Agricultural Marketing Service
International Trade Administration
National Oceanic and Atmospheric Administration
Patent and Trademark Office
Federal Energy Regulatory Commission
Centers for Disease Control and Prevention
Centers for Medicare & Medicaid Services
Children and Families Administration
Food and Drug Administration
National Institutes of Health
Coast Guard
Fish and Wildlife Service
Land Management Bureau
National Park Service
Occupational Safety and Health Administration
Federal Highway Administration
Federal Motor Carrier Safety Administration
Foreign Assets Control Office
Internal Revenue Service
Consult the Reader Aids section at the end of this issue for phone numbers, online resources, finding aids, and notice of recently enacted public laws.
To subscribe to the Federal Register Table of Contents electronic mailing list, go to https://public.govdelivery.com/accounts/USGPOOFR/subscriber/new, enter your e-mail address, then follow the instructions to join, leave, or manage your subscription.
Food and Drug Administration, HHS.
Notification of availability.
The Food and Drug Administration (FDA, the Agency, or we) is announcing the availability of a final guidance for industry entitled “Enforcement Policy for Required Warnings for Cigarette Packages and Advertisements.” This guidance describes FDA's enforcement policy for the final rule, “Tobacco Products; Required Warnings for Cigarette Packages and Advertisements,” which established new required cigarette health warnings for cigarette packages and advertisements. The guidance is intended to assist entities required to comply with the rule.
The announcement of the guidance is published in the
You may submit either electronic or written comments on Agency guidances at any time as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
You may submit comments on any guidance at any time (see 21 CFR 10.115(g)(5)).
Submit written requests for single copies of this guidance to the Center for Tobacco Products, Food and Drug Administration, Document Control Center, 10903 New Hampshire Ave., Bldg. 71, Rm. G335, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your request or include a fax number to which the guidance document may be sent. See the
Beth Buckler, Center for Tobacco Products, Food and Drug Administration, Document Control Center, 10903 New Hampshire Ave., Bldg. 71, Rm. G335, Silver Spring, MD 20993-0002, 877-287-1373,
FDA is announcing the availability of a guidance for industry entitled “Enforcement Policy for Required
In the
On April 3, 2020, the final rule was challenged in the U.S. District Court for the Eastern District of Texas.
FDA recognizes that some manufacturers, distributors, and retailers already may have begun to prepare to implement the rule's requirements. For instance, some manufacturers, distributors, and retailers already have submitted and obtained approval of cigarette plans. Even so, FDA recognizes that entities may need time to implement the rule's requirements. In the guidance, FDA sets out its enforcement policy for the final rule. As discussed in the guidance, FDA intends to exercise enforcement discretion and generally not enforce requirements of the final rule for 15 months after the issuance of this guidance, until December 12, 2025. FDA also intends to exercise enforcement discretion and generally not enforce requirements of the final rule for an additional 30 days, until January 12, 2026, with respect to products manufactured before December 12, 2025. These time periods are consistent with section 201(b) of the Tobacco Control Act and the effective date of the final rule upon its publication. As FDA recommended at the time of publication of the final rule, FDA recommends that entities that do not already have approved cigarette plans submit such plans as soon as possible, but in any event, within 5 months, by February 10, 2025.
The guidance represents the current thinking of FDA on this topic. It does not establish any rights for any person and is not binding on FDA or the public. You can use an alternative approach if it satisfies the requirements of the applicable statutes and regulations.
While this guidance contains no collection of information, it does refer to previously approved FDA collections of information. The previously approved collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501-3521). The collections of information in 21 CFR 1141.10 have been approved under OMB control number 0910-0877.
Persons with access to the internet may obtain an electronic version of the guidance at
Office of Foreign Assets Control, Treasury.
Interim final rule; request for comments.
The Department of the Treasury's Office of Foreign Assets Control (OFAC) is issuing this interim final rule to amend the Reporting, Procedures and Penalties Regulations (the “Regulations”), extending recordkeeping requirements for certain transactions from five to 10 years, consistent with the statute of limitations
You may submit comments via the following methods, electronic is preferred:
Assistant Director for Licensing, 202-622-2480; Assistant Director for Regulatory Affairs, 202-622-4855; Assistant Director for Compliance, 202-622-2490 or
On April 24, 2024, the President signed into law the 21st Century Peace through Strength Act, Public Law 118-50, div. D (the “Act”). Section 3111 of the Act extended from five years to 10 years the statute of limitations for civil and criminal violations of the International Emergency Economic Powers Act, 50 U.S.C. 1701
To match the new statute of limitations period, OFAC is publishing this interim final rule extending from five years to 10 years the recordkeeping requirements codified at 31 CFR 501.601, paragraph IV.B of appendix A to part 501, and 515.572. OFAC is soliciting public comments for 30 days on this interim final rule.
This document and additional information concerning OFAC are available on OFAC's website:
Because the amendment of the Regulations is a rule of agency procedure and involves a foreign affairs function, the provisions of Executive Order 12866 of September 30, 1993, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993), as amended, and the Administrative Procedure Act (5 U.S.C. 553) requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date are inapplicable. Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply.
Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3507), the collections of information related to 31 CFR 501.601, paragraph IV.B of appendix A to part 501, and 515.572 have been previously approved by the Office of Management and Budget (OMB) under control number 1505-0164. This final rule modifies the requirements for recordkeeping under these sections by increasing the period for recordkeeping to 10 years from five years to align with a statutory amendment. This modification to this collection of information, as well as an unrelated consolidation of certain OFAC information collections, will be submitted to OMB for review under control number 1505-0164. Written comments and recommendations for the modified collection can be submitted by visiting
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number. The likely filers and record-keepers affected by these collections of information contained in 31 CFR part 501 are financial institutions, business organizations, nonprofit organizations, individuals, households, non-governmental organizations, and legal representatives.
The burden of the recordkeeping requirement imposed by this rule is minimal because the records required to be maintained are likely maintained under standard business practice. The recent increase in the recordkeeping period to 10 years from five years could impose a temporary incremental burden on recordkeepers while they update their recordkeeping practices and adjust storage requirements to maintain records for a longer period of time. Accordingly, the total burden for this collection is estimated to be:
Administrative practice and procedure, Banks, Banking, Exports, Foreign trade, Licensing and registration, Penalties, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, OFAC amends 31 CFR parts 501 and 515 as follows:
8 U.S.C. 1189; 18 U.S.C. 2332d, 2339B; 19 U.S.C. 3901-3913; 21 U.S.C. 1901-1908; 22 U.S.C. 287c, 2370(a), 6009, 6032, 7205, 8501-8551; 31 U.S.C. 321(b); 50 U.S.C. 1701
Except as otherwise provided, every person engaging in any transaction subject to the provisions of this chapter shall keep a full and accurate record of each such transaction engaged in, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination for at least 10 years after the date of such transaction. Except as otherwise provided, every person holding property blocked pursuant to the provisions of this chapter or funds transfers retained pursuant to § 596.504(b) of this chapter shall keep a full and accurate record of such property, and such record shall be available for examination for the period of time that such property is blocked and for at least 10 years after the date such property is unblocked.
B. The late filing of a required report, whether set forth in regulations or in a specific license, may result in a civil monetary penalty in an amount up to $3,550, if filed within the first 30 days after the report is due, and a penalty in an amount up to $7,104 if filed more than 30 days after the report is due. If the report relates to blocked assets, the penalty may include an additional $1,422 for every 30 days that the report is overdue, up to 10 years.
22 U.S.C. 2370(a), 6001-6010, 7201-7211; 31 U.S.C. 321(b); 50 U.S.C. 4301
(b) * * *
(1) Persons subject to U.S. jurisdiction providing services authorized pursuant to paragraphs (a)(1) through (4) of this section must retain for at least 10 years from the date of the transaction a certification from each customer indicating the section of this part that authorizes the person to travel or send remittances to Cuba. In the case of a customer traveling under a specific license, the specific license number or a copy of the license must be maintained on file with the person subject to U.S. jurisdiction providing services authorized pursuant to this section.
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is approving most of a State Implementation Plan (SIP) revision submitted by the State of New Hampshire. This revision updates the State regulation containing ambient air quality standards. EPA is approving all the State's updated standards, except the primary annual fine particle (PM
This rule is effective on October 15, 2024.
EPA has established a docket for this action under Docket Identification No. EPA-R01-OAR-2024-0255. All documents in the docket are listed on the
Alison C. Simcox, Air Quality Branch, Air and Radiation Division (Mail Code 5-MD), U.S. Environmental Protection Agency, Region 1, 5 Post Office Square, Suite 100, Boston, Massachusetts, 02109-3912, (617) 918-1684;
Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA.
On July 11, 2024 (89 FR 56825), EPA published a Notice of Proposed Rulemaking (NPRM) for the State of New Hampshire.
The NPRM proposed approval of New Hampshire's update to its Env-A 300, “Ambient Air Quality Standards” (AAQS). The formal SIP revision was submitted by the state on December 22, 2022.
EPA determined that the state's updated AAQS are consistent with the National Ambient Air Quality Standards (NAAQS) in 40 CFR part 50 for all standards except the PM
Additional background and rationale for EPA's proposed action are explained in the NPRM and will not be restated here. No public comments were received on the NPRM.
EPA is approving most of New Hampshire's revised Env-A 300, “Ambient Air Quality Standards” as a revision to the New Hampshire SIP. We are conditionally approving the primary annual PM
The State must submit to EPA by a date not later than 1 year from final approval a revision to Env-A 300 that includes the current PM
If the State meets its commitment, within the applicable time frame, the conditionally approved submission will remain a part of the SIP until EPA takes final action approving or disapproving the new legislative authority. If EPA disapproves the new submittal, the conditionally approved regulation will also be disapproved at that time. If EPA approves the submittal, the regulation will be fully approved in its entirety and replace the conditionally approved regulation in the SIP.
In this rule, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, the EPA is finalizing the incorporation by reference of New Hampshire's regulation Env-A 300 “Ambient Air Quality Standards” as discussed in sections I and II of this preamble and described in the amendments to 40 CFR part 52 set forth below. The EPA has made, and will continue to make, these documents generally available through
Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• Is not subject to requirements of Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act.
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian Tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rule does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, Feb. 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on communities with environmental justice (EJ) concerns to the greatest extent practicable and permitted by law. EPA defines EJ as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”
NH DES did not consider EJ; EPA did not perform an EJ analysis or consider EJ as part of its decision. NH DES did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Due to the nature of the action being taken here, this action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for communities with EJ concerns.
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 12, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)
Environmental protection, Air pollution control, Carbon monoxide, Incorporation by reference, Intergovernmental relations, Lead, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides, Volatile organic compounds.
Part 52 of chapter I, title 40 of the Code of Federal Regulations is amended as follows:
42 U.S.C. 7401
(a) * * *
(12) On December 22, 2022, the New Hampshire Department of Environmental Services (NHDES) submitted a request to amend New Hampshire's Env-A 300, “Ambient Air Quality Standards” regulation, as a revision to New Hampshire's State Implementation Plan (SIP). NHDES revised this regulation to incorporate into its SIP revised National Ambient Air Quality Standards (NAAQS). On March 6, 2024, EPA strengthened the fine particulate matter (PM
(c)
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is approving a state implementation plan (SIP) revision submitted by the Commonwealth of Pennsylvania (Pennsylvania or PA). The revision pertains to the attainment plan for the Indiana, PA nonattainment area for the 2010 1-hour sulfur dioxide (SO
This final rule is effective on October 15, 2024.
EPA has established a docket for this action under Docket ID Number EPA-R03-OAR-2024-0024. All documents in the docket are listed on the
Megan Goold, Planning & Implementation Branch (3AD30), Air & Radiation Division, U.S. Environmental Protection Agency, Region III, 1600 John F Kennedy Boulevard, Philadelphia, Pennsylvania 19103. The telephone number is (215) 814-2027. Ms. Goold can also be reached via electronic mail at
On June 22, 2010, the EPA published a new 1-hour primary SO
For a number of areas, including the Indiana, PA NAA, the EPA published a March 18, 2016 Finding of Failure to Submit, with an effective date of April 18, 2016, finding that Pennsylvania and other pertinent states had failed to submit the required SO
On December 18, 2020, the Sierra Club, Clean Air Council, and Citizens for Pennsylvania's Future filed a petition for judicial review with the U.S. Court of Appeals for the Third Circuit, challenging that final approval.
On August 17, 2021, the U.S. Court of Appeals for the Third Circuit granted the EPA's request for remand without vacatur of the final approval of Pennsylvania's SO
On August 18, 2022, the EPA revised and corrected its prior full approval action (85 FR 66240, October 19, 2020) without further submission from Pennsylvania (effective September 19, 2022) (87 FR 50778, August 18, 2022). Specifically, the EPA retained the approval of the emissions inventory and nonattainment new source review (NNSR) program requirements, and disapproved the attainment demonstration, reasonably available control measures and reasonably available control technology (RACM/RACT) requirements, reasonable further progress (RFP) requirements, and contingency measures (hereafter referred to as the “2022 Partial Approval/Partial Disapproval”) (87 FR 50778, August 18, 2022). The partial disapproval action initiated a sanctions clock under CAA section 179, providing for emission offset sanctions for new sources if the EPA has not fully approved a revised attainment plan within 18 months (March 19, 2024) after final partial disapproval, and providing for highway funding sanctions if the EPA has not fully approved a revised plan within 6 months thereafter (September 19, 2024). The sanctions clock can be stopped only if the conditions of the EPA's regulations at 40 CFR 52.31 are met. Also, under CAA section 110(c), the partial disapproval action initiated an obligation for the EPA to promulgate a FIP within two years unless Pennsylvania has submitted, and the EPA has fully approved, a plan addressing the disapproved attainment planning requirements.
