received comments from across several industries, which broadly support increased use of the band while also preserving public safety access.

11. On September 8, 2020, the Public Safety and Homeland Security Bureau and the Wireless Telecommunications Bureau (the Bureaus) issued a freeze of the 4.9 GHz band to stabilize the band while we consider changes to the rules as part of this proceeding ( Freeze Public Notice ) (85 FR 63553, Oct. 8, 2020). Pursuant to the freeze, we will not accept applications for new or modified licenses, either geographic area licenses or individual fixed-site licenses.

12. In the Sixth FNPRM, the Commission anticipated that “the benefits of allowing more efficient spectrum use through leasing can be realized at no cost to public safety.” This Commission has consistently worked to ensure the efficient allocation and use of spectrum, especially critical mid-band spectrum. In this Sixth Report and Order, we revise a legacy framework and put the 4.9 GHz band, which has been underused for nearly 20 years, on a market-driven path. Our approach will allow public safety incumbents to retain access to the band while also providing incentives for more efficient use by empowering states to lease spectrum rights to commercial, critical infrastructure, and other users. The rules we adopt in this document give public safety licensees the agency to execute leasing arrangements when appropriate and beneficial to their citizens without requiring modification or cessation of current public safety operations in the band. We find that allowing state-based leasing under the framework adopted in this document serves the public interest.

13. We find that allowing leased access to the shared 4.9 GHz band for non-public safety operations will increase the efficient use of this spectrum and serve the public interest. We will permit one statewide 4.9 GHz band licensee in each state to lease some or all of its spectrum rights to third parties and, when leased, we eliminate the requirement that 4.9 GHz spectrum must be used to support public safety. This light-touch approach will allow each state the flexibility to negotiate mutually agreeable arrangements with third party lessees where it makes sense to do so, which we anticipate will increase use of and investment in the band. This approach also protects against harmful interference by leveraging the existing informal coordination process in the 4.9 GHz band and ensuring that leasing will be coordinated by a single state entity that is able to work with county and local public safety entities, as well as lessees, to avoid harmful interference.

14. Commenters support varying ways of allowing non-public safety access to the band. Commenters representing CII indicate that this spectrum is well-suited for complex operations, including smart grid applications and other communications networks upon which utilities and other CII entities rely. Providers of fixed wireless broadband service similarly argue that the spectrum holds promise for their operations, including point-to-multipoint connections. Equipment manufacturers and spectrum consultants also support non-public safety use of the band. Some parties contend that spectrum sharing can be achieved using dynamic access systems, similar to those used in the TV white spaces, Citizens Broadband Radio Service, or for unlicensed operations in the 6 GHz band (5950-7150 MHz). Commenters representing 4.9 GHz public safety users urge the Commission to ensure that current and future public safety operations have continued access to this band.

15. In the nearly two decades since, the Commission adopted restrictive leasing rules for public safety eligibles, the utility of this spectrum for flexible use has increased dramatically, and the public safety community still has not made full use of the entire band. In addition, some countries have considered, or are considering, allocating this band for 5G; successful international harmonization efforts could provide further advantages in the availability and price of equipment, thus potentially increasing its utility for flexible use. Given these developments, the public interest would be served by adopting a more flexible approach that permits leasing of the spectrum to non-public safety entities. We conclude, as suggested in the Sixth FNPRM, that “the benefits of allowing more efficient spectrum use through leasing can be realized at no cost to public safety.” We agree with commenters that allowing a “secondary market for spectrum in this band . . . [will] augment the Commission's efforts to intensify use of the band” and “provide for creativity in use cases.”

16. We determine that allowing leasing of shared 4.9 GHz spectrum by a single state government entity per state best serves the public interest by encouraging greater use of the band and allowing each state to determine the correct balance between public safety and non-public safety access, thereby avoiding disruptions to public safety operations. We expect that this action ultimately will decrease deployment barriers and encourage greater public safety use of the band, alongside non-public safety uses, by driving down the price of equipment and facilitating innovative cost-sharing arrangements between public safety licensees and non-public safety lessees. The potential revenue streams from leasing may also increase the ability of states to invest in equipment for this band. While we seek to maximize leasing opportunities, we find that the unique nature of this band and the realities of a shared spectrum environment necessitate more centralized control of non-public safety spectrum access. We believe that allowing leasing through a single statewide entity in each state provides the flexibility to determine the most appropriate use of its spectrum rights to meet the state's communications needs, while ensuring that access to this shared band is controlled and responsibly managed. This approach both promotes more efficient spectrum use and encourages greater spectrum access.

17. Some commenters raise concerns about spectrum leasing, including general concerns about Commission action forcing public safety to share the 4.9 GHz band or transferring spectrum and decreasing the availability of public safety spectrum, leasing to non-public-safety entities, and more specific concerns about states leasing at the expense of local public safety interests, inadequate interference protections for public safety, the relatively limited number of public safety licensees, and therefore potential lessors, in the band. These commenters point to the alleged complexity and logistical concerns involved in devising a spectrum leasing system in the 4.9 GHz band. Some commenters also suggest that public safety entities might engage in spectrum warehousing and “arbitrage,” whereby they would obtain or use their spectrum rights (received at no cost) to obtain leasing revenues.

18. We find that these concerns do not outweigh the public interest benefits of permitting leasing pursuant to the framework we adopt in this document. Although there are relatively few licensees in this band as compared to the overall number of public safety entities eligible to obtain a license, nearly all states have at least one statewide license, enabling leasing of nearly all available spectrum. And while a spectrum leasing framework involving shared spectrum may raise some complexities, so does every other proposed path to increase use of this band, and we believe that the framework we adopt in this document empowers states to find ways to enable public safety and non-public safety use of the band as best suits their particular needs. We emphasize that leasing is voluntary and allows state governments the flexibility to determine the appropriate use of this band in their respective jurisdictions, which may include new partnerships that could expand public safety access to the band. We expect this new flexibility will lead to new uses of 4.9 GHz spectrum and lower equipment costs for public safety. Also, the Commission is in no way redesignating or transferring 4.9 GHz spectrum for commercial use or requiring public safety to relinquish spectrum, thereby protecting existing public safety operations and investments. We anticipate that allowing non-public safety access through state-level leasing will also ensure continued cooperation amongst stakeholders, as public safety licensees today already are accustomed to coordinating shared spectrum use in their jurisdictions. Further, as the Commission noted in the Sixth FNPRM, statutory concerns regarding commercial use of public safety spectrum do not apply to the 4.9 GHz band, and no commenter raised statutory concerns regarding spectrum leasing proposed in the Sixth FNPRM.

19. In the original Secondary Markets proceeding, the Commission considered and rejected spectrum warehousing concerns as related to public safety entities, noting that leasing of unused spectrum in fact diminishes the risk of spectrum warehousing. We find that the current freeze on applications for new or modified licenses should discourage speculative behavior, and our framework, which only allows leasing by a single state entity per state, will also reduce incentives to hold or obtain licenses for purposes other than active deployment. Further, the new licensing and coordination/management regime proposed in the accompanying Seventh FNPRM would further streamline the licensing of this band and avoid incentives for licensees to engage in speculative behavior.

20. Under the framework we adopt in this document, one entity in each state (the State Lessor) will have the opportunity to lease voluntarily some or all of its 4.9 GHz band spectrum rights to third parties for fixed or mobile use, including for non-public safety operations. Leasing by other 4.9 GHz band licensees, including by state entities other than the State Lessor, county or local entities, or nongovernmental organizations that operate in support of public safety, will not be permitted. The State Lessor and lessee(s) will have the flexibility to structure their lease arrangements, within the boundaries of our Secondary Markets rules, to protect ongoing and future public safety operations while allowing for more flexible use of the band. We recognize that State Lessors and lessees are best positioned to negotiate appropriate leasing arrangements to meet their operational needs, and the needs of their states, and we impose minimal restrictions on those agreements.

21. We amend part 90, subpart Y, of our rules to permit the statewide licensee selected as the State Lessor to voluntarily lease 4.9 GHz band spectrum rights under our part 1 leasing rules to any entity that is otherwise eligible to be a spectrum lessee for fixed or mobile use, including to commercial entities and others with non-public safety operations, thus opening the band to flexible new uses. The State Lessor is also free to lease to public safety entities. Some commenters urge the Commission to provide for continued exclusive public safety community use of 4.9 GHz spectrum to be managed through the First Responders Network Authority (FirstNet); wireless providers other than AT&T (which operates FirstNet) urge the Commission to reject such an approach. We decline to assign the 4.9 GHz band to FirstNet—which would deprive states (as well as public safety entities within that state) any choice in how the band is used. We find, however, that the leasing framework we adopt in this document is not inconsistent with 4.9 GHz spectrum being used by FirstNet as a lessee; a State Lessor has the flexibility to enter into a variety of leasing arrangements, including leasing to commercial entities that have the option of providing services to public safety or non-public safety entities. As discussed below, the State Lessor also will no longer be subject to the public safety use restriction contained in our rules. Through this action, the State Lessor will be permitted to lease spectrum rights in all, or any portion, of that state. It may divide these rights on a geographic, spectral, or temporal basis, and it may also lease spectrum rights associated with its permanent fixed sites, including those with primary status under our rules.

22. State Lessors may enter into agreements with lessees to share equipment or other deployment costs provided that they comply with all relevant license provisions. We encourage parties to also consider alternative coordination methods to prevent harmful interference between lessees and public safety licensees that allow for robust shared use of the band. For example, parties might consider spectrum leases that rely on dynamic sharing mechanisms, which permit operational access based on automated databases that identify protected operations. In the Seventh FNPRM, we seek comment on ways the Commission can encourage and facilitate this type of sharing.

23. The Commission originally designated the 4.9 GHz band for public safety use to “ensure that agencies involved in the protection of life and property possess the communications resources needed to successfully carry out their mission.” As the history of this proceeding well demonstrates, access to spectrum is not the sole determinant of whether public safety entities can obtain necessary communications services. Another issue that has challenged public safety entities is 911 fee diversion. The Commission is required to provide an annual report to Congress on state 911 fee collection and use that identifies which states have improperly diverted 911 fees. While identifying states that divert 911 fees in these reports has arguably helped discourage the practice, this step alone has failed to eliminate it. In the recently adopted Fee Diversion NOI, we found that between 2012 and 2018, American states and jurisdictions have diverted over $1.275 billion in fees collected for 911 and Enhanced 911 services to non-911 purposes. As noted in the Fee Diversion NOI, “[t]his diversion of funding directly undermines the public safety communications system.” The Commission seeks specific comment in the Fee Diversion NOI on “regulatory steps the Commission could take to discourage fee diversion, such as . . . conditioning state and local eligibility for FCC licenses, programs, or other benefits on the absence of fee diversion.”

24. In this document, we expand access to the 4.9 GHz band by affording to certain eligible states the benefit of leasing spectrum rights, which we anticipate could provide substantial additional state revenues. However, we find it in the public interest to only extend this benefit to states that use 911 fees collected from consumers for their intended purpose at this time. Specifically, we will only permit states that are not identified in the Commission's December 2019 911 Fee Report as diverting 911 fees for non-911 purposes to lease spectrum rights to non-public safety or public safety entities. We take this action, in conjunction with our more in depth consideration of this issue in the Fee Diversion NOI, as an affirmative step toward addressing this long standing problem and in recognition that states that have a history of appropriately using 911 fees are more likely to respect the rights of public safety incumbents in the 4.9 GHz band. We defer consideration to the Seventh FNPRM on whether to extend the 4.9 GHz band leasing framework to states that divert 911 fees. A state that either believes it was incorrectly identified in the 2019 Fee Report as diverting fees, or that has taken subsequent remedial action, may petition the Public Safety and Homeland Security Bureau to demonstrate, with supporting documentation, that relief is justified, and we direct the Bureau to expedite action on any such petition.

25. In order to centralize leasing functions and facilitate coordination of spectrum use, we require a state seeking to benefit from our voluntary secondary markets opportunities to select a single state entity that is a statewide 4.9 GHz band licensee to act as the State Lessor. Where a state has a single statewide license, we will treat that licensee as the default State Lessor. A default State Lessor may, in its discretion, assign its license to another statewide entity if that entity is deemed a more appropriate State Lessor; the assignment application must include a designation letter from the governor (or his or her designee) akin to that required by § 90.529 of our rules certifying that the assignee is the entity the state has selected to be the State Lessor.