On October 12, 2023, Pennsylvania submitted a 2023 SO
Nonattainment area SO
For the EPA to fully approve a SIP as meeting the requirements of CAA sections 110, 172, 191, and 192 and the EPA's regulations at 40 CFR part 51, the SIP for the affected area needs to demonstrate to the EPA's satisfaction that each of the aforementioned requirements have been met. Under CAA sections 110(l) and 193, the EPA may not approve a SIP that would interfere with any applicable requirement concerning NAAQS attainment and RFP, or any other applicable requirement, and no requirement in effect before November 15, 1990 (or required to be adopted by an order, settlement, agreement, or plan in effect before November 15, 1990), in any area which is a nonattainment area for any air pollutant, may be modified in any manner unless it ensures equivalent or greater emission reductions of such air pollutant.
CAA section 172(c)(1) directs states with areas designated as nonattainment to demonstrate that the submitted plan provides for attainment of the NAAQS. 40 CFR part 51, subpart G further delineates the control strategy requirements that SIPs must meet, and the EPA has long required that all SIPs and control strategies reflect the four fundamental principles of quantification, enforceability, replicability, and accountability. See General Preamble, 57 FR 13498 at 13567-68 (April 16, 1992). SO
On June 7, 2024 (89 FR 48523), the EPA published a notice of proposed rulemaking (NPRM) for Pennsylvania. In the NPRM, the EPA proposed approval of a revision to Pennsylvania's SIP to demonstrate attainment of the 2010 SO
• Keystone—Remove 9,600 lbs/hr on a 24-hour (daily) block average and replace with 8,328 lbs/hr combined based on a 24-hour block average for Boiler 1 & Boiler 2 (Source IDs 031 & 032).
• Seward—Remove 3,038.4 lbs/hr and replace with 2,895 lbs/hr combined based on a 30-day operating hours average rolling by one day for Source IDs 034 & 035. Remove 13,308 tpy and replace with 12,680 tpy combined for Source IDs 034 & 035. Add the requirement to inject limestone into Source ID 034 and Source ID 035 during initial firing each time Source ID 034 and Source ID 035 are operated to reduce the magnitude and frequency of SO
• Conemaugh—Add 3,080 lbs/hr combined on a 3-hour block average for Units 1 & 2 (Source IDs 031 & 032).
Other specific requirements of the Indiana County attainment plan and the rationale for the EPA's action are explained in the NPRM, and its associated technical support document (TSD), and will not be restated here.
The EPA received four sets of comments in response to the NPRM. Two sets of comments were in opposition to the EPA's proposed action. The EPA also received one comment in support of the EPA's proposed action and one that was not relevant.
First, as a general matter, the EPA's longstanding approach to contingency
Second, in response to the comment's specific objection that contingency measures are to take effect “without further action,” the EPA has interpreted “without further action” in the ozone, lead, and carbon monoxide contexts to mean no further rulemaking or legislative action, though the EPA recognized that certain actions such as notification of sources or modifications of permits would be needed for effective implementation. 57 FR 13498, 13512 and 13533 (April 16, 1992), 58 FR 67748, 67752 (December 22, 1993). Undertaking enforcement against sources for violations of emission limitations that were necessary to provide for SO
Contrary to the comment's suggestion that Pennsylvania does not have a comprehensive enforcement program as required by CAA section 110(a)(2)(C), Pennsylvania has such a program as specified in section 4(27) of the Pennsylvania Air Pollution Control Act (APCA), 35 P.S. § 4004(27), which authorizes the Pennsylvania Department of Environmental Protection (PADEP) to take any action it deems necessary or proper for the effective enforcement of the Act and the rules and regulations promulgated thereunder. Such actions include the issuance of orders (
Again, the enforcement process is more streamlined and targeted compared to rulemaking or legislation, which as discussed above, is considered disallowed “further action” for other criteria pollutants, and moreover enforcement is more akin to permissible implementation steps such as notification of sources and modification of permits.
In addition to having a fully approved comprehensive enforcement program, PADEP has included what it refers to as additional contingency measures that are automatically triggered based on varying parameters, as described below.
The comment listed several options for contingency measures that the comment suggests should be included in the SIP. The EPA acknowledges that one or more of these options may be appropriate in a specific situation, and for a specific source, if the area fails to achieve RFP or fails to attain the NAAQS by the statutory attainment date. However, because Indiana, PA is a multisource area with several emission units per facility, requiring one or more of these measures may not be appropriate depending on the cause of the potential violations of the SO
In summary, the EPA's longstanding approach to implementing the section 172(c)(9) contingency measures requirement in SO
Such plan provisions shall provide for the implementation of all reasonably available control measures as expeditiously as practicable (including such reductions in emissions from existing sources in the area as may be obtained through the adoption, at a minimum, of reasonably available control technology)
In interpreting the provision, the comment highlights the word “and” in these nonattainment plan provisions, stating that the requirement for all RACM and RACT must be fulfilled
The comment suggests that the RACM/RACT requirement of section 172(c)(1) requires a state to assess and adopt measures that go further than what is necessary to attain the SO
For decades, the EPA has consistently defined RACT for SO
When determining RACT for SO
For the Indiana, PA NAA, PADEP provided the necessary modeling, which demonstrated the specific hourly emission limits (and comparably stringent longer-term limits) that are required to provide for attainment of the standard. The EPA reviewed this modeling and determined it comports with the EPA's Guideline on Air Quality Models (40 CFR part 51, appendix W) and the EPA's 2014 SO
While the comment disagrees with the EPA's approach to RACM/RACT for SO
As discussed above, this has been the EPA's longstanding definition and approach for SO
The second comment states that the SO
The EPA acknowledges the concern that longer-term emission limits can allow short periods with emissions above the CEV, which, if coincident with meteorological conditions conducive to high SO
First, from a practical perspective, the EPA expects the actual emission profile of a source subject to an appropriately set longer-term average limit to be similar to the emission profile of a source subject to an analogous 1-hour average limit. The EPA expects this similarity because it has recommended that the longer-term average limit be set at a level that is comparably stringent to the otherwise applicable 1-hour limit (reflecting a downward adjustment from the CEV) and that takes the source's emissions profile (and inherent level of emissions variability) into account. This downward adjustment of the limit is to compensate for the loss of stringency inherent in applying a longer-term average limit, by requiring most values to be lower than they are required to be with a 1-hour limit at the CEV. As a result, the EPA expects either form of emission limit to yield comparable air quality.
Second, from a more theoretical perspective, the EPA has compared the likely air quality with a source having maximum allowable emissions under an appropriately set longer-term limit, to the likely air quality with the source having maximum allowable emissions under the comparable 1-hour limit. In this comparison, in the 1-hour average limit scenario, the source is presumed at all times to emit at the CEV, and in the longer-term average limit scenario, the source is presumed occasionally to emit more than the CEV, but on average, and presumably at most times, to emit well below the CEV. In an “average year,”
To illustrate this point, the EPA conducted a statistical analysis using a range of scenarios using actual plant data. The analysis is described in appendix B of the EPA's 2014 SO
The 2014 SO
The EPA disagrees with the comment's assertion that supplemental limits must be required to limit the magnitude of emissions spikes when a longer-term limit is established. As explained in detail above, a comparably stringent longer-term limit can provide for protection of the NAAQS, even without supplemental limits. In any event, PADEP exercised additional options for restricting the frequency and magnitude of occurrences of elevated emissions per the 2014 SO
As described in section 6 of PADEP's Air Dispersion Modeling Technical Support Document (Docket file EPA-R03-OAR-2024-0024-0003_attachment_9) the air dispersion modeling for the Indiana, PA NAA utilized representative meteorological datasets from two sites. Data from the Johnstown-Cambria County Airport (KJST) meteorological site represented atmospheric conditions in the vicinity of Keystone and Homer City power plants. The KJST meteorological site is approximately 58 kilometers southeast of Keystone and approximately 38 kilometers southeast of Homer City. Data from the Ash Site #1 meteorological site represented atmospheric conditions in the vicinity of Conemaugh and Seward. The Conemaugh-Seward (Ash Site #1) meteorological site is located between the two power plants, approximately 1.9 kilometers northeast of the Conemaugh power plant and approximately 1.7 kilometers south-southwest of the Seward power plant.
Based on the EPA's Guideline on Air Quality Models (40 CFR part 51, appendix W), meteorological data used as input to a dispersion model should be selected on the basis of spatial and climatological (temporal) representativeness as well as the ability of the individual parameters selected to characterize the transport and dispersion conditions in the area of concern. Representativeness of the meteorological data is dependent on numerous factors. These factors include but are not limited to: (1) the proximity of the meteorological monitoring site to the area under consideration; (2) the complexity of the terrain; (3) the exposure of the meteorological monitoring site; and (4) the period of time during which data are collected. Both meteorological data sets used in Pennsylvania's modeling analysis meet applicable completeness requirements.
While the July 2024 Wingra Analysis claims that the Ash Site #1 is representative of impacts from emissions released by all four plants, the EPA disagrees because of the difference in local topography around the modeled sources. The decision to utilize the KJST meteorological site for the Homer City and Keystone power plants and the Ash Site #1 for the Conemaugh and Seward power plants was largely based on the modeled sources' topographical settings (terrain features). Each of the meteorological sites were best suited to capture the proper boundary layer characteristics for their respective sources.
The Indiana, PA NAA sits along the Allegheny Plateau physiographic province of the Appalachian Mountains system west of the eastern continental divide. Maps depicting topographical elevations in the vicinity of the Indiana, PA NAA showing the locations of the Conemaugh, Homer City, Keystone and Seward power plants and the KJST and
The July 2024 Wingra Analysis amalgamates all of the model receptors Pennsylvania utilized in its three modeling domains covering the entire Indiana, PA NAA. The rationale for dividing the Indiana, PA NAA into three separate modeling domains (with different sources and meteorological data) was explained in the Air Dispersion Modeling Technical Support Document from PADEP (pages 6-8 to 6-9, 6-15 to 6-17, and 8-1 to 8-3) and in the EPA Modeling TSD (pages 63 and 70) that are part of the public docket for this action.
No rationale was provided in the July 2024 Wingra Analysis submitted during the public comment period to support combining the three modeling domains utilized in PADEP's SIP modeling demonstration. Additionally, no rationale was provided to refute the division of the Indiana, PA NAA into three distinct modeling domains. The EPA believes, therefore, that Wingra Engineering's modeling analysis erred on its modeling domain setup by combining all sources into one amalgamated receptor domain.
Noting the deficiencies in the July 2024 Wingra Analysis, the EPA concludes that the modeling analysis presented by PADEP demonstrates the validity of the CEVs established for the Conemaugh, Homer City, Keystone and Seward power plants.
Also, the comment appears to misunderstand the adjustment factor of 0.63 included in table 1 of appendix B of the 2014 SO
Regarding the comment about the annual SO
Section 171(2) of the CAA defines nonattainment area to mean for any air pollutant, an area which is designated “nonattainment” with respect to that pollutant within the meaning of section 107(d) of this title. In an earlier, separate action, the boundaries of the Indiana,
Pennsylvania's obligation under section 110(a) of the CAA is to submit “ . . . a plan which provides for implementation, maintenance, and enforcement of such primary standard in each air quality control region (or portion thereof) within such State.” CAA section 110(a)(1). Section 110 further provides that “[i]n the case of a plan or plan revision for an area designated as a nonattainment area, [the plan shall] meet the applicable requirements of part D of this subchapter (relating to nonattainment areas).” CAA section 110(a)(2)(I). Section 172(c)(6) then requires the SIP for a nonattainment area to include enforceable emission limitations and control measures as necessary or appropriate to provide for NAAQS attainment “in such area.” In this case, Pennsylvania's attainment plan for the Indiana, PA NAA includes limits on SO
Further, the EPA's role is limited to determining whether the submitted SIP meets the requirements of the CAA, see section 110(k)—in this action, Pennsylvania's 2023 SIP submittal does not address areas outside the defined nonattainment area. Absent a clear requirement that Pennsylvania must include model receptors outside of the nonattainment area in its submission, the EPA will confine its analysis to whether the attainment SIP demonstrates attainment within the designated nonattainment area.
On February 12, 2024, EPA published notice in a separate action of its intent to redesignate portions of Cambria and Westmoreland Counties
The EPA is approving the attainment plan for the Indiana, PA NAA for the 2010 1-hour SO
This approval terminates the highway funding sanction and FIP clocks started under CAA sections 179 and 110, respectively, resulting from EPA's partial disapproval of the prior SIP submittal. It also removes the permitting offset sanction that has been in place since March 19, 2024.
In this document, the EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of SO
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 13563 (76 FR 3821, January 21, 2011);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA.
Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. The EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” The EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”
PADEP did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. The EPA did not perform an EJ analysis and did not consider EJ in this action. Due to the nature of the action being taken here, this action is expected to have a neutral to positive impact on the air quality of the affected area. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for people of color, low-income populations, and Indigenous peoples.
In addition, this final rule approving Pennsylvania's Indiana, PA NAA SO
The Congressional Review Act, 5 U.S.C. 801
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 12, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action approving the Indiana, PA attainment plan for the 2010 1-hour SO
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Reporting and recordkeeping requirements, Sulfur oxides.
For the reasons stated in the preamble, the EPA amends 40 CFR part 52 as follows:
42 U.S.C. 7401
The additions read as follows:
(d) * * *
(3) * * *
(e) * * *
(1) * * *
(g) EPA approves the Attainment Plan for the Indiana, PA Nonattainment Area for the 2010 Sulfur Dioxide National Ambient Air Quality Standard submitted by the Pennsylvania Department of Environmental Protection on October 12, 2023. EPA approves the attainment demonstration and other attainment plan elements, including Reasonably Available Control Technology (RACT)/Reasonably Available Control Measures (RACM) determination, Reasonable Further Progress (RFP) requirements, and contingency measures.
Environmental Protection Agency (EPA).
Final rule.
The Environmental Protection Agency (EPA) is approving a State Implementation Plan (SIP) revision submitted by the State of Tennessee, through the Tennessee Department of Environment and Conservation (TDEC), on June 26, 2023. The June 26, 2023, SIP revision specifies monitoring, recordkeeping, and reporting requirements for large industrial non-electricity generating units (EGUs) subject to the nitrogen oxides (NO
This rule is effective October 15, 2024.