26. If a state has multiple statewide licenses held by state entities and voluntarily seeks to lease, the state must select one of those entities as the State Lessor. A statewide licensee not selected as State Lessor may continue to operate pursuant to its authorization but will not be permitted to lease spectrum rights. As part of any lease arrangement with a lessee, a State Lessor must submit to the Commission FCC Form 608 accompanied by evidence that it has been selected as State Lessor. Such evidence shall consist of a copy of the written agreement signed by each of the state's multiple statewide licensees indicating the selection of the State Lessor. If states with multiple statewide licensees are unable to reach such an agreement, we will accept in the alternative (as an attachment to FCC Form 608) a gubernatorial letter designating a certain state entity licensee as the State Lessor. To reduce administrative and regulatory burdens, we find it unnecessary to mandate a Commission pre-approval process for a state entity seeking State Lessor status prior to actually engaging in lease arrangements. We anticipate that, under this market-based approach, a prospective lessee engaged in negotiations with a prospective State Lessor will seek assurances that the requisite State Lessor documentation (either a multi-licensee agreement or a gubernatorial letter) has been executed prior to submission of an FCC Form 608 seeking Commission approval of, or provide notice to the Commission of, a specific lease arrangement, as applicable. Pursuant to our state-based approach to expanding secondary markets opportunities in the 4.9 GHz band, leasing will not be permitted in those states that have no statewide licensee.

27. The Commission's Secondary Markets framework provides for a variety of leasing vehicles, any of which the State Lessor and its lessee(s) will be free to enter into depending on which best accommodates the needs of their state. This includes de facto transfer spectrum leasing arrangements, where the licensee retains de jure control of the license while de facto control of the leased spectrum is transferred to the spectrum lessee; and spectrum manager leasing arrangements, where the lessee is permitted to use the spectrum, but the licensee retains both de jure and de facto control. In determining the appropriate leasing vehicle, we expect a State Lessor to evaluate its ability as lessor to comply with state law requirements related to leasing activities. The State Lessor should only enter into lease arrangements that it is legally and organizationally equipped to implement.

28. Consistent with our Secondary Markets rules, State Lessors entering into spectrum lease agreements must comply with our existing part 1 leasing rules, including: Filing an FCC Form 608, either seeking prior Commission approval to enter into the lease (for a de facto transfer spectrum lease) or providing notice of the lease (for spectrum manager leases); Complying with the requirements associated with the chosen type of leasing agreement, including the level of control required to be maintained by the State Lessor for either a de facto transfer spectrum lease or a spectrum manager lease; Fulfilling all obligations associated with compliance with the Communications Act and Commission rules associated with the original license; Complying with our rules on assignments and transfers of control for spectrum leasing arrangements in the 4.9 GHz band; and Ensuring that spectrum leasing arrangements include all required contractual provisions.

29. We also note that certain licensees have a waiver of the prohibition on aeronautical use in the 4.9 GHz band. If a State Lessor has been granted a waiver of the § 90.1205(c) aeronautical prohibition, that right is not transferable to a lessee. A lessee seeking to engage in aeronautical mobile operations must submit a request for waiver accompanied by a sufficient technical justification and an exhibit demonstrating the State Lessor's support for the waiver.

30. To increase flexibility and encourage more efficient use of the 4.9 GHz band, lessees of 4.9 GHz band spectrum will not be subject to the requirement that they use the spectrum in support of public safety and may engage in flexible use fixed or mobile operations.

31. Lessees will be permitted to conduct any type of operation, including commercial, CII, or those in support of public safety. Lessees of a geographic area will be permitted to construct base stations and engage in mobile operations, and to construct temporary fixed sites within the lease area as permitted by the lease agreement as if they were a 4.9 GHz band licensee. They will not, however, have the authority to add stations/sites that are required to be individually licensed by our rules. These include permanent fixed sites and base stations that must be individually licensed due to their location. In the event a lessee's operations require individual site licensing under § 90.1207, the State Lessor will be required to file for a license and then lease the licensed site to the lessee.

32. The informal coordination requirements of § 90.1209(b) will apply to lessees in the same way as licensees. Accordingly, lessees have the obligation to cooperate with other operators in and around their area of operations in the selection and use of channels in order to reduce interference and make the most efficient use of the band in the same manner as licensees. Our rules require cooperation in the resolution of harmful interference to the mutual satisfaction of operators, including lessees, and they also preserve the authority of the Commission to impose operational restrictions to resolve interference. Lessees also must adjust operations to prevent, or resolve, interference to any fixed links with primary status.

33. Lessees, like a State Lessor, will be required to comply with all relevant provisions of our Secondary Markets rules, including, for example, our subleasing rules if the lease agreement permits such subleasing. They also will be required to comply with any other requirements applicable to their operations, such as those under part 9 of our rules, whereby commercial mobile radio service (CMRS) providers and other relevant entities remain responsible for compliance with 9-1-1 and Enhanced 9-1-1 obligations, if applicable.

34. We clarify that the adoption of the Sixth Report and Order does not modify the rights of an incumbent 4.9 GHz band licensee other than a licensee selected to be a State Lessor. An incumbent is a 4.9 GHz licensee with an active license as reflected in ULS as of the adoption of the Freeze Public Notice, or a 4.9 GHz licensee granted an authorization pursuant to a waiver of, or modification of, the freeze. An incumbent licensee, whether a public safety agency or a nongovernmental organization, may continue to operate existing system(s) or make additional deployments pursuant to the terms of its license, consistent with our rules and the Freeze Public Notice. Incumbents must work with lessees to prevent and resolve harmful interference through cooperation in the same way they do today with other 4.9 GHz licensees, and a State Lessor and its lessee(s) also must work with incumbents to prevent and resolve harmful interference. The Commission retains the authority to impose operational conditions as needed in the event this cooperation fails to resolve interference concerns, whether between licensees, licensees and lessees, or lessees themselves.

35. This action expands access to the 4.9 GHz band through a revised leasing framework. To further increase flexibility in the use of valuable spectrum and to incentivize secondary markets activity in this band, we revise our rules to eliminate the requirement that a State Lessor licensee only use its 4.9 GHz band spectrum for public safety purposes. In the Sixth FNPRM, the Commission sought comment on a range of potential approaches to expanding use of the band in addition to leasing. For example, if critical infrastructure industries were permitted access as 4.9 GHz licensees, the Commission sought comment on whether they should be required to provide public safety services or be able to use the spectrum for any purpose. Noting that 4.9 GHz spectrum has been underutilized, the Commission specifically sought comment on redesignating the 4.9 GHz band, wholly or partially, to support commercial wireless use. The Commission asked whether the public interest would be “best served if this spectrum could be used for commercial applications, such as 5G . . .” and how to divide the band between public safety and commercial use if only a portion of the band were to be redesignated. The Commission also sought comment on “any other alternatives to support commercial wireless use of the 4.9 GHz band.”

36. We believe that modifying a State Lessor's rights to permit non-public safety use is an alternative approach that promotes efficient spectrum use, incentivizes leasing activity, and is consistent with our action in this document allowing a State Lessor to lease spectrum for non-public safety purposes. Permitting a State Lessor to engage in non-public safety uses will more fully empower each state to determine the highest and best use for the 4.9 GHz band in its jurisdiction and to consider a wider range of spectrum use options that best accommodate its citizens' communications needs, whether through its own operations or through those of third party lessees. A State Lessor will also have the flexibility to determine whether to only conduct public safety operations under its license, or not allow non-public safety use through leasing. We anticipate, however, that centralized state-based control of non-public safety use will incentivize secondary markets activity and encourage greater spectrum use, and we explore a more expanded state- based model for the 4.9 GHz band in the accompanying Seventh FNPRM. We clarify that State Lessors that opt to operate as a CMRS provider will be regulated as such and will be subject to all relevant rules applicable to that type of service, including part 9 of our rules, regarding responsibility for compliance with 9-1-1 and Enhanced 9-1-1 obligations. Further, in the event that a 4.9 GHz band licensee other than a State Lessor seeks the flexibility to engage in non-public safety operations, it will be required to lease the necessary spectrum rights from the State Lessor in its jurisdiction.

37. Section 301 of the Communications Act, as amended, requires grant of a license to authorize use of radio transmissions, but specifies that a grant shall not be construed to create “any right beyond the terms, conditions, and periods of the license.” Under our current 4.9 GHz band rules, all operations in the band must be in support of public safety. Under the new 4.9 GHz band leasing regime we adopt in this document, we eliminate this restriction for a State Lessor and for that entity's lessee(s). The terms and conditions for that 4.9 GHz licensee's authorization, based on the revised rules, will now include the right to engage in operations other than those in support of public safety and to lease to entities that are not required to conduct or support public safety operations. We find that permitting more flexible spectrum use in the underused 4.9 GHz band is consistent with our broad authority to license spectrum rights under the Communications Act and to define the terms of spectrum licenses by prescribing the circumstances in which certain uses are permitted or prohibited, both by licensees and by lessees.

38. We determine that allowing spectrum leasing to non-public safety entities through negotiated agreements between a State Lessor and lessees has potential to significantly increase efficient use of the 4.9 GHz band in the near term, compared with alternative approaches upon which the Commission sought comment. In the Sixth FNPRM, we sought comment not only on spectrum leasing, but also on several alternative approaches to stimulate expanded use of, and investment in, the band. These included: (i) The expansion of licensee eligibility; (ii) a two-tiered sharing structure; (iii) a revised band plan, including reserving certain channels for aeronautical mobile and robotic use; (iv) more formal coordination requirements and regional planning coordinator (RPC) plans; and (v) new technical rules. We find that the proposed alternative approaches are less likely to increase the efficient use of spectrum in the band as compared with the approach we adopt in this Sixth Report and Order. The adopted approach effectively protects public safety interests while allowing state public safety entities to control commercial access. We defer consideration of certain other proposals explored in the Sixth FNPRM that are not precluded by expanded leasing, including whether to permit aeronautical and robotic use, to the accompanying Seventh FNPRM.

39. Expanding Eligibility to CII. We decline to expand eligibility for obtaining licenses in the band to include CII entities or to restrict lessee eligibility to CII entities. Limiting non-public safety use to one industry, or otherwise restricting non-public safety eligibility, would both significantly reduce opportunities to expand investment in the band. This approach would be contrary to the Commission's longstanding policy of promoting flexible licensing to ensure the most efficient use of spectrum. Such a limitation also would be contrary to our statutory mandates to promote economic opportunity and competition, and the efficient and intensive use of electromagnetic spectrum. We agree with commenters who contend that CII has a demonstrated need for increased access to reliable broadband services to promote smart grid technologies and fast, secure communications networks, and we address this need by removing the requirement that 4.9 GHz spectrum must be used for public safety support operations as it applies to lessees. We fully encourage CII and other non-public safety and commercial entities to pursue 4.9 GHz secondary market opportunities through the framework we establish in this document.

40. Redesignation of the Band. The Commission sought comment in the Sixth FNPRM on whether to redesignate the 4.9 GHz band, wholly or partially, for commercial use, on a licensed or unlicensed basis. We decline to adopt this change because it would provide less protection for public safety use than would our decision to provide for expanded spectrum access through the secondary market while retaining public safety operations in the band. Given the interest in this band by both commercial and non-commercial users, we believe that our leasing framework achieves the right balance between commercial and non-commercial access; with minimal disruption to existing public safety operations in the band; it permits states, working in coordination with their public safety entities, to determine in the first instance the amount of spectrum needed for those public safety operations. While several commenters note the continued need for spectrum to support public safety operations, most commenters recognize the need to allow non-public safety operations in the band to maximize use of this spectrum. At the same time, commenters overwhelmingly oppose giving non-public safety entities access by redesignating the band for commercial use.