EPA has established a docket for this action under Docket Identification No. EPA-R04-OAR-2023-0277. All documents in the docket are listed on the
Sarah LaRocca, Air Planning and Implementation Branch, Air and Radiation Division, Region 4, U.S. Environmental Protection Agency, 61 Forsyth Street SW, Atlanta, Georgia 30303-8960. The telephone number is (404) 562-8994. Ms. LaRocca can also be reached via electronic mail at
On June 26, 2023, TDEC submitted a SIP revision with changes to Tennessee Air Pollution Control Regulation (TAPCR) 1200-03-27-.12(11) (state effective November 24, 2022) to specify alternative NO
Through a notice of proposed rulemaking (NPRM) published on July 16, 2024 (89 FR 57823), EPA proposed to approve the changes to TAPCR 1200-03-27-.12(11) and Tennessee Air Pollution Control Board operating permit No. 079291 for Domtar into Tennessee's SIP. Adopting TAPCR 1200-03-27-.12(11) into Tennessee's SIP also satisfies the condition in the conditional approval actions for Packaging Corporation of America (88 FR 8771; February 10, 2023) and Eastman Chemical Company (88 FR 14276; March 8, 2023) and EPA is converting those conditional approvals to full approvals through this final action. The contents of TDEC's submission, EPA's rationale for approving the changes, and EPA's rationale for converting the conditional approval actions for Packaging Corporation of America and Eastman Chemical Company to full approvals, are described in more detail in the July 16, 2024, NPRM. Comments on the July 16, 2024, NPRM were due on or before August 15, 2024. EPA did not receive any comments, adverse or otherwise.
In this document, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, and as discussed in Section I of this preamble, EPA is finalizing the incorporation by reference of TAPCR 1200-03-27-.12(11), state effective on November 24, 2022, into Tennessee's SIP. EPA is also incorporating by reference Tennessee Air Pollution Control Board operating permit No. 079291 for Domtar, state effective on January 12, 2022, into Tennessee's SIP. EPA has made, and will continue to make, these materials generally available through
EPA is approving the aforementioned Tennessee SIP revision consisting of changes to TAPCR 1200-03-27-.12(11) (state effective on November 24, 2022) and Tennessee Air Pollution Control Board operating permit No. 079291 for Domtar (state effective on January 12, 2022) into the SIP. EPA is also converting the conditional approval actions for Packaging Corporation of America (88 FR 8771; February 10, 2023) and Eastman Chemical Company (88 FR 14276; March 8, 2023) to full approvals.
Under the CAA, the Administrator is required to approve a SIP submission that complies with the provisions of the CAA and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the CAA. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:
• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 14094 (88 FR 21879, April 11, 2023);
• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501
• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601
• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);
• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);
• Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a state program;
• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and
• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the CAA.
In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where EPA or an Indian tribe has demonstrated that a Tribe has jurisdiction. In those areas of Indian country, the rulemaking does not have Tribal implications and will not impose substantial direct costs on Tribal governments or preempt Tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).
Executive Order 12898 (Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal
TDEC did not evaluate EJ considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. EPA did not perform an EJ analysis and did not consider EJ in this action. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of E.O. 12898 of achieving environmental justice for communities with EJ concerns.
This action is subject to the Congressional Review Act, and EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).
Under section 307(b)(1) of the CAA, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by November 12, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements.
Environmental protection, Air pollution control, Incorporation by reference, Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and recordkeeping requirements.
For the reasons stated in the preamble, EPA amends 40 CFR part 52 as follows:
42 U.S.C. 7401
The revisions and additions read as follows:
(c) * * *
(d) * * *
Agricultural Marketing Service, USDA.
Proposed rule and opportunity to file exceptions.
This recommended decision proposes to amend Marketing Order No. 989 (Order), which regulates the handling of raisins produced from grapes grown in California. The Raisin Administrative Committee, which locally administers the Order, recommended amendments that would reduce Committee size, eliminate the designated cooperative bargaining association member seat, lower quorum requirements, remove producer district representation, remove the requirement for separate member and alternate nominations for independent and small cooperative producers, remove factors for establishing marketing policy, add language to clarify the quality of reconditioned raisins, add authority to accept voluntary contributions, and add language regarding ownership of intellectual property. In addition, the Agricultural Marketing Service (AMS) may make any such changes to the Order as may be necessary to conform to any amendment that may result from the hearing. This recommended decision invites written exceptions on the proposed amendments.
Written exceptions must be filed by October 15, 2024.
Written exceptions should be filed with the Hearing Clerk, U.S. Department of Agriculture, Room 1031-S, Washington, DC 20250-9200; Fax: (202) 720-9776 or via the internet at
Christy Pankey, Marketing Specialist, or Matthew Pavone, Chief, Rulemaking Services Branch, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-0237; Telephone: (202) 720-8085, or Email:
Small businesses may request information on this proceeding by contacting Richard E. Lower, Market Development Division, Specialty Crops Program, AMS, USDA, 1400 Independence Avenue SW, Stop 0237, Washington, DC 20250-0237; Telephone: (202) 720-8085, or Email:
Prior documents in this proceeding: Notice of Hearing published in the January 12, 2024, issue of the
This recommended decision is in conformance with the provisions of sections 556 and 557 of title 5 of the United States Code and, therefore, is excluded from the requirements of Executive Orders 12866, 13563, and 14094.
Notice of this rulemaking action was provided to Tribal governments through the Department of Agriculture's (USDA) Office of Tribal Relations.
Notice is hereby given of the filing with the United States Department of Agriculture's Office of the Hearing Clerk of this recommended decision with respect to the proposed amendments to 7 CFR part 989 (“Marketing Order 989” or “Order”) regulating the handling of raisins produced from grapes grown in California and the opportunity to file written exceptions thereto. Copies of this decision can be obtained from Christy Pankey, whose address is listed above.
This recommended decision is issued pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act,” and the applicable rules of practice and procedure governing the formulation and amendment of marketing agreements and orders (7 CFR part 900).
The proposed amendments are based on the record of a public hearing on February 13 and 14, 2024 at the office of the Raisin Administrative Committee, 2445 Capitol Street, Suite 200, Fresno, California 93721. Notice of this hearing was published in the
On October 20, 2022, the Committee recommended to AMS three proposals that would: (1) amend Committee size, composition, producer representation, and quorum requirements; (2) amend nomination procedures for small cooperative and independent producers; (3) remove two factors considered in the development of the annual marketing policy; and add language to clarify the quality of reconditioned raisins. The Committee voted on the above proposed amendments, 20 in favor and 10 opposed, at its August 17, 2022, meeting. On August 16, 2023, the Committee also voted to recommend to AMS the inclusion of two additional amendments that would add authority to accept voluntary contributions and add language regarding Committee ownership of intellectual property. These two amendments are hereinafter referred to as Proposal No. 4. AMS received the Committee's unanimous recommendation for those two amendments on August 21, 2023.
After reviewing all aforementioned proposals and other information submitted by the Committee, AMS decided to schedule this matter for a hearing.
Under Proposal No. 1, membership size would be reduced from 47 to 21 members and alternates, the designated cooperative bargaining association member seat would be eliminated, quorum requirements would be lowered from 25 to 14, producer district representation would be removed, and a designated seat for an unaffiliated independent producer member would
Proposal No. 2 entails removing the requirement for industry candidates to be nominated as either a member or an alternate. Proposal No. 3 would remove factor “4” and part of factor “5” from considerations when developing the marketing policy and add language clarifying that successfully reconditioned raisins are “standard raisins.”
Proposal No. 4 would enable the Committee to accept voluntary contributions and add language regarding ownership of and rights to intellectual property.
AMS also proposed to make any such changes as may be necessary to the Order to conform to any amendment that may be adopted, or to correct minor inconsistencies and typographical errors.
Ten witnesses testified at the hearing: three independent small producers, two independent small handlers, one independent large handler, one marketing cooperative small producer, one bargaining association small producer, one Committee staff member, and one witness from USDA. Eight industry witnesses supported all four proposals. One witness, representing the Raisin Bargaining Association (RBA), opposed the elimination of the designated cooperative bargaining association member seat under Proposal No. 1. The USDA witness remained neutral.
The Committee is the largest among all marketing order Committees and boards, with 47 members and 47 alternates, for a total of 94 positions. After two years of ongoing discussion and deliberation, the Committee recommended AMS reduce its size after determining that a substantial decline in the California raisin industry and the removal of volume regulation authority in 2018 has resulted in a high percentage of Committee vacancies and low attendance at Committee meetings.
Proponents at the hearing testified that Proposals No. 1 and 2 are expected to reduce Committee vacancies, improve participation, provide a cost savings to the program, increase administrative efficiency, and continue to provide fair representation while better aligning Committee membership with the overall size of the California raisin industry.
The witness representing the RBA contended that the removal of the designated cooperative bargaining association member seat, as recommended by Proposal No. 1, would further diminish the RBA's ability to act on the behalf of raisin producers. Further, the witness testified that without the cooperative bargaining association seat small producers would not be afforded a voice on the Committee.
Proponents of Proposal No. 1 testified, however, that a designated seat for the RBA is no longer warranted. The proponents believe that, were the designated cooperative bargaining association seat retained as part of the proposed restructuring, it would provide an outsized influence on the reduced Committee. Furthermore, proponents affirmed that both small producers and RBA producers would retain a voice without the designated cooperative bargaining association member seat and would continue to be represented on the Committee through allocated seats.
Witnesses supported Proposals No. 2-4.
Based on the hearing record, this initial decision recommends amending the Order to incorporate Proposals No. 1-4, as they are likely to address industry concerns without imposing undue burdens on small businesses upon implementation.
At the conclusion of the hearing, the Administrative Law Judge established a deadline of 20 business days from the date the transcript corrections were made available on the AMS website (May 1, 2024) for interested persons to file proposed findings and conclusions or written arguments and briefs based on the evidence received at the hearing. No briefs were filed.
The material issues presented on the record of hearing are as follows:
1. Whether to:
i. Amend § 989.26 to reduce Committee membership size from 47 to 21 members and alternates. Corresponding changes would be made to § 989.126.
ii. Amend § 989.26 to remove the designated cooperative bargaining association seat. Corresponding changes would remove references to the designated cooperative bargaining association position in § 989.30.
iii Amend §§ 989.26(c) and 989.126(a)(1) to remove producer district representation and add an unaffiliated independent producer member seat. Corresponding changes would remove §§ 989.22 and 989.122, and references to producer districts in §§ 989.29(b)(2), 989.126(a) and 989.129.
iv. Amend § 989.38 to lower quorum requirements from 25 to 14.
2. Whether to amend § 989.29 to eliminate the requirement for separate nominations for independent producers or producers affiliated with small cooperative marketing associations.
3. Whether to remove paragraph (a)(4) and the last part of paragraph (a)(5) from § 989.54, and to amend §§ 989.24 and 989.58 by adding language that would clarify that raisins that have been reconditioned, inspected, and certified as meeting the minimum grade shall be classified as standard raisins.
4. Whether to add §§ 989.63 and 989.64 to establish authorities regarding the acceptance of voluntary contributions, ownership rights of intellectual property, and the collection of rents/royalties from such intellectual property.
5. Whether any conforming changes need to be made as a result of the above proposed amendments. Conforming changes may also include correction of non-substantive, typographical errors.
The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof.
Section 989.26 “Establishment and membership” should be amended to reduce the number of Committee members from 47 to 21. This amendment would decrease the number of producer members from 35 to 12 and handler members from 10 to 8. Further, § 989.26 should be amended to eliminate the designated cooperative bargaining association member position. The public member position would remain unchanged. Corresponding changes would reapportion producer and handler members in § 989.126 and remove the references to the cooperative bargaining association and cooperative bargaining association(s) officers or employees in § 989.30.
Additionally, §§ 989.26(c) and 989.126(a) should be amended to remove producer districts and to designate one unaffiliated independent producer member and alternate position on the Committee. This change would combine nominations for the current three districts into a single ballot for independent producer members and alternates and include an additional nomination for an unaffiliated independent producer member and alternate position. Corresponding changes would remove §§ 989.22 and 989.122, and references to producer districts in §§ 989.29(b)(2), 989.126(a) and 989.129.
Finally, § 989.38 “Procedure” should be amended to lower quorum requirements from 25 to 14.
The evidence of record is that the Committee has experienced an increase in Committee vacancies due to a substantial decline in the size of the California raisin industry. Lower levels of engagement from industry members have also been observed since the removal of volume regulation authority from the Order in 2018. The record further shows that the raisin industry's decline is a result of volatile producer returns over the past two decades, and that industry members lost interest in attending Committee meetings after volume regulation authority was removed in 2018.
The Committee believes reducing Committee size and reapportioning membership, including the elimination of the designated cooperative bargaining association member seat and the removal of producer districts, would reduce Committee vacancies and improve attendance, provide a cost savings, increase administrative efficiencies, provide fair representation, and balance Committee membership with the overall size of the California raisin industry. The amendment to lower quorum requirements to align with the reduced Committee size would also aid in achieving those goals.
Currently, § 989.26 provides that Committee membership consist of 47 members, of whom 35 shall represent producers, 10 shall represent handlers, 1 shall represent the cooperative bargaining association, and 1 shall be a public member. For each member of the Committee there shall be an alternate member who shall have the same qualifications as the member for whom they represent as an alternate. The industry is comprised of three marketing segments: independent producers and handlers, a cooperative marketing association—Sun-Maid Growers of California (Sun-Maid), and a cooperative bargaining association—the Raisin Bargaining Association (RBA). Member representation, excluding all designated seats, is based on a proportional share system. Witnesses testified that this system ensures fair representation on the Committee by allocating producer and handler seats based on each marketing segment's proportional share or contribution to total raisin acquisitions. The designated cooperative bargaining association member and public member seats are not based on proportional shares. Section 989.26(e) provides the cooperative bargaining association member shall be selected from the cooperative bargaining association(s) and the public member shall be nominated by Committee members.