41. Two-tiered Sharing on a Secondary Basis. The Sixth FNPRM sought comment on two-tiered sharing as an alternative approach for increasing use of the 4.9 GHz band. Under two-tiered sharing, “Tier 1 would consist of primary licensees in the band (including all incumbent users), while Tier 2 would allow other non-public safety users to access the band on a secondary basis, with safeguards to ensure priority and interference protection for Tier 1 operations.” The majority of commenters, citing technical barriers to adequately protecting public safety operations, oppose two-tiered sharing. Commenters that support two-tiered sharing stated that it would “encourage a more robust market for equipment and greater innovation, while protecting primary public safety users from harmful interference.” We find, however, that a state-based leasing framework we adopt in this document more effectively achieves the twin goals of making valuable mid-band spectrum available for flexible use and continuing to support public safety operations. Although we adopt leasing in the 4.9 GHz band rather than two-tiered sharing, we seek comment in the accompanying Seventh FNPRM on future use of dynamic sharing in this band and how such systems can further promote the adopted leasing regime.

42. Coordination and Regional Planning. In the Sixth FNPRM, the Commission proposed to require certified frequency coordination for licensing in the 4.9 GHz band. The Commission also sought comment on expanding the data contained in the Universal Licensing System to include more information than site licensing in order to facilitate this coordination. In addition, the Commission also sought comment on ways to increase the flexibility of Regional Planning Committees in facilitating use of the 4.9 GHz band.

43. The frequency coordination proposal described in the Sixth FNPRM is no longer relevant under the new leasing regime, which will allow licensees to continue to coordinate amongst themselves, and with new lessees, to ensure the most efficient use of the band and to mitigate harmful interference. We note that, while the record supports these proposals generally, stakeholders did not address the specific need for reliance on frequency coordinators, increased data, or Regional Planning Committees under a leasing framework.

44. Given the secondary market approach we adopt in this document, we decline to mandate use of frequency coordinators in the 4.9 GHz band application process, modify the rules regarding regional plans, or otherwise require additional filings with the Commission regarding the type and quantity of 4.9 GHz band deployments. We do, however, seek comment in the accompanying Seventh FNPRM on ways to encourage cross-jurisdictional coordination of 4.9 GHz band spectrum leasing, particularly in the context of the model for a State Band Manager to coordinate public safety operations alongside lessee operations on which we seek comment. As part of this proposal, we also seek comment on alternate means of maintaining easily accessible records of deployments as the nature of licensing in the 4.9 GHz band evolves.

45. Technical Rule Changes. In the Sixth FNPRM, the Commission proposed or sought comment on a series of changes to our technical rules intended to facilitate sharing between public safety licensees, including: (1) Modifying the channelization plan and bandwidth aggregation rules; (2) designating particular channels for aeronautical mobile and robotic use; (3) adopting technical standards for equipment; (4) rules governing the use of point-to-multipoint systems; and (5) power limits and polarization requirements on point-to-point systems. Commenters disagreed on these technical changes. Some commenters noted that the potential changes conflicted in certain cases, and commenters differed on which changes offered the most promise for preventing interference and promoting greater use of the band. We decline to adopt these changes, as they have the potential to limit licensee and lessee flexibility in designing leasing arrangements best suited for their operations, and they could undermine the benefits of the state-based leasing regime for both public safety and non-public safety users of the band. We also find that these rule changes would not sufficiently increase use of the 4.9 GHz band or further our goal of encouraging robust secondary market activity. As stated, the leasing regime we adopt in this document provides states the flexibility, within the current technical rules, to reach voluntary agreements that will not only expand access to the band, but also provide for mutually adequate protections for State Lessors and their lessee(s).

46. Public Safety Priority. In the Sixth FNPRM, the Commission sought comment on how best to ensure that, if so desired, public safety entities would retain priority access to 4.9 GHz spectrum in a commercial leasing framework. The Commission also sought comment on whether non-public safety entities that lease spectrum capacity should have primary status because they entered into agreements with specific public safety licensees. We received no specific comments addressing this issue in the context of the leasing framework we adopt in this document, though one commenter expresses concern regarding a State Lessor making determinations as to the scope of public safety priority access. Through this action, we increase a state's flexibility to determine the scope of any operational needs, and we therefore decline to mandate public safety priority access to the band or provide primary status to non-public safety lessees. The leasing regime we adopt relies on coordination among licensees and lessees and permits each state to determine the extent to which priority access is a critical component of its vision for the band's use in its state; we empower each State Lessor to decide whether to include public safety priority provisions in any lease arrangement based on its judgment regarding the best use of the 4.9 GHz band. States will act on behalf of their subordinate public safety entities and may choose to require priority access protections, enforceable through contractual lease provisions, or they may determine that such priority is unnecessary for their state. State Lessors that are unable to come to satisfactory terms on this issue may decline to lease, without unnecessary Commission involvement.

47. Pursuant to the Bureaus' September 8, 2020 freeze, no new or modified applications for 4.9 GHz band licenses are currently being accepted or processed. This includes applications to license permanent fixed sites ( i.e., those in place for one year or longer). In order to facilitate effective use of the band—both by public safety licensees and by non-public safety lessees—pending resolution of the issues raised below in the accompanying Seventh FNPRM, we direct the Bureaus to make modifications to the freeze by Public Notice, following the effective date of this Sixth Report and Order, to permit the acceptance and processing of certain applications. Specifically, we direct the Bureaus to modify the current freeze to permit the filing of applications for a statewide license from a single entity per state in a state that does not have a statewide licensee at the time of the freeze, provided that entity is also designated by the state as the State Lessor. Further, in order to not complicate the landscape of this band and reduce the flexibility that states have in determining the highest and best use of the spectrum, we direct the Bureaus to modify the current freeze to accept and process applications for permanent fixed site licenses only if filed by a State Lessor. If a public safety licensee other than a State Lessor seeks authority to construct and operate a new permanent fixed site, it may lease from a State Lessor provided that the State Lessor has a license for that facility.

48. The Sixth Report & Order continues the Commission efforts to expand access to mid-band spectrum by opening the band for flexible use via the secondary market while continuing to ensure access for public safety operations. The history of this band indicates that public safety operations do not require exclusive access to the entire 50 megahertz of spectrum and can safely share this band with other operations. The actions we take in this document allow one statewide licensee of the 4.9 GHz (4940-4990 MHz) band in each state (the State Lessor) to lease some or all of their spectrum rights to third parties that are otherwise eligible to be a spectrum lessee for fixed or mobile use, including to commercial entities, and eliminates the requirement that, when leased or used by the State Lessor, the spectrum must be used to support public safety. We only permit states that are not identified in the Commission's December 2019 911 Fee Report as diverting 911 fees for non-911 purposes to lease spectrum rights to non-public safety or public safety entities. We anticipate that unrestricted secondary market transactions and non-public safety use will encourage greater development of equipment for this band, driving down costs and making it easier for public safety and non-public safety entities alike to deploy operations. Furthermore, making available mid-band spectrum for commercial use is critical in ensuring U.S. leadership in 5G and in helping to close the digital divide.

49. There were no comments filed that specifically addressed the proposed rules and policies presented in the IRFA.

50. Pursuant to the Small Business Jobs Act of 2010, which amended the RFA, the Commission is required to respond to any comments filed by the Chief Counsel for Advocacy of the Small Business Administration (SBA), and to provide a detailed statement of any change made to the proposed rules as a result of those comments.

51. The Chief Counsel did not file any comments in response to the proposed rules in this proceeding.

52. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the rules adopted herein. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A “small business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA).

53. Small Business, Small Organizations, Small Governmental Jurisdictions. Our actions, over time, may affect small entities that are not easily categorized at present. We therefore describe here, at the outset, three broad groups of small entities that could be directly affected herein. First, while there are industry specific size standards for small businesses that are used in the regulatory flexibility analysis, according to data from the SBA's Office of Advocacy, in general a small business is an independent business having fewer than 500 employees. These types of small businesses represent 99.9% of all businesses in the United States which translates to 30.7 million businesses.

54. Next, the type of small entity described as a “small organization” is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” The Internal Revenue Service (IRS) uses a revenue benchmark of $50,000 or less to delineate its annual electronic filing requirements for small exempt organizations. Nationwide, for tax year 2018, there were approximately 571,709 small exempt organizations in the U.S. reporting revenues of $50,000 or less according to the registration and tax data for exempt organizations available from the IRS.

55. Finally, the small entity described as a “small governmental jurisdiction” is defined generally as “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than fifty thousand.” U.S. Census Bureau data from the 2017 Census of Governments indicate that there were 90,075 local governmental jurisdictions consisting of general purpose governments and special purpose governments in the United States. Of this number there were 36,931 general purpose governments (county, municipal and town or township) with populations of less than 50,000 and 12,040 special purpose governments—independent school districts with enrollment populations of less than 50,000. Accordingly, based on the 2017 U.S. Census of Governments data, we estimate that at least 48,971 entities fall into the category of “small governmental jurisdictions.”

56. Private Land Mobile Radio Licensees. Private land mobile radio (PLMR) systems serve an essential role in a vast range of industrial, business, land transportation, and public safety activities. Companies of all sizes operating in all U.S. business categories use these radios. Because of the vast array of PLMR users, the Commission has not developed a small business size standard specifically applicable to PLMR users. The closest applicable SBA category is Wireless Telecommunications Carriers (except Satellite) which encompasses business entities engaged in radiotelephone communications. The appropriate size standard for this category under SBA rules is that such a business is small if it has 1,500 or fewer employees. For this industry, U.S. Census Bureau data for 2012 shows that there were 967 firms that operated for the entire year. Of this total, 955 firms had employment of 999 or fewer employees and 12 had employment of 1,000 employees or more. Thus under this category and the associated size standard, the Commission estimates that the majority of PLMR licensees are small entities.

57. According to the Commission's records, a total of approximately 269,953 licenses comprise PLMR users. Of this number, there are a total of 3,578 PLMR licenses in the 4.9 GHz band. The Commission does not require PLMR licensees to disclose information about number of employees, and does not have information that could be used to determine how many PLMR licensees constitute small entities under this definition. The Commission however believes that a substantial number of PLMR licensees may be small entities despite the lack of specific information.

58. Radio and Television Broadcasting and Wireless Communications Equipment Manufacturing. This industry comprises establishments primarily engaged in manufacturing radio and television broadcast and wireless communications equipment. Examples of products made by these establishments are: Transmitting and receiving antennas, cable television equipment, GPS equipment, pagers, cellular phones, mobile communications equipment, and radio and television studio and broadcasting equipment. The SBA has established a size standard for this industry of 1,250 employees or less. U.S. Census Bureau data for 2012 show that 841 establishments operated in this industry in that year. Of that number, 828 establishments operated with fewer than 1,000 employees, 7 establishments operated with between 1,000 and 2,499 employees and 6 establishments operated with 2,500 or more employees. Based on this data, we conclude that a majority of manufacturers in this industry are small.

59. Wireless Telecommunications Carriers (except Satellite). This industry comprises establishments engaged in operating and maintaining switching and transmission facilities to provide communications via the airwaves. Establishments in this industry have spectrum licenses and provide services using that spectrum, such as cellular services, paging services, wireless internet access, and wireless video services. The appropriate size standard under SBA rules is that such a business is small if it has 1,500 or fewer employees. For this industry, U.S. Census Bureau data for 2012 show that there were 967 firms that operated for the entire year. Of this total, 955 firms employed fewer than 1,000 employees and 12 firms employed of 1,000 employees or more. Thus under this category and the associated size standard, the Commission estimates that the majority of Wireless Telecommunications Carriers (except Satellite) are small entities.

60. The Commission's own data—available in its Universal Licensing System—indicate that, as of August 31, 2018 there are 265 Cellular licensees that will be affected by our actions. The Commission does not know how many of these licensees are small, as the Commission does not collect that information for these types of entities. Similarly, according to internally developed Commission data, 413 carriers reported that they were engaged in the provision of wireless telephony, including cellular service, Personal Communications Service (PCS), and Specialized Mobile Radio (SMR) Telephony services. Of this total, an estimated 261 have 1,500 or fewer employees, and 152 have more than 1,500 employees. Thus, using available data, we estimate that the majority of wireless firms can be considered small.

61. Frequency Coordinators. Neither the Commission nor the SBA has developed a small business size standard specifically applicable to spectrum frequency coordinators. The closest applicable SBA category is Business Associations which comprises establishments primarily engaged in promoting the business interests of their members. The SBA has developed a small business size standard for “Business Associations,” which consists of all such firms with gross annual receipts of $8 million or less. For this category, U.S. Census Bureau data for 2012 shows that there were 14,996 firms that operated for the entire year. Of these firms, a total of 14,229 had gross annual receipts of less than $5 million and 396 firms had gross annual receipts of $5 million to $9,999,999.