Proposal No. 1 would reduce the size of the Committee from 47 to 21 members. In addition, the proposal includes the elimination of the designated cooperative bargaining association member seat, the addition of an unaffiliated independent producer member seat, removal of producer districts, and lowering Committee quorum requirements. The proportional share system and requirement that each member have an alternate would remain unchanged. The restructured Committee would consist of the following:
• twelve (12) producer member seats (reduced from 35), of which one independent producer member seat would be allocated to an unaffiliated independent producer,
• eight (8) handler members seats (reduced from 10), and
• one (1) public member.
In addition, the quorum requirement would be reduced from 25 to 14.
The record shows the decline in the industry, the high percentage of Committee vacancies, and low attendance rates substantiate the proposed amendment to reduce Committee size. Several witnesses testified that the decline in the crop size and the number of producers has made it increasingly difficult to fill Committee seats. This has led to a number of issues with the Committee's ability to effectively administer the program due to the large number of vacancies and low attendance.
The economic viability of raisins produced from grapes grown in California has been on an unsustainable path for many years. Several witnesses testified to the significant decrease in raisin bearing acres, from 225,000 to 98,000, and the number of raisin producers, from 3,500 to 1,500, due to industry instability over the past two decades. Hearing evidence shows the decline is attributable to the various challenges the California raisin industry has faced since its peak in 2000 and to the different strategies that raisin producers have employed in an effort to mitigate the financial strain posed by such challenges. The record shows these challenges, including overproduction, foreign competition, changing consumer preferences, and overall high production costs have negatively impacted producer returns.
Overproduction and foreign competition have created a challenging environment for raisin producers, impacting their ability to achieve favorable returns. Hearing evidence shows gradual increases in raisin production by foreign countries, who benefit from low production costs and government subsidies, diminished the California raisin industry's world market share and depressed prices for domestic handlers and producers. Witnesses testified that the California raisin industry lost its pricing power in global markets after raisin production in foreign countries such as Turkey, Uzbekistan, and Afghanistan surpassed U.S. production and drove the prices of raisins down. For the California raisin industry, some export markets such as Europe, where the industry had established a strong foothold, are no longer available to U.S. raisin handlers because they cannot compete due to higher shipping costs. Further, one witness testified that until the 2000's, the industry remained competitive despite increases in foreign production. Domestic raisin producers, however, experienced a sharp downturn in profitability after a four-year period of large crops that resulted in a tremendous surplus, market oversaturation, and reduced pricing. Thus, the California raisin industry, which once dominated the global market by producing over 50 percent of the world's supply in the 1990s, now accounts for approximately just 8 percent of the world market share today.
The hearing record also shows consumer preferences have shifted away from raisins, furthering the decline in raisin demand. One witness testified that raisins are not as popular with younger generations, such as Millennials and Generation Z. Such changes in consumer preferences have contributed to decreases in demand and lower sales and revenue for producers, leading to declining production levels and diminished returns.
High production costs due to drought, labor shortage, and other factors have also contributed to less than favorable returns for raisin producers. Witnesses testified to rising labor costs, such as double-digit wage inflation mandated by the State of California, and labor shortages, particularly during harvest. These factors require producers to offer higher wages to attract or retain workers, and have systemically increased the cost of raisin production. In addition, rising input costs related to irrigation, fertilizer, environmental regulation, taxation, and multiple years of drought have also driven the cost of production higher. As such, cost increases have made raisin production more expensive, leading some producers to scale back or abandon raisin production altogether.
The record shows that the myriad of challenges faced by the California raisin industry has pushed many raisin producers to either sell their land or transition to more profitable crops. One witness testified that among the largest factors contributing to the industry's decline is producers pulling out vineyards due to insufficient producer returns. Another witness testified that the California raisin industry has shrunk over the years due to higher-value crops replacing raisins on farmland in the production area. The record suggests raisin producers have used these tactics, and other strategies, such as cutting production costs that inevitably led to greater decreases in production, to optimize returns. Overall, the increase in Committee vacancies and low attendance at meetings is attributable to the decrease in raisin production, and the number of raisin producers, as a result of declining demand, high production costs, and low grower returns.
The record shows the decline in the California raisin industry has directly impacted the number of Committee vacancies as there are fewer producers in industry to draw from. Further, low attendance rates at Committee meetings are attributable to both the increase in Committee vacancies and to raisin producers becoming uninterested in Committee operations after the removal of volume regulation authority from the Order. The record further indicates that the Committee is the largest of all marketing orders, comprising 47 members and 47 alternates. However, witnesses testified that the Committee has increasingly struggled to fill member positions due to the significant decline in the number of producers and bearing acres in the past 20 years, and that this difficulty arises because the Committee did not downsize in response to the shrinking industry, leading to a rise in vacancies.
Record evidence includes a data table from the Committee that highlights low levels of attendance and high vacancies during Committee meetings. The Committee's data, illustrated in Table 1, a replication of exhibit 16 from the hearing, shows the attendance history for full Committee meetings conducted between August 2019 and June 2023. The Committee held 23 Committee meetings during this period, which appears in column 1. The date each meeting was held appears in column 2. The percentage of members present at each meeting appears in column 3 and is computed by dividing the total number of members voting at each meeting, which appears in column 4, by the total number of Committee seats (47). The total number of members in attendance at each meeting appears in column 5. The total number of alternate members voting at each meeting appears in column 6. The total number of alternates in attendance at each meeting appears in column 7, and the total number of vacant seats at each meeting appears in column 8. Witnesses testified that all Committee meetings are held in-person with an option for members and alternates to participate either by conference call or video.
Column 8 in Table 1 illustrates a gradual increase in Committee vacancies, from 14 to 21, for full Committee meetings held between August 2019 and June 2023. The Table further shows an average of 17 positions have remained vacant for approximately 4 years.
The increase in Committee vacancies has also contributed to low attendance rates. Full Committee meetings with low attendance, between 26 to 28 members present, are highlighted in column 4 of Table 1. Dividing the number of highlighted cells (7) by the number of full Committee meetings held (23) equates to an average low attendance rate of 30 percent for full Committee meetings held between August 2019 to June 2023.
Witnesses testified that for much of that time, initial member attendance at meetings was approximately 60 percent for full members and roughly 25 percent for alternates. These percentages suggest
On November 26, 2018, USDA removed all volume regulation and reserve pool authority after the United States Supreme Court, in
Attendance rates started to decline when the industry removed the authority for volume regulation from the Order. Record evidence shows that Committee meetings were once filled with members when volume regulation was in effect. Witnesses testified that staff did not have to make phone calls and send text messages to get people into meetings because there were so many Committee actions that affected producers' and handlers' bottom-line. Members and alternates wanted to have their opinions heard and to vote on specific volume regulations and reserve pool recommendations and the economic repercussions that would result from them. Historically, given the impact that volume regulation had on the industry, Committee membership was intentionally established as the largest of all marketing orders with 47 members and 47 alternates to ensure equitable representation during the establishment of free and reserve percentages in Committee meetings.
Prior to its removal, volume regulation authorized the Committee to establish free and reserve percentages based on production levels and trade demand as a way to stabilize surplus by controlling the supply of California raisins. Under this regulation, a portion of total raisins produced would be free for handlers to acquire and dispose of in approved market channels, and the other portion would be held in reserve pools by the Committee. This prevented oversupply and volatile fluctuations in the market allowing raisin producers to sell a portion of their crop at a return above the cost of production. The other portion held in reserves was disposed by the Committee in different outlets under various reserve programs. Proceeds from the disposal of raisins held in reserves would be distributed to raisin producers when sold.
The contention with volume regulation stemmed from the disposal of raisins held in reserve. The hearing record shows that raisin producers were not satisfied with the process whereby reserve raisins were sold in export channels. One witness testified that hundreds and hundreds of people attended meetings when volume regulation was being considered, but after the United States Supreme Court ruling that the reserve system was a taking, and the Order was subsequently amended to remove volume regulation authority, producers lost interest in attending meetings because there was no reserve program to discuss and vote on.
Committee vacancies also increase the difficulty in achieving quorum at meetings with fewer members. Witnesses testified that the Committee often struggles to make quorum and staff must make phone calls to members the day of meetings to get attendance rates up. Further, record evidence shows one instance when quorum requirements were not met during the period shown on Table 1.
Currently under the Order, the quorum requirement is 25. It is a fixed number and is based on the number of Committee positions expected to be filled. Thus, unfilled Committee seats make it more difficult to reach quorum and increases the probability that quorum requirements may not be met when attendance levels are low. One witness testified that there were several meetings where they were barely enough members present to constitute a quorum and conduct Committee business. Another witness testified that the majority of vacant seats are allocated to independent producer alternates, and if these seats are not filled, the absence of a full member at a meeting increases the likelihood of not meeting quorum requirements due to there being no alternate to fill in for the absent member.
The record shows the Committee continued to struggle meeting quorum requirements despite ramping up outreach efforts. Witnesses testified that when quorum is not met, it reduces administrative effectiveness and efficiency and increases nonproductive costs, such as expenses associated with member travel and staff hours because full Committee meetings must be delayed and rescheduled.
Reducing Committee size and reapportioning membership, including the elimination of the designated cooperative bargaining association member seat and the removal of producer districts, along with lowering quorum requirements, would address the current issues concerning Committee vacancies, low attendance, and meeting quorum. Further, it would provide a cost savings, increase administrative efficiencies, continue to provide fair representation, and balance Committee membership with the overall size of the California raisin industry.
Decreasing the number of Committee seats would reduce the likelihood of position vacancies by making it easier to fill each seat. Table 1 shows an average of 41 members currently attend Committee meetings. Column 5 shows 30 full Committee members on average attend Committee meetings and column 7 shows an average of 11 alternate members, for a total of 41 members on average. Witnesses testified that reducing the committee size may help reduce Committee vacancies. Based on the current averages in Table 1, the Committee would have less difficulty filling 21 member and alternate seats.
This proposal also reduces quorum requirements from 25 to 14. Reducing quorum requirements is necessary to effectuate the proposed amendment, if implemented. The proposed quorum is 67 percent of voting membership (14 divided by 21 multiplied by 100). This is slightly higher than the current quorum which is 53 percent of voting membership (25 divided by 47 multiplied by 100). Witnesses testified that the higher voting percentage will provide for fair representation by ensuring both producer and handler members are in attendance at meetings to vote on formal recommendations. This also promotes transparency and representation by ensuring no single segment can dictate Committee operations and that all perspectives of the industry are considered when decisions are made. In addition, the probability of not meeting quorum requirements is also reduced with the smaller Committee, increasing administrative efficiencies, and providing a cost savings by decreasing the number of delayed and rescheduled meetings due to low attendance.
A reduced Committee size would also increase competitiveness in nominations and reduce nepotism. Witnesses testified that much of the industry is vertically integrated, where producers own or are employed by a packinghouse, making them handler-affiliated. In these situations, such a producer could occupy a producer or handler member seat, and in many instances it's a family member that
Witnesses testified that many independent producer seats are filled with handler-affiliated producers and the addition of the unaffiliated independent producer member seat ensures fair representation by having a “true” producer on the Committee.
The evidence of record is that an unaffiliated independent producer member is a producer that has no ownership interest in a packinghouse. Such a producer would have no proprietary or employment affiliation to any cooperative marketing association, cooperative bargaining association, or a handler. In addition, in the event there are no qualified candidates to fill the unaffiliated independent producer member or alternate seats, this proposal also adds language to § 989.26 that ensures the designated unaffiliated member, and alternate seats are filled by any independent producer candidates not otherwise slated.
The removal of producer districts also ensures equitable representation on the Committee. Currently under the Order, three independent producer districts exist. All counties north of Fresno County, California, are represented in District No. 1, all counties south of Fresno County, California, are represented in District No. 2, and all of Fresno County, California, is represented in District No. 3. Independent producer members are apportioned as follows; one producer member each for Districts No. 1 and 2, and the remaining producer members to which independent and small cooperative producers are entitled in District No. 3. Separate nomination ballots are mailed to all three districts.
The record shows the decline in industry has directly impacted independent producer member nominations, leaving fewer eligible producers in some of the designated producer districts. Witnesses testified that the industry had more active producers competing for nominations before the decline. Witnesses further testified that the candidacy pool for independent producers has decreased, leading to continuous nominations of the same producers in Districts 1 and 2, resulting in inequitable representation in producer districts. One witness, identifying as a small producer, testified that this gives an unfair advantage to those much smaller producing regions by providing automatic seats. This results in an imbalance where industry members in the larger District 3 have less representation, as they must compete for seats on the Committee. Meanwhile, producers in the smaller Districts 1 and 2 face less competition for a seat, giving them greater representation on the Committee that is disproportionate to their district size.
This proposed amendment would remove the requirement that independent producer members represent districts and would combine nominations for the three producer districts into one ballot instead of three individual ballots mailed to each district.
The record shows combining producer districts ensures fair representation. Witnesses testified that the removal of producer districts would increase competitiveness, allowing for a fair nomination process. This is because combining districts would expand the candidacy pool for each producer member position by increasing competition for nominations and would ensure all independent and small cooperative producers have an equal opportunity to be nominated. Combining districts would also lead to a reduced administrative burden and cost savings by reducing the number of separate nomination meetings required to be held and eliminating the tabulation of separate ballots for each district.
Further, this proposal would ensure independent producer member seats are filled in the event producer districts become too small to function adequately due to the significant decline in the number of producers in industry.
This proposal would also eliminate the designated cooperative bargaining association member seat from the restructured Committee. Some witnesses testified that the designated cooperative bargaining association member seat is no longer warranted after volume regulation was removed from the Order. Further, due to a significant decline in the RBA's raisin acquisition totals, a designated member seat would provide the RBA an outsized influence and perpetuate unequal representation on the Committee.