62. There are 13 entities certified to perform frequency coordination functions under Part 90 of the Commission's rules. According to U. S. Census Bureau data approximately 95% of business associations have gross annual receipts of $8 million or less and would be classified as small entities. The Business Associations category is very broad however and does not include specific figures for firms that are engaged in frequency coordination. Thus, the Commission is unable to ascertain exactly how many of the frequency coordinators are classified as small entities under the SBA size standard. Therefore, for purposes of this FRFA under the associated SBA size standard, the Commission estimates that a majority of the 13 FCC-certified frequency coordinators are small.

63. The new leasing opportunities created in the Sixth Report & Order will result in reporting, recordkeeping and compliance obligations for State Lessor licensees and lessees of 4.9 GHz band spectrum who elect to enter leasing arrangements for this spectrum. More specifically, a 4.9 GHz band State Lessor entering into leases will be required to file an FCC Form 608, either seeking prior Commission approval to enter into the lease for a de facto transfer spectrum lease or providing notice of the lease for spectrum manager leases. These requirements are consistent with existing Commission Secondary Market rules. Where a state has multiple statewide licenses held by state entities and voluntarily seeks to lease, the state must select one of the licensees as the State Lessor. As part of any lease arrangement with a lessee, a State Lessor must submit to the Commission FCC Form 608 accompanied by evidence that it has been selected as State Lessor. Such evidence shall consist of a copy of the written agreement signed by each of the state's multiple statewide licensees indicating the selection of the State Lessor. If states with multiple statewide licensees are unable to reach such an agreement, we will accept in the alternative (as an attachment to FCC Form 608) a gubernatorial letter designating a certain state entity licensee as the State Lessor.

64. State Lessors will be required to comply with our Secondary Markets rules, in particular our existing part 1 leasing rules associated with entering into spectrum lease agreements which includes fulfilling all obligations associated with compliance with the Communications Act and Commission rules associated with the original license; complying with our rules on assignments and transfers of control for spectrum leasing arrangements in the 4.9 GHz band; and ensuring that spectrum leasing arrangements meet all requirements as to contractual provisions. Similarly, lessees will be required to comply with all relevant provisions of our Secondary Markets rules, including, for example, our subleasing rules if the lease agreement permits such subleasing. Lessees will also be required to comply with any other requirements applicable to their operations, such as those under part 9 of our rules, whereby commercial mobile radio service (CMRS) providers and other relevant entities remain responsible for compliance with 9-1-1 and Enhanced 9-1-1 obligations, if applicable. Additionally, lessees will be subject to compliance with the informal coordination requirements of section 90.1209(b) in the same way as licensees.

65. The Commission does not believe the rules adopted in the Sixth Report & Order will require small entities to hire attorneys, engineers, consultants, or other professionals in order to comply with the rule changes. Similarly, although the Commission cannot quantify the cost of compliance with the rule changes discussed herein, we do not believe that the costs and/or administrative requirements associated with any of the adopted rule changes will unduly burden small entities. Our actions to permit leasing of 4.9 GHz band spectrum by a statewide licensee is the fastest and most efficient way to drive interest and investment in the band. Moreover, we expect the absence of restrictions on lessee eligibility will open the band to new commercial and other non-public safety operation uses. We anticipate that allowing spectrum leasing opportunities in this band will ultimately decrease deployment barriers—such as high equipment costs—for both public safety licensees as well as new lessees in the 4.9 GHz band.

66. The RFA requires an agency to describe any significant, specifically small business, alternatives that it has considered in reaching its approach, which may include the following four alternatives (among others): (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for such small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for such small entities.

67. The rules the Commission adopts should benefit small entities by giving them more options for gaining access to valuable wireless spectrum and increasing economic opportunity. Our actions to open the 4.9 GHz band to the secondary market to permit leasing by a statewide licensee and not to limit lessee eligibility will allow participating small entities to avoid operational costs that may have otherwise ensued had we not taken this approach. Moreover, our actions may drive down the costs of compatible equipment and facilitate innovative cost-sharing arrangements between public safety licensees and non-public safety lessees both of which would benefit and minimize the economic impact for participating small entities. Similarly, small entities stand to benefit from our finding that limiting non-public safety use to one industry, or otherwise restricting non-public safety eligibility, would limit opportunities to grow significantly investment in the 4.9 GHz band. This determination is consistent with the Commission's longstanding policy of allowing flexible licensing to ensure the most efficient use of spectrum and our statutory mandates to promote economic opportunity and competition, and the efficient and intensive use of electromagnetic spectrum.

68. In the Sixth FNPRM, the Commission put forth a number of other proposals for consideration to stimulate expanded use of and investment in the 4.9 GHz band including: (i) A revised band plan, that included reserving certain channel for aeronautical mobile and robotic use; (ii) more formal coordination requirements; (iii) additional information collection and registration of the use of the band, that included new deployment reports and construction deadlines; (iv) new technical rules; and (v) additional regional planning. Given our decision to first permit broader use of the band through leasing, at this time we opted not to adopt any of these proposals and thereby minimize any additional economic impact on small entities that may have resulted from additional compliance requirements.

69. The Commission will send a copy of the Sixth Report & Order, including this FRFA, in a report to Congress pursuant to the Congressional Review Act. In addition, the Commission will send a copy of the Sixth Report & Order, including this FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the Sixth Report & Order, and FRFA (or summaries thereof) will also be published in the Federal Register .

70. Accordingly, it is ordered that, pursuant to the authority found in sections 4(i), 302, 303(b), 303(f), 303(g), 303(r), and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 302a, 303(b), 303(f), 303(g), 303(r), and 405, this Sixth Report and Order is hereby adopted .

71. It is further ordered that the rules and requirements adopted herein will become effective thirty (30) days after publication in the Federal Register , with the exception of § 90.1217. Section 90.1217 contains new or modified information collection requirements that require review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act. The Commission directs the Wireless Telecommunications Bureau to announce the effective date of those information collections in a document published in the Federal Register after the Commission receives OMB approval, and directs the Wireless Telecommunications Bureau to cause § 90.1217 to be revised accordingly.

72. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this Sixth Report and Order, including the Final Regulatory Flexibility Analysis and the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

73. It is further ordered that the Commission shall send a copy of this Sixth Report and Order in a report to be sent to Congress and the Government Accountability Office pursuant to the Congressional Review Act, see 5 U.S.C. 801(a)(1)(A).

For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR parts 1 and 90 to read as follows:

This is a summary of the Commission's Report and Order, FCC 20-155, adopted and released on October 27, 2020. This document will be available via ECFS at https://www.fcc.gov/ecfs/. Documents will be available electronically in ASCII, Microsoft Word, and/or Adobe Acrobat. Alternative formats are available for people with disabilities (braille, large print, electronic files, audio format), by sending an email to fcc504@fcc.gov or calling the Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

1. In this Report and Order, we take the unopposed action of expanding our video description requirements by phasing them in for an additional 10 designated market areas (DMAs) each year for the next four years. Consistent with the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA), 1 we find that the costs of expanding the video description regulations to DMAs 61 through 100 are reasonable for program owners, providers, and distributors. Our action in this document will help ensure that a greater number of individuals who are blind or visually impaired can be connected, informed, and entertained by television programming. In addition, we modernize the terminology in part 79 of the Commission's rules to use the more common and widely understood term “audio description” rather than “video description.”  2 Finally, we adopt our proposal to delete from the rules outdated references to compliance deadlines that have passed.

On October 1, 2020, GSA published a direct final rule (85 FR 61871). The rule, to have become effective November 30, 2020, was intended to streamline the process for certain contract final payments. GSA stated in the direct final rule that if it received adverse comments, it would publish a timely withdrawal in the Federal Register informing the public that the rule will not take effect.

As part of GSA's regulatory reform efforts, GSA determined that GSAR 532.905-70 should no longer require contracting officers to obtain approval of legal counsel before processing final payments for construction and building service contracts where, after 60 days, the contracting officers are unable to obtain releases of claims from contractors. Legal review is not a statutory requirement, and the decision to process final payments in such cases is a business decision, rather than a legal one.

The comment period for the direct final rule closed on November 2, 2020.

GSA received two comments to the direct final rule from anonymous commenters. One of the comments was adverse to the direct final rule. The other comment was not applicable to the text or purpose of the direct final rule.

The adverse commenter expressed concern about the lack of analytical data regarding the administrative burden related to the legal review process. Further, the commenter suggested that decisions related to contracts are legal questions, not business decisions.

GSA does not agree with the adverse comment because, in the absence of a statutory requirement for the contracting officer to receive legal approval prior to processing the final payment, the authority to process any payment resides in the warranted contracting officer, except for the instant clause regarding final payments referenced in the clause at 532.905-70(c). GSA has determined that the clause at 532.905-70 no longer works in the best interest of the Government or contractors because, among other things: (i) Approval by legal counsel does not preclude the contracting officer from denying such payments, and (ii) approval by legal counsel does not insulate the Government from any potential liabilities should the contracting officer process the payment.

In consideration of the comment to the direct final rule, GSA has determined that the rule should be withdrawn in its entirety. This will allow more time to further examine the issues raised and determine the best course of action.

Accordingly, GSA withdraws the rule published at 85 FR 61871 on October 1, 2020. However, withdrawal of this rule does not preclude GSA from issuing another rule on the subject matter in the future or committing the agency to any future course of action.

The Regional Administrator for the Greater Atlantic Region monitors Atlantic herring fishery catch in each of the management areas based on vessel and dealer reports, state data, and other available information. Based on this information, the Regional Administrator projects that the Atlantic herring fleet will catch 92 percent of the Management Area 1B sub-Annual Catch Limit (ACL) by November 25, 2020. Therefore, as required by 50 CFR 648.201(a)(1)(i), effective 00:01 hr local time November 25, 2020, federally permitted vessels may not fish for, possess, transfer, receive, land, or sell more than 2,000 lb (907.2 kg) of Atlantic herring per trip or calendar day, in or from Management Area 1B, through December 31, 2020. Vessels that have entered port before 00:01 hr local time, November 25, 2020, may land or sell more than 2,000 lb (907.2 kg) of Atlantic herring from Area 1B from that trip. A vessel may transit through Area 1B with more than 2,000 lb (907.2 kg) of Atlantic herring on board, provided all herring was caught outside Area 1B and all fishing gear is stowed and not available for immediate use as defined by 50 CFR 648.2. All herring vessels must land in accordance with state landing restrictions.

Effective 00:01 hr local time, November 25, 2020, through 24:00 hr local time, December 31, 2020, federally permitted dealers may not purchase, possess, receive, sell, barter, trade or transfer more than 2,000 lb (907.2 kg) of Atlantic herring per trip or calendar day from Area 1B from a vessel issued and holding a valid Federal herring permit, unless it is from a trip landed by a vessel that entered port before 00:01 hr local time, November 25, 2020.

NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act. This action is required by 50 CFR 648.201(a)(1)(i), which was issued pursuant to section 304(b), and is exempt from review under Executive Order 12866.

NMFS finds good cause pursuant to 5 U.S.C. 553(b)(3)(B) to waive prior notice and the opportunity for public comment because it is unnecessary and would be contrary to the public interest and impracticable. NMFS also finds good cause to waive the 30-day delayed effectiveness in accordance with 5 U.S.C 553(d)(3). NMFS is required by Federal regulation to implement a 2,000-lb (907.2-kg) herring trip limit for Management Area 1B through December 31, 2020, when 92 percent of the area quota is projected to be harvested. The 2020 herring fishing year opened on January 1, 2020, and Management Area 1B opened to fishing on May 1, 2020. Data indicating the herring fleet will have landed at least 92 percent of the 2020 sub-ACL allocated to Management Area 1B recently became available. Catch in this fishery increases relative to the sub-ACL quickly, especially in this fishing year where annual catch limits are unusually low. If implementation of this closure is delayed to solicit prior public comment, the sub-ACL for Management Area 1B for this fishing year will likely be exceeded, undermining conservation objectives of the Fishery Management Plan. If sub-ACLs are exceeded, the excess must also be deducted from a future sub-ACL and would reduce future fishing opportunities. In addition, the public had prior notice and full opportunity to comment on this process when these provisions were put in place. The public expects these actions to occur in a timely way consistent with the fishery management plan's objectives.