The evidence of record is that on August 14, 2022, the Committee voted 20 in support and 10 opposed on Proposals No. 1-3 and voted unanimously in favor of Proposal No. 4 when it was considered on August 16, 2023. Based on testimony, eight of the ten members voting in opposition represented the RBA. Those members disagreed with the removal of the designated cooperative bargaining association member seat, but supported all other amendments proposed. One witness, representing the RBA, testified in opposition to the elimination of the designated cooperative bargaining association member seat at the hearing.
The RBA was established to provide California raisin producers with collective bargaining power when negotiating prices with handlers. Witnesses testified that, since the late 1940's, the industry was plagued with huge swings in production and low producer returns which led to the formation of the RBA. Under the RBA, producers leverage their collective strength to negotiate fair prices and ensure economic stability.
The record shows that successful collective bargaining requires strong industry representation and confidential pricing agreements. The witness representing the RBA testified that at one time the RBA represented approximately 40 percent of total raisin acquisitions, reflecting large industry representation. Several witnesses testified that the RBA manager was the only person who knew which handlers signed the pricing agreement, ensuring confidentiality. This would prevent free riders from benefiting from the RBA's agreements.
In 1967, volume regulation and Committee size were amended to provide inclusion and representation for the newly formed cooperative bargaining association, established in 1966. Committee size was increased by one member to represent the RBA because the preponderance of evidence, at that time, indicated the cooperative bargaining association had become a major entity in the raisin industry and should directly participate in marketing decisions.
Volume regulation was also modified to establish preliminary free percentages at an earlier date to give certainty as to the quantity to be released in free tonnage outlets, and to provide a basis for producers and handlers to negotiate an appropriate field price. Witnesses testified that the designated cooperative bargaining association member seat was reserved exclusively for the managerial officer of the RBA due to confidentiality of RBA pricing agreements and volume regulation.
Under volume regulation, not less than 65 percent of desirable free tonnage was released until the Committee had determined that field prices were firmly established, and open price contracts have been closed. Thus, a portion of free
The Committee also used the established field price negotiated by the RBA as a “base price” for export programs, such as the Raisin-Back or Cash-Back program. Witnesses testified, however, that these programs no longer exist after volume regulation authority was removed from the Order and, therefore, the environment in which the RBA manager was necessary to participate in Committee deliberations on volume regulation no longer exists.
Further, the record shows the RBA has diminished in influence due to a decline in membership and raisin acquisition totals. Such a decline in acquisition totals no longer warrants a designated seat based on proportional acquisition totals. The witness representing the RBA explained that the RBA faced many challenges with membership, such as compliance issues and contract violations, and has lost membership in part due to the substantial decline in the number of producers and acreage industrywide. The witness testified that one of the biggest factors contributing to low RBA membership is producers pulling raisin acreage out of production due to insufficient returns over the past 7 to 10 years, which has weakened representation and diminished raisin acquisitions under the RBA.
The record also shows the RBA faced difficulty negotiating prices due to foreign competitors depressing the price of raisins. The RBA witness testified to economic hardships due to foreign competition with production costs that are 20 to 30 percent lower. This weakens the RBA's position to bargain because foreign countries are selling raisins at a lower price due to their low production costs. The witness further explained that if the RBA cannot get a fair price, it is disastrous for raisin producers and further accelerates the rate that producer pull raisins out of production. Additionally, the witness explained that more RBA members and increased member tonnage would provide greater leverage to negotiate, but overall acquisition totals have gone down. The record shows total RBA raisin acquisitions declined from 30 percent of the total industry acquisitions to 12.5 percent in the past 8 years.
Overall, witnesses testified that the elimination of the designated cooperative bargaining association seat would provide fair and equitable representation on the Committee because membership would be based on a proportional share system. The record further shows that RBA producers will maintain seats on the Committee based on their proportional share of total acquisitions and could gain more seats if their total raisin acquisitions were to increase. This means that each industry marketing segment represented would be equal or proportionate to total raisins produced and/or acquired. Thus, the number of seats allocated to the RBA would be solely based on their share of total raisin acquisitions, similarly to other industry groups on the Committee. Further, if the cooperative bargaining association designated seat were to remain in the restructured Committee, it would provide an outsized or unequal representation because the cooperative bargaining association would be over-represented proportionally to the other industry segments on the Committee.
The witness representing the RBA contended that if the designated seat is eliminated, it would further diminish RBA's ability to work on the behalf of raisin producers, that the Committee structure would be too overladen with handler representation because the cooperative marketing association, Sun-Maid, would have 50 percent representation on the Committee, and that the RBA should continue to be involved in marketing discussions because they represent independent small producers. The designated cooperative bargaining association member seat, however, is not justified based on record evidence. With the removal of volume regulation authority from the Order and the decline in RBA member representation and acquisition totals, the cooperative bargaining association no longer warrants a designated seat.
Additionally, the record shows that much of the industry is vertically integrated, with many entities engaged as both a producer and a handler. The proposed restructured Committee accounts for and reflects these changes in industry composition over the years and the addition of the unaffiliated independent producer member seat would ensure independent producers have a voice on the Committee. The seat also helps to ensure the majority of Committee members represent producers and that there isn't an unfair balance favoring handler representation on the Committee. Finally, all Committee meetings are open to the public and the RBA could continue to participate in Committee deliberations through allocated producer member seats.
The RBA witness discussed two alternatives for a new Committee size and structure on the record. The witness suggested that Committee size should not be based on acquisition totals, that every handler should have a seat, and each segment of producers would choose how many producer representatives would serve on the Committee. AMS does not consider this a viable alternative because the witness did not provide any specifics for a proposed restructuring of the Committee. Further, since there are approximately 17 handlers, the alternative would likely result in a Committee size larger than the current size of the Committee. The second alternative proposed by the witness included keeping the designated seat for a total of 22 members and alternates. This is also not a viable alternative because the designated seat would provide the RBA with unequitable representation on the Committee because the seat would not be based on any proportional share of industry acquisitions.
Additionally, the hearing record shows that the Committee discussed several alternatives to the proposed Committee structure over several years before ultimately deciding 21 members and alternates would be an appropriate Committee size. Witnesses testified the Rulemaking Workgroup and Administrative Issues Subcommittee held in-depth discussions and reviewed a multitude of scenarios, proposals, and several reduction options, including 70, 60, and 50 percent size reductions in approximately 12 meetings between January 2020 and July 2023. Finally, one witness testified that the Committee size of 47 members and alternates was established in an era in the late 1940s when industry had approximately 5,000 to 7,000 producers. The current proposal to reduce the Committee size, given the diminished industry make-up, would actually create a Committee that is more representative of producers than as compared to the Committee historically. Thus, the proposed amendments discussed under Material Issue 1 would better align Committee membership with the overall size and configuration of the current California raisin industry by ensuring Committee composition is balanced with the size and needs of the industry.
For the reason stated above, § 989.26 “Establishment and membership” should be amended to reduce the number of Committee members from 47 to 21. Further, § 989.26 should be amended to eliminate the designated cooperative bargaining association member position. Sections 989.26(c) and 989.126(a)(1) should be amended to remove producer districts and to add a
Section 989.29 “Initial members and nomination of successor members” should be amended to eliminate the requirement for separate nominations for independent producers or producers affiliated with small cooperative marketing associations. Currently no small cooperative marketing association exists within industry. This proposed amendment would remove the requirement that independent producers must be nominated specifically for either a full Committee seat or an alternate member seat. Further, in addition to the proposed amendment that would remove producer district representation by combining nominees for three separate districts into a single ballot, this amendment would eliminate the separate tabulation procedures for full member and alternate member nominations. The notification of nomination meetings would remain unchanged.
The evidence of record is that the Order was amended in 2018 to require separate nomination procedures as a method to increase independent producer nominations by ensuring independent producers interested in serving only as an alternate were not nominated as full members. At that time, the Committee believed providing this additional flexibility for independent producer nominations would encourage participation. However, a witness testified that separate nominations actually discouraged participation on the Committee. Witnesses testified that the number of alternate members attending meetings declined because nominees may have been under the notion that alternates did not need to attend every meeting, fueling low attendance rates and absenteeism.
The record further shows that the number of independent producers nominated did not increase but instead declined, evidenced by the increase in the number of vacant alternate positions shown in table 1 column 8. Witnesses testified that both full members and alternate members should attend meetings to stay informed on industry issues that may require a future vote, and that reverting back to the original nomination procedures for independent producers would streamline the nomination process and ensure alternate seats are filled. The proposed nomination process would be streamlined because there would be one tabulation of votes instead of two separate tabulations, one for full members and one for alternate members. The Committee also believes that nominations would not be necessary with a smaller Committee size because with fewer seats, competitiveness in nominations would increase. Additionally, current average attendance rates in Table 1 show approximately 41 members would likely be able to serve. Table 1 column 5 shows 30 full Committee members on average attend Committee meetings and column 7 shows an average of 11 alternate members, for a total of 41 members on average.
This proposed amendment would remove language describing separate nomination procedures and add language stipulating one tabulation of ballots according to the highest number of votes for full member and alternate seats. With this revised process, an independent producer receiving the highest number of votes would be designated as the first independent producer member nominee. The producer receiving the second highest number of votes would be designated as the second independent producer member nominee. This tabulation process would continue until all independent producer member seats are nominated. The nominee then receiving the next highest number of votes would be designated as an alternate member nominee, with this process continuing until all seats are filled.
For the reasons stated above, § 989.29 “Initial members and nomination of successor members” should be amended to eliminate the requirement for separate nominations for independent producers or producers affiliated with small cooperative marketing associations.
Section 989.54(a) “Marketing Policy” should be amended to remove factor number 4 “An estimated desirable carryout at the end of the crop year;” and the last part of factor number 5 “, considering the estimated world raisin supply and demand situation.”
Sections 989.24 “Standard raisins, off-grade raisins, other failing raisins, and raisin residual material” and 989.58 “Natural condition raisins” should be amended to add language clarifying the quality of successfully reconditioned raisins as standard raisins. This would add language that clarifies that successfully reconditioned raisins that meet the Order's minimum grade, quality, and condition standards are “standard raisins.”
The evidence of record is that factor number 4 and the latter portion of factor number 5 are no longer necessary factors to consider in the development of the annual marketing policy due to the removal of volume regulation authority from the Order. Additionally, the record shows the report relied upon to determine the estimated world raisin supply and demand under factor 5 is no longer published and that it would be cost prohibitive to solicit similar information from other sources. The Committee believes that factor 4 and part of factor 5 are market determinants no longer considered by the Committee and removal would increase administrative efficiencies by lessening the administrative burden and costs associated with researching and assembling data that is not needed.
The record shows factor number 4 and part of factor number 5 are unnecessary marketing policy considerations without volume regulation. Witnesses testified that the Committee has not considered a “desirable carryout” listed under Factor 4 since 2019. This is because the “desirable carryout” is the free tonnage inventory at the end of a crop year that would be considered desirable to carry over into the succeeding crop year to maintain continuity of sales until new crop raisins had become available. Witnesses also testified that the information for the latter part of factor 5 was obtained from USDA's National Agricultural Statistics Service (NASS). NASS, however, discontinued its “Raisins: World Market and Trade Report”, in 2019. Further, the consideration of world raisin supply and demand was primarily to aid in the estimation of probable export market requirements for reserve raisins during a crop year under volume regulation. The Committee no longer establishes free and reserve tonnage percentages, thus factor number 4 “An estimated desirable carryout at the end of the crop year;” and the last part of factor number 5 “, considering the estimated world raisin supply and demand situation” are unnecessary under the current administration of the Order.
Additionally, record evidence shows that reports on world supply and demand may be obtained from other sources. Witnesses testified however, that such reports are expensive and, again, unnecessary after the removal of volume regulation authority from the
The evidence of record is that negative impressions about reconditioned raisins has adversely impacted the sales of such reconditioned fruit. Successfully reconditioned raisins meeting minimum grade, quality, and condition standards under the Order, however, should not be differentiated from other standard raisins. The Committee believes the additional language clarifying the quality of reconditioned raisins as standard raisins would improve efficiencies by streamlining the sales process. Further, this language would help to overcome existing obstacles experienced in the marketing of California raisins and achieve increased sales and sustained growth.
To dispel misconceptions about the quality of reconditioned raisins, this proposal would add a paragraph to § 989.58 explaining that all raisins which have been inspected and certified as meeting the minimum grade, quality, and condition standards, whether upon incoming inspection or upon later inspection after reconditioning, shall be determined to be standard raisins, labeled accordingly, and shall be eligible for commercial disposition as natural condition raisins or packed raisins in normal outlets. Further § 989.24(b) would be amended to clarify that off-grade raisins successfully reconditioned are standard raisins.
The record shows that handlers are adjusting to the decline in raisin production over the past two decades by optimizing sales to meet customer demand. One witness testified there is a greater need to eliminate the differentiation and stigma associated with reconditioned raisins because the volume of production has declined. There is a negative impression in the raisin market that the quality of reconditioned raisins that have been reworked and reinspected to meet the Order's minimum grade requirements, however, is somehow diminished. This is evidenced by past sale specifications, from both government and outside customer requests, that the product cannot be reconditioned fruit.
Negative impressions associated with reconditioned raisins often revolve around concerns regarding their perceived inferior quality compared to non-reconditioned raisins that meet minimum grade requirements. The record shows, however, that reconditioning is the process of removing defective raisins from a lot, with the end result being a lot comprised of natural condition raisins that meet the Order's requirements. Currently, raisins that fail incoming inspections, or other off-grade raisins, are either disposed in eligible non-normal outlets, returned to the producer, or reconditioned. Witnesses testified that most off-grade raisins are reconditioned by the handler, but sometimes they are returned to producers for reconditioning.
Witnesses further testified that the negative label attached to reconditioned raisins stems from the misconception about the reconditioning process and final product. Witnesses explained that handlers apply different reconditioning processes, ranging from minimally invasive to more intense processes. Such processes are highly dependent on the defects identified within a specified lot. Minimal processes include shaking or vibrating raisins on a conveyor system to remove foreign material or drying raisins with excessive moisture on trays to an acceptable level. A more intense process includes washing and drying to remove moldy or fermented raisins. During this process raisins are placed in a hot water bath that travels along augers and mold belts, removing defective raisins. Raisins that remain are then transferred to a tray and re-dried. Essentially, all reconditioning processes remove defective raisins to improve the grade and quality of the lot to meet incoming inspection requirements. Further, off-grade raisins returned to the producer and reconditioned by them before being shipped back to the handler are not classified as reconditioned raisins. Witnesses testified that raisins reconditioned on producer premises have no designation that the lot was reconditioned, thus including language that clarifies that successfully reconditioned raisins are standard raisins provides for fair marketing practices. Further, the record shows that reconditioning techniques have improved over the years.
Witnesses also testified that the negative misconception of reconditioned raisins is from an outdated categorization for reconditioned fruit when volume regulation was authorized under the Order. Under volume regulation, raisins reconditioned by handlers were held in a separate reserve pool, and at that time, handlers didn't always successfully recondition product held in the pool. Witnesses testified that today, processors must ensure raisins meet the Order's minimum grade requirements, because outlets under volume regulation were removed from the Order and no reserve pool for reconditioned raisins currently exists.
The record shows the addition of clarifying language to the Order would help to dispel the negative perception associated with reconditioned raisins, streamlining the sales of such fruit by reducing unnecessary friction points in the purchase of reconditioned raisins. Additionally, the USDA specifications for commodity purchases no longer distinguish between reconditioned and non-reconditioned raisins that meet minimum grade requirements. For the reasons stated above, §§ 989.24 “Standard raisins, off-grade raisins, other failing raisins, and raisin residual material” and 989.58 “Natural condition raisins” should be amended to add language clarifying the quality of successfully reconditioned raisins as standard raisins.
Sections §§ 989.63 “Contributions” and 989.64 “Patents, copyrights, trademarks, inventions, product formulations, and publications” should be added to establish authority to accept voluntary contributions and authority related to the ownership of, and rights to, intellectual property and the collection of rents/royalties from the same. This new authority would also provide directions for disposition of any intellectual property developed through funds received by the Committee should the Order be terminated.
This would allow the Committee to accept voluntary contributions that would be free from any encumbrances by the donor, and to develop intellectual property, including patents, copyrights, trademarks, inventions, product formulations, or publications, through the use of Order funds. Additionally, such funds, including funds received from the licensing or use of intellectual property developed, shall only be used to pay expenses authorized under the Order. Further, all intellectual property developed through the use of funds received by the Committee would be the property of the U.S. government. Ownership and related rights of
The evidence of record is that the Committee may soon enter into a sublicensing agreement with the California Department of Food and Agriculture (CDFA) for intellectual property rights to the California Dancing Raisins after film producers interested in remaking a movie about the characters contacted the Committee.
The CDFA is the owner of the intellectual property rights to the California Dancing Raisins. Witnesses testified that the characters were developed under the California State Marketing Order by the California Raisin Marketing Board (CRMB). The CRMB, however, was subsequently terminated and ownership of all intellectual property under the CRMB reverted to the State of California. The CDFA is currently seeking to sublicense, or transfer, the characters, and other intellectual property, to the Committee. Such arrangement would be by a separate agreement between the parties.
Witnesses testified that voluntary contribution authority would allow the Committee to receive funds if the characters were to be sublicensed in the future. Currently, the Order does not include provisions that enable the Committee to receive and use funds, such as donations, gifts, or contributions from individuals, businesses, or other entities. This proposed amendment would provide the authority to accept voluntary contributions, such as rents, royalties, residual payments, or other income from the rental, sales, leasing, franchising, or other uses of intellectual property. Witnesses also testified that the amendments would solidify the authority to use the characters and avoid future litigation.
The record shows that the addition of voluntary contributions and intellectual property is not uncommon. Witnesses testified that most marketing orders have developed their own logos and sublicense them out for use. Further, many research and promotion programs include language pertaining to voluntary contributions. Witnesses also testified that the addition of voluntary contributions and intellectual property rights has the broadest of industry support with almost total unanimity.
Additionally, the proposed amendments would not only be used for the California Dancing Raisins specifically, but it would also create the opportunity for the industry to benefit from the development of intellectual property moving forward. The language related to the ownership and rights of intellectual property developed under the Order would provide that the Committee may develop intellectual property in the future. This may lead to brand recognition, increases in consumer demand, better returns, and greater market share, making California raisins more competitive worldwide.
For the reason stated above, §§ 989.63 “Contributions” and 989.64 “Patents, copyrights, trademarks, inventions, product formulations, and publications” should be added to establish authority to accept voluntary contributions and authority related to the ownership of, and rights to, intellectual property and the collection of rents/royalties from the same.
Based on record evidence, USDA is recommending the following conforming change to the Order; revise § 989.129 to replace the word “ballot” with “vote.” USDA is also recommending minor punctuation changes to § 989.64 for clarity and readability.
USDA proposes to revise § 989.129 to replace the word “ballot” with “vote.” The word “ballot” replaced “vote” as part of the Order amendment in 2018 that separated nomination procedures for independent producers. Material issue No. 2 proposes to undo the requirement for separate nomination procedures. This proposal would revert the text back to its original language before separate nominations were implemented in the 2018 amendment.
USDA proposes to make minor punctuation changes to § 989.64 for clarity and readability. These changes would not change the meaning of the section. USDA proposes to add a semicolon after the last reference to “Committee” in § 989.64(a) and delete the comma after “publication” in § 989.64(d).
Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA), AMS has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis.
The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be unduly or disproportionately burdened. Marketing orders and amendments thereto are unique in that they are normally brought about through group action of essentially small entities for their own benefit.
According to the hearing transcript, there are approximately 1,500 producers of California raisins. According to NASS data presented at the hearing, the total value of production for the 2022/23 crop year of raisins was $381,780,000. Taking the total value of production for raisins and dividing it by the total number of raisin producers provides a return per producer of $254,520. Small agricultural producers of raisins are defined by the Small Business Administration (SBA) as those having annual receipts equal to or less than $4.0 million (NAICS code 111332, Grape Vineyards) (13 CFR 121.201). Therefore, a majority of raisin producers would be considered small entities under SBA's standards.
According to the record, there were 17 handlers for the 2022-2023 crop year. Small agricultural service firms are defined as those whose annual receipts are equal to or less than $34.0 million (NAICS code 115114, Postharvest Crop Activities) (13 CFR 121.201). To make a similar computation for handlers, the first step is to estimate a representative handler price received per pound for packaged raisins. Recent USDA purchases under the Commodity Procurement Program provide such an estimate. For the most recent raisin crop year used by the Committee (August 2022-July 2023), the average price paid for packaged raisins purchased by the USDA for food assistance programs was $1.56 per pound. The annual receipts for handlers can be calculated by taking the USDA average purchase price and multiplying it by the total number of shipments as reported by the Committee for the 2022-2023 crop year ($1.56 × 414,898,000 LB) which equals $647,240,880. Taking the calculation for the annual receipts by handlers and dividing by the number of handlers provides an estimated annual receipt per handler ($647,240,880 divided by 17), which equals $38,072,993. Based on
The production area regulated under the Order covers the State of California. Acreage devoted to raisin production in the production area has declined in recent years. According to data presented at the hearing, bearing acreage for raisins reached a high of 280,000 acres during the 2000-2001 crop year. Since then, bearing acreage for raisins has decreased almost 53 percent to 133,000 in 2021-2022. Total production of raisins reached a high during the 2000-2001 crop year of 2,921,000 tons (green tons) but has decreased 65 percent to a total production of raisins of 1,010,000 tons in 2021-2022.
During the hearing held February 13 and 14, 2024, interested persons were invited to present evidence at the hearing on the probable regulatory and informational impact of the proposed amendments to the Order on small businesses. The evidence presented at the hearing shows that none of the proposed amendments would have any burdensome effects on small agricultural producers or firms.
The proposal described under Material Issue No. 1 would amend § 989.26 by reducing Committee membership from 47 to 21 members. Corresponding changes would also be made to § 989.126. The proposal would also remove producer district representation in § 989.26(c) and add an unaffiliated independent producer member seat to § 989.126(a)(1). Corresponding changes would also remove §§ 989.22 and 989.122 and references to producer districts in §§ 989.29(b)(2), 989.126(a), and 989.129. In addition, Proposal No. 1 would eliminate the designated bargaining association seat in § 989.26. Corresponding changes would also remove the reference to the bargaining association position in § 989.30. Lastly, Proposal No. 1 would amend § 989.26 by lowering quorum requirements from 25 to 14.
Witnesses supported this proposal and stated that reducing the size of the Committee would make conducting business more efficient. These witnesses' statements are supported by the data collected by NASS showing that bearing acreage for raisins has decreased almost 53 percent since the 2000-2001 season.
Currently, the Committee is structured to have 47 members and 47 alternates, where quorum is met when at least 25 members attend. A witness testified that, from April 2019 through June 2023, Committee meeting participation averages only 33 out of the 47 members in attendance. Witnesses testified that the number of raisin producers has declined from approximately 3,500 during the 2000-2001 season to approximately 1,500 during the 2022-2023 season. Reducing the number of members on the Committee will bring representation into balance with the overall size of the industry.
For the reasons described above, it is determined that the proposed amendment would benefit industry participants and improve administration of the order. The costs of implementing this proposal would be minimal, if any, and may even create efficiencies that would reduce administrative costs.
The proposal described under Material Issue No. 2 would amend § 989.29 to eliminate the requirement for separate nominations for independent producers or producers affiliated with small cooperative marketing associations.
Currently, the Committee has difficulty filling Committee seats designated for independent producer members and independent producer alternate members. Independent producer alternate member seats have gone unfilled for several consecutive years.
According to witness testimony, the purpose of the proposal is to eliminate the requirements for separate nominations for independent producers and create greater competition for all Committee positions. When the raisin industry had more producers, the Committee believed designating separate nominations for independent producers ensured that independent producers' concerns were part of Committee discussions. As the raisin industry has evolved, separate nominations for independent producers have fueled low attendance rates and absenteeism at Committee meetings.
In conclusion, it is determined that the benefits of eliminating the requirements for separate nominations for independent producers would outweigh any costs associated with the implementation of the proposed amendment.
The proposal described under Material Issue No. 3 would, in § 989.54(a), remove factor number 4 “An estimated desirable carryout at the end of the crop year;” and the last part of factor number 5, “, considering the estimated world raisin supply and demand situation”. Proposal No. 3 would also amend §§ 989.24 and 989.58 by adding language to clarify the quality of reconditioned raisins as “standard raisins.”
Currently, many customers believe reconditioned raisins differ from raisins that were not reconditioned, even though both raisins have met the same quality standard. The Committee believes that there is an impression in the raisin market that the quality level of reconditioned raisins is lower than standard raisins. Clarifying standard raisins as any raisins that have been inspected and meet the Order's minimum requirements, regardless of whether the fruit has been reconditioned or not, would remove any negative quality impression that is associated with reconditioned raisins.
According to a witness, the proposed amendment would streamline the sales process and would have a positive impact for raisin handlers and producers. Currently, USDA does not distinguish between reconditioned or standard raisins when purchasing for feeding programs.
It is determined that the benefits gained from implementing this proposal would outweigh additional implementation costs incurred, if any.
The proposal described under Material Issue 4 would add § 989.63 to establish the authority to accept voluntary contributions and add § 989.64 to establish authority related to ownership of, and rights to, intellectual property and add authority for the collection of rents/royalties from the same.
The Order does not currently allow for the Committee to accept voluntary contributions or have ownership of, and rights to, intellectual property. This proposal would allow for the Committee to generate additional income outside the collection of handler assessments.
According to a witness, the Committee has been approached recently with the opportunity to generate revenue from the trademarked Dancing Raisins. Adding the authority
For the reasons described above, it is determined that any additional costs incurred for this proposal would be outweighed by the increased flexibility for the industry to respond to a changing global marketplace.
USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule. These amendments are intended to improve the operation and administration of the Order and to assist in the marketing of California raisins.
Committee meetings regarding these proposals, as well as the hearing date and location, were widely publicized throughout the California raisin industry, and all interested persons were invited to attend the meetings and the hearing to participate in Committee deliberations on all issues. All Committee meetings, and the hearing, were public forums, and all entities, both large and small, were able to express views on these issues. Interested persons are invited to submit information on the regulatory impacts of this action on small businesses.
AMS 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.
Current information collection requirements that are part of the Federal marketing order for California raisins (7 CFR part 984) are approved under OMB No. 0581-0178 Vegetables and Specialty Crops. Some changes in those requirements are anticipated as a result of this proceeding. Such changes would be submitted to OMB for approval.
As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies.
The amendments to the Order proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. They are not intended to have retroactive effect. If adopted, the proposed amendments would not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this proposal.
The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under § 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United States in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed no later than 20 days after the date of entry of the ruling.
No briefs were filed. Proposed findings and conclusions and the evidence in the record were considered in making the findings and conclusions set forth in this recommended decision. To the extent that the suggested findings and conclusions filed by interested persons are inconsistent with the findings and conclusions of this recommended decision, the requests to make such findings or to reach such conclusions are denied.
The findings hereinafter set forth are supplementary to the findings and determinations which were previously made in connection with the issuance of the marketing agreement and order and all said previous findings and determinations are hereby ratified and affirmed, except insofar as such findings and determinations may be in conflict with the findings and determinations set forth herein.
(1) The marketing order, as amended, and as hereby proposed to be further amended, and all of the terms and conditions thereof, would tend to effectuate the declared policy of the Act;
(2) The marketing order, as amended, and as hereby proposed to be further amended, regulates the handling of raisins produced from grapes grown in the production area (California) in the same manner as, and is applicable only to, persons in the respective classes of commercial and industrial activity specified in the marketing order upon which a hearing has been held;
(3) The marketing order, as amended, and as hereby proposed to be further amended, is limited in its application to the smallest regional production area which is practicable, consistent with carrying out the declared policy of the Act, and the issuance of several orders applicable to subdivisions of the production area would not effectively carry out the declared policy of the Act;
(4) The marketing order, as amended, and as hereby proposed to be further amended, prescribes, insofar as practicable, such different terms applicable to different parts of the production area as are necessary to give due recognition to the differences in the production and marketing of raisins grown in the production area; and
(5) All handling of raisins grown in the production area as defined in the marketing order is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects such commerce.
A 30-day comment period is provided to allow interested persons to respond to this proposal. All written exceptions received within the comment period will be considered, and a producer referendum may be conducted before any of these proposals are implemented.
Grapes, Marketing agreements, Raisins, Reporting and recordkeeping requirements.
For the reasons set out in the preamble, the Agricultural Marketing Service proposes to amend 7 CFR part 989 as follows:
7 U.S.C. 601-674.
(b)
A Raisin Administrative Committee is hereby established consisting of 21 members of whom 12 shall represent producers, 8 shall represent handlers and 1 shall be a public member.
(a) The producer members shall be selected as follows:
(1) Producer members representing the cooperative marketing association(s) shall be members of such association(s) engaged in the handling of raisins, each of which acquired not less than 10 percent of the total raisin acquisitions during the preceding crop year, and those members shall be equal to the product, rounded to the nearest whole number, obtained by multiplying 12 by the ratio the cooperative marketing association(s) raisin acquisitions are to the acquisitions of all handlers during the preceding crop year. (2) Producer members representing cooperative bargaining association(s) shall be members of such association(s), and the number of those members shall be equal to the product, rounded to the nearest whole number, obtained by multiplying 12 by the ratio the raisins acquired by handlers from bargaining association members are to the total acquisitions of all handlers during the preceding crop year.
(3) All other producer members, who shall not be members of a cooperative bargaining association(s), cooperative marketing association(s) engaged in the handling of raisins which acquired 10 percent or more of the total acquisitions during the preceding crop year, nor sold for cash to cooperative marketing association(s), shall represent all producers not defined in paragraphs (a)(1) or (2) of this section and shall be selected as designated in the rules and regulations.
(b) The handler members shall be divided into two groups and include the following:
(1) Handler members shall be selected from and represent cooperative marketing association(s) engaged in the handling of raisins each of which acquired not less than 10 percent of the total raisin acquisitions during the preceding crop year, and the number of those members shall be equal to the product, rounded to the nearest whole number, obtained by multiplying 8 by the ratio of the cooperative marketing association(s) raisin acquisitions are to the total acquisitions of all handlers during the preceding crop year.
(2) The remaining handler members shall be selected from and represent all other handlers, which would include all independent handlers and small cooperative marketing association(s) who acquired less than 10 percent of the total raisin acquisitions during the preceding crop year. Handler nominees for this group shall be nominated by all handlers in the group in a manner determined by the Committee, with the approval of the Secretary, and specified in the rules and regulations.
(c) The public member shall be nominated by the Committee and selected by the Secretary as public member.
(d) For each member of the Committee there shall be an alternate member who shall have the same qualifications as the member for whom they are an alternate.
(a)
(b) * * *
(1) The Committee shall notify the cooperative marketing association(s) engaged in handling not less than 10 percent of the total raisin acquisitions during the preceding crop year, and cooperative bargaining association(s), of the date by which nominations to fill member and alternate member positions shall be made. The Committee shall give reasonable publicity of a meeting or meetings of producers who are not members of cooperative bargaining association(s), or cooperative marketing association(s) which handled 10 percent or more of the total raisin acquisitions during the preceding crop year, and of independent handlers and cooperative marketing association(s) who handled less than 10 percent of the total raisin acquisitions during the preceding crop year, for the purpose of making nominations to fill the member and alternate member positions prescribed in § 989.26 (a)(3) and (b):
(2)(i) Any producer representing independent producers and producers who are affiliated with cooperative marketing association(s) handling less than 10 percent of the total raisin acquisitions during the preceding crop year must have produced grapes which were made into raisins.
(ii) Each such producer whose name is offered in nomination to represent on the Committee independent producers or producers who are affiliated with cooperative marketing association(s) handling less than 10 percent of the total raisin acquisitions during the preceding crop year shall be given the opportunity to provide the Committee a short statement outlining qualifications and desire to serve if selected. These brief statements, together with a ballot and voting instructions, shall be mailed to all independent producers and producers who are affiliated with cooperative marketing associations handling less than 10 percent of the total raisin acquisitions during the preceding crop year of record with the Committee. The producer candidate receiving the highest number of votes shall be designated as the first member nominee for a member position in which they qualify, the second highest shall be designated as the second member nominee for a member position which they qualify, until nominees for all producer member positions have been filled. Similarly, after all producer member positions have been filled, the producer candidate receiving the highest number of votes shall be designated as the first alternate member nominee for a member position in which they qualify, the second highest shall be designated as the second alternate member nominee for a member position in which they qualify, until nominees for all alternate member positions have been filled.
(iii) In the event there are no qualified candidates for any designated producer member or alternate member positions, such positions may be filled by other producer candidates not otherwise nominated for a position.
(iv) Each independent producer or producer affiliated with cooperative marketing association(s) handling less than 10 percent of the total raisin acquisitions during the preceding crop year shall cast only one vote with respect to each position for which nominations are to be made. Write-in candidates shall be accepted. The person receiving the most votes with
The Secretary shall select producer, handler, and public members and alternate members in the number specified in § 989.26, as applicable, and with the qualifications specified in § 989.27. Such selections may be made from nominations certified pursuant to § 989.29 or from other eligible producers, or handlers.
(g)
The Committee may accept voluntary contributions:
(a) Any patents, copyrights, trademarks, inventions, product formulations, and publications developed through the use of funds received by the Committee under this subpart shall be the property of the U.S. Government, as represented by the Committee, and shall, along with any rents, royalties, residual payments, or other income from the rental, sales, leasing, franchising, or other uses of such patents, copyrights, trademarks, inventions, product formulations, or publications, inure to the benefit of the Committee; shall be considered income subject to the same fiscal, budget, and audit controls as other funds of the Committee; and may be licensed subject to approval by the Secretary.
(b) Upon termination of this subpart, § 989.92 shall apply to determine disposition of any property, including patents, copyrights, trademarks, inventions, product formulations, and publications developed through the use of funds received by the Committee under this subpart.
(c) Should patents, copyrights, trademarks, inventions, product formulations, or publications be developed through the use of funds collected by the Committee under this subpart and funds contributed by another organization or person, ownership and related rights to such patents, copyrights, trademarks, inventions, product formulations, or publications shall be determined by agreement between the Committee and the person or organization contributing funds towards the development of such patents, copyrights, inventions, trademarks, product formulations, or publications in a manner consistent with paragraph (a) of this section.
(d) Should any patents, copyrights, trademarks, inventions, product formulations, or publications be licensed to the Committee by another person or organization, the rights and obligations regarding such licensed patents, copyrights, trademarks, inventions, product formulations, or publications shall be determined by agreement between the Committee and the person or organization permitting licensure in a manner consistent with paragraph (a) of this section.
(a) Pursuant to § 989.26(a)(3), and commencing with the term of office beginning May 1, 2026, apportionment of independent and small cooperative producers shall be:
(1) One producer member, selected from and representing all producers, who is unaffiliated with any handler (including, but not limited to, ownership, employment, or agent of any handler, and whose family members are similarly unaffiliated with any handler); and
(2) The remaining producer member(s) selected from and representing all other independent and small cooperative producers.
(b) Pursuant to section § 989.26(b)(2), and commencing with the term of office beginning May 1, 2026, apportionment of the independent and small cooperative marketing association handlers shall be:
(1) Two members selected from and representing the four handler(s) other than major cooperative marketing association handler(s) who acquired the largest percentage of the total raisin acquisitions during the preceding crop year; and
(2) The remaining member(s) selected from and representing all other handlers, including small cooperative marketing association handler(s) and all processors.
Any person (defined in § 989.3 as an individual, partnership, corporation, association, or any other business unit) who is engaged, in a proprietary capacity, in the production of grapes which are sun-dried or dehydrated by artificial means to produce raisins and who qualifies under the provisions of § 989.29(b)(2) shall be eligible to cast one vote for a nominee for each producer member position and one vote for a nominee for each producer alternate member position on the Committee which is to be filled. Such person must be the one who or which: Owns and farms land resulting in his or its ownership of such grapes produced thereon; rents and farms land, resulting in his or its ownership of all or a portion of such grapes produced thereon; or owns land which he or it does not farm and, as rental for such land, obtains the ownership of a portion of such grapes or the raisins. In this connection, a partnership shall be deemed to include two or more persons (including a husband and wife) with respect to land the title to which, or leasehold interest
U.S. Commission on the Social Status of Black Men and Boys (CSSBMB), U.S. Commission on Civil Rights (USCCR).
Notice of CSSBMB public business meeting.
Monday, September 16 2:00 p.m.-3:30 p.m. EDT.
Meeting to take place virtually and is open to the public via livestream on USCCR's official YouTube channel.
Diamond Newman, 202-339-2371,
In accordance with Public Law 116-156, 1134 Stat. 700 (2020), the U.S. Commission on the Social Status of Black Men and Boys (CSSBMB) will hold its fourth quarter business meeting exploring CSSBMB business items. This business meeting is open to the public via livestream on the U.S. Commission on Civil Rights' (USCCR) official YouTube channel. (
* Date and meeting details are subject to change. For more information on the CSSBMB or the upcoming public briefing, please visit
* Briefing Agenda
Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce.
The U.S. Department of Commerce (Commerce) is conducting an administrative review of the countervailing duty order on utility scale wind towers (wind towers) from Malaysia. Commerce preliminarily finds that CS Wind Malaysia Sdn Bhd (CS Wind) received countervailable subsidies during the period of review (POR), January 1, 2022, through December 31, 2022. We are also preliminarily rescinding the review with respect to 11 producers/exporters. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Kelsie Hohenberger, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-2517.
On October 18, 2023, Commerce initiated an administrative review of the countervailing duty order on wind towers from Malaysia,
For details regarding the events that followed the initiation of the review,
The products covered by the
Based on our analysis of U.S. Customs and Border Protection (CBP) data, we preliminary determine that there were no reviewable entries during the POR for the following companies: CS Wind Corporation; CS Wind China Co., Ltd; CS Wind Taiwan Ltd; CS Wind Turkey Kule Imaltati A.S; CS Wind UK Limited; CS Wind Vietnam Co., Ltd; CS Wind Portugal, S.A.; GE Renewable Energy; GE Renewable Malaysia Sdn. Bhd; Nordex SE; and Siemens Gamesa Renewable Energy. Therefore, pursuant to 19 CFR 351.213(d)(3), we intend to rescind the administrative review of these companies in the final results of review.
We are conducting this review in accordance with section 751(a)(1)(A) of the Act. For each of the subsidy programs found countervailable, we preliminarily determine that there is a subsidy,
We preliminarily find the following net countervailable subsidy rate exists for the period January 1, 2022, through December 31, 2022:
We intend to disclose to interested parties the calculations performed for these preliminary results within five days of the publication of this notice.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS.
Upon completion of the administrative review, consistent with section 751(a)(1) of the Act and 19 CFR 351.212(b)(2), Commerce shall determine, and CBP shall assess, countervailing duties on all appropriate entries covered by this review.
For CS Wind, we preliminarily assigned a subsidy rate in the amount shown above. For the companies for which this review is rescinded in the final results, we will instruct CBP to assess countervailing duties on all appropriate entries at a rate equal to the cash deposit of estimated countervailing duties required at the time of entry, or withdrawal from warehouse, for
We intend to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
In accordance with section 751(a)(1) of the Act, Commerce intends, upon publication of the final results, to instruct CBP to collect cash deposits of estimated countervailing duties in the amounts shown for the company listed above on shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review. For all non-reviewed firms or companies for which we rescind the review, we will instruct CBP to continue to collect cash deposits at the most recent company-specific or all-others rate applicable to the company. These cash deposit requirements, when imposed, shall remain in effect until further notice.
Unless otherwise extended, Commerce intends to issue the final results of this administrative review, including the results of its analysis of the issues raised in any written briefs, not later than 120 days after the date of publication of this notice, pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(1).
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that Iljin Electric Co., Ltd. (Iljin), and non-individually examined companies for which a review was requested, made sales of large power transformers from the Republic of Korea (Korea) at prices below normal value (NV) during the period of review (POR) of August 1, 2022, through July 31, 2023. Commerce also preliminarily finds that HD Hyundai Electric Co., Ltd. (Hyundai) did not make sales of large power transformers from Korea at prices below NV during the POR. Additionally, Commerce is rescinding this administrative review, in part, with respect Hyosung Heavy Industries Corporation (Hyosung) because Hyosung had no entries of subject merchandise during the POR. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
John Drury at (202) 482-0195 or Jinny Ahn at (202) 482-0339, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230.
Commerce published the antidumping duty order on large power transformers on August 31, 2012.
The scope of this
Pursuant to 19 CFR 351.213(d)(3), it is Commerce's practice to rescind an administrative review of an antidumping duty order when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
Commerce is conducting this review in accordance with section 751(a)(2) of the Tariff Act of 1930, as amended (the Act). For a full description of the methodology underlying our conclusions,
The statute and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation, for guidance when calculating the rate for companies which were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted average of the estimated weighted average dumping margins established for exporters and producers individually investigated, excluding any zero or
We preliminarily determine the following estimated weighted-average dumping margins exist during the period August 1, 2022, through July 31, 2023:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs or other written comments to the Assistant Secretary for Enforcement and Compliance no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Upon issuing the final results, Commerce shall determine, and CBP shall assess, antidumping duties on all appropriate entries. For any individually examined respondent whose weighted-average dumping margin is not zero or
In accordance with Commerce's “automatic assessment” practice,
For the company which was not selected for individual review (
With respect to the company for which we have rescinded this review in part (
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for Iljin, Hyundai and other companies listed above will be equal to the weighted-average dumping margin established in the final results of this administrative review; (2) for previously reviewed or investigated companies not listed above, the cash deposit rate will continue to be the company-specific rate published for the most recently completed segment of this proceeding in which they were reviewed; (3) if the exporter is not a firm covered in this review, a prior review, or in the investigation but the producer is, the cash deposit rate will be the rate established for the most recently completed segment of this proceeding for the producer of the merchandise; and (4) the cash deposit rate for all other producers or exporters will continue to be the all-others rate of 22.00 percent, the rate established in the investigation of this proceeding.
Unless the deadline is otherwise extended, Commerce intends to issue the final results of this administrative review, including the results of its analysis of issues raised by interested parties in the written briefs, no later than 120 days after the date of publication of this notice in the
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of countervailing duties.
Commerce is issuing and publishing this notice in accordance with sections 751(a)(1) and 777(i)(1) of the Act, 19 CFR 351.213(h)(2), and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that polyethylene retail carrier bags from Malaysia are not being sold in the United States at below normal value during the period of review (POR), August 1, 2022, through July 31, 2023. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Charles Doss, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4474.
On August 9, 2004, Commerce published the antidumping duty order on polyethylene retail carrier bags from Malaysia.
For a complete description of the events that followed the initiation of this review,
The products covered by this
Commerce is conducting this review in accordance with section 751(a)(1)(B) of the Act. Export price and constructed export price are calculated in accordance with section 772 of the Act. Normal value is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying our conclusions,
As a result of this review, we preliminarily determine the following estimated weighted-average dumping margin exists for the period August 1, 2022, through July 31, 2023:
We intend to disclose the calculations used for these preliminary results to interested parties within five days of the date of publication of this notice, in accordance with 19 CFR 351.224(b). Interested parties may submit case briefs no later than 30 days after the date of publication of this notice.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, using Enforcement and Compliance's ACCESS system within 30 days of publication of this notice.
Unless the deadline is extended pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(1), Commerce will issue the final results of this administrative review, including the results of our analysis of the issues raised by the parties in their case briefs, not later than 120 days after the date of publication of this notice, pursuant to section 751(a)(3)(A) of the Act.
Upon issuance of the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review. The final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by this review and for future deposits of estimated duties, where applicable.
If the weighted-average dumping margin for Euro SME is above
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by the respondent for which it did not know that the merchandise was destined for the United States, we will instruct CBP to liquidate entries not reviewed at the all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
The following cash deposit requirements will be effective upon publication of the notice of the final results of the administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results, as provided by section 751(a)(2) of the Act: (1) the cash deposit rate for Euro SME will be equal to the dumping margin established in the final results of this review, except if the ultimate rate is
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties, and/or increase in the amount of antidumping duties by the amount of the countervailing duties.
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that producers/exporters subject to this review did not make sales of subject merchandise at prices below normal value. The period of review (POR) is December 1, 2022, through November 30, 2023. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Dennis McClure or Henry Wolfe, AD/CVD Operations, Office VIII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-5973, and (202) 482-0574, respectively.
On February 8, 2024, based on a timely request for review, and in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act), Commerce initiated this administrative review of the antidumping duty (AD) order on carbazole violet pigment 23 (CVP-23) from India covering three companies: Gharda Chemicals, Ltd. (Gharda), Meghmani Pigments (Meghmani), and Navpad Pigments Pvt. Ltd. (Navpad).
The product covered by the
Commerce is conducting this review in accordance with section 751(a) of the Act. Export price is calculated in accordance with section 772 of the Act. Normal value is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying our conclusions,
To determine the rate for non-selected companies in an administrative review, generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted average of the estimated weighted average dumping margins established for exporters and producers individually investigated, excluding any zero or
Where the dumping margin for individually examined respondents are all zero,
In this review, we calculated weighted-average dumping margins for Meghmani and Navpad that are zero and we did not calculate any margins which are not zero,
As a result of our review, we preliminarily determine the following estimated weight-average dumping margins for the period December 1, 2022, through November 30, 2023:
Commerce intends to disclose the calculations used in our analysis to interested parties in this review within five days of the date of publication of this notice in the
Interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Upon completion of the administrative review, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review.
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise that entered the United States during the POR that were produced by each respondent for which the respondent did not know that its merchandise was destined to the United States, Commerce will instruct CBP to liquidate unreviewed entries at the all-others rate, if there is no rate for the intermediate company(ies) involved in the transaction.
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following deposit requirements will be effective for all shipments of CVP-23 from India entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review, as provided for by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for the companies under review will be the rate established in the final results of this review (except, if the rate is zero or
Unless otherwise extended, Commerce intends to issue the final results of this administrative review, including the results of our analysis of issues raised by the parties in any written briefs, within 120 days of publication of these preliminary results in the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of the countervailing duties.
These preliminary results of administrative review are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S Department of Commerce (Commerce) is conducting the administrative review of the antidumping duty (AD) order on light-walled rectangular pipe and tube (LWRPT) from the People's Republic of China (China). The period of review (POR) is August 1, 2022, through July 31, 2023. Commerce preliminarily finds that Hoa Phat Steel Pipe Company Limited (Hoa Phat) had no subject shipments of LWRPT and that Hoa Phat will be eligible to participate in the
Applicable September 13, 2024.
Paul Kebker, AD/CVD Operations, Office IV, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-2254.
On August 5, 2008, Commerce published in the
Subsequently, we initiated an administrative review of the
On November 9, 2023, we published in the
On April 11, 2024, Commerce extended the deadline for these preliminary results to August 30, 2024.
The merchandise subject to this
Pursuant to 19 CFR 351.213(d)(1), Commerce will rescind an administrative review, in whole or in part, if all parties that requested a review withdraw their requests within 90 days of the publication date of the notice of initiation of the requested review in the
Commerce is conducting this review in accordance with section 751(a)(1)(B) of the Tariff Act of 1930, as amended (the Act) and 19 CFR 351.213. For a full description of the methodology underlying these preliminary results,
In this administrative review, we issued a questionnaire to Hoa Phat to gather information on the quantity and value (Q&V) of its shipments of LWRPT to the United States.
Under Commerce's policy regarding the conditional review of the China-wide entity,
On January 26, 2024, Nucor Tubular Products Inc. requested that Commerce conduct verification of Hoa Phat pursuant to 19 CFR 351.307(b)(1)(v). Accordingly, Commerce intends to verify the information relied upon in making its final results for Hoa Phat.
Because Commerce intends to verify the questionnaire responses of Hoa Phat, the mandatory respondent in this review, interested parties will be notified of the deadline for the submission of case briefs at a later date.
Parties who submit case briefs or rebuttal briefs in this proceeding must submit with each argument: (1) a statement of the issue; (2) a brief summary of the argument; and (3) a table of authorities.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, within 30 days after the publication of this notice. Hearing requests should contain: (1) the party's name, address, telephone number; (2) the number of participants; and whether any participant is a foreign national; and (3) a list of the issues to be discussed. Issues raised in the hearing will be limited to issues raised in the case and rebuttal briefs. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined and will notify the parties through ACCESS.
All submissions, including case and rebuttal briefs, as well as hearing requests, should be filed using ACCESS. An electronically-filed document must be received successfully in its entirety by ACCESS by 5:00 p.m. Eastern Time on the established deadline.
Upon issuance of the final results of this review, Commerce will determine, and CBP will assess, antidumping duties on all appropriate entries covered by this review.
For Ailong, we will instruct CBP to assess antidumping duties on all appropriate entries at a rate equal to the cash deposit of estimated antidumping duties required at the time of entry, in accordance with 19 CFR 351.212(c)(l)(i). For Ailong, Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of this notice in the
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of review, as provided for by section 751(a)(2)(C) of the Act: (1) for Hoa Phat, the cash deposit rate will remain unchanged (
Unless otherwise extended, Commerce intends to issue the final results of this administrative review, which will include the results of its analysis of issues raised in any briefs, within 120 days of publication of these preliminary results of review, pursuant to section 751(a)(3)(A) of the Act.
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of the countervailing duties.
This determination is issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that Sahamitr Pressure Container Plc. (also known as Sahamitr Pressure Container Public Company Limited) (SMPC) made sales of steel propane cylinders from Thailand at less than normal value (NV) during the period of review (POR), August 1, 2022, through July 31, 2023. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Samuel Brummitt, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-7851.
On August 15, 2019, Commerce published the antidumping duty order on steel propane cylinders from Thailand.
For a detailed description of the events that followed the initiation of this review,
The merchandise covered by this
Commerce is conducting this review in accordance with section 751(a) of the Act. Export price was calculated in accordance with section 772 of the Act. NV was calculated in accordance with section 773 of the Act. For a full description of the methodology underlying these preliminary results,
We preliminarily determine that the following estimated weighted-average dumping margin exists for the period August 1, 2022, through July 31, 2023:
We intend to disclose the calculations used for these preliminary results to interested parties within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b). Interested parties may submit case briefs not later than seven days after the date on which the verification report is issued in this administrative review.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, filed electronically, using ACCESS. within 30 days after the date of publication of this notice in the
Unless the deadline is extended pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(2), Commerce intends to issue the final results of this administrative review, including the results of our analysis of the issues raised in any case briefs, not later than 120 days after the date of publication of this notice.
Pursuant to section 751(a)(2)(A) of the Act and 19 CFR 351.212(b)(1), Commerce will determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries of subject merchandise in accordance with the final results of this review. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this administrative review in the
If SMPC's weighted-average dumping margin is not zero or
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by SMPC for which it did not know that the merchandise was destined for the United States, we intend to instruct CBP to liquidate those entries at the all-others rate in the original less-than-fair-value (LTFV) investigation (
The following cash deposit requirements will be effective for all shipments of the subject merchandise
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
We are issuing and publishing these preliminary results of review in accordance with sections 751(a)(1) and 777(i) of the Act, and 19 CFR 351.213(h)(2) and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that sales of utility scale wind towers (wind towers) from the Republic of Korea (Korea) were not made at less than normal value (NV) during the period of review (POR) August 1, 2022, through July 31, 2023. Additionally, Commerce is rescinding this administrative review, in part, with respect to certain companies that had no entries of subject merchandise during the POR. Interested parties are invited to comment on these preliminary results.
Applicable September 13, 2024.
Adam Simons, AD/CVD Operations, Office IX, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-6172.
On August 26, 2020, Commerce published the antidumping duty order on utility scale wind towers (wind towers) from the Republic of Korea (Korea) in the
The merchandise subject to the
Pursuant to 19 CFR 351.213(d)(3), Commerce will rescind an administrative review when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
On December 20, 2023, we notified all interested parties of our intent to rescind this review, in part, with respect to the 15 companies listed in Appendix II because there were no suspended entries of subject merchandise produced or exported by these companies during the POR and we invited interested parties to comment.
Commerce is conducting this review in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Export price is calculated in accordance with section 772 of the Act. NV is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying our conclusions,
As a result of this review, we preliminarily determine the following estimated weighted-average dumping margin for the period August 1, 2022, through July 31, 2023:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Upon issuing the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries. Pursuant to 19 CFR 351.212(b)(1), because Dongkuk reported the entered value of its U.S. sales, we calculated importer-specific
Commerce's “automatic assessment” practice will apply to entries of subject merchandise during the POR produced by Dongkuk for which Dongkuk did not know that the merchandise it sold to the intermediary (
For the companies listed in Appendix II for which we are rescinding the review, we will instruct CBP to assess antidumping duties on all appropriate entries at rates equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue these rescission instructions to CBP no earlier than 35 days after the date of publication of this notice in the
In accordance with section 751(a)(2)(C) of the Act, the final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by the final results of this review and for future deposits of estimated duties, where applicable. Commerce intends to issue assessment instructions to CBP regarding Dongkuk no earlier than 35 days after the date of publication of the final results of this review in the
The following deposit requirements will be effective for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for the company listed above will be that established in the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
We are issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that Shanghai Yueda Nails Co., Ltd., a.k.a. Shanghai Yueda Nails Industry Co., Ltd. (Shanghai Yueda), an exporter of certain steel nails from the People's Republic of China (China), sold subject merchandise in the United States at prices below normal value (NV) during the period of review (POR) August 1, 2022, through July 31, 2023. Interested parties are invited to comment on these preliminary results.
Applicable September 13, 2024.
Bob Palmer or Hannah Lee, AD/CVD Operations, Office VIII, Enforcement and Compliance, International Trade Administration, Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-9068 or (202) 482-1216, respectively.
This administrative review is being conducted in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this administrative review on October 17, 2023.
The products covered by the
Pursuant to 19 CFR 351.213(d)(3), it is Commerce's practice to rescind an administrative review of an antidumping duty order where it determines that there were no suspended entries of subject merchandise during the POR.
On November 8, 2023, Commerce placed CBP entry data on the record for U.S. imports of the subject merchandise during the POR for respondent selection purposes.
Commerce is conducting this review in accordance with section 751(a)(1)(B) of the Act. We calculated export prices in accordance with section 772 of the Act. Because China is an NME country within the meaning of section 771(18) of the Act, NV has been calculated in accordance with section 773(c) of the Act.
For a full description of the methodology underlying our conclusions,
We preliminarily determine that Shanghai Yueda is eligible for a separate rate in this administrative review. Because S-Mart (Tianjin) Technology Development Co., Ltd. (S-Mart) did not submit either a separate rate application or a separate rate certification, it is not eligible for a separate rate.
As a result of our analysis of the information on the record, Commerce preliminarily determines the following estimated weighted-average dumping margin exists for the POR:
Commerce intends to disclose the calculations performed for these preliminary results to the parties no later than five days after the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c)(ii), interested parties may submit a case brief no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Unless extended, we intend to issue the final results of this administrative review, which will include the results of our analysis of issues raised in the case and rebuttal briefs, within 120 days of the date of publication of this notice in the
Upon issuance of the final results, Commerce will determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review.
If Shanghai Yueda's
For the final results, if we continue to treat S-Mart as part of the China-wide entity, we will instruct CBP to apply an
For the companies for which we intend to rescind the review in the final results based on no reviewable entries, provided we receive no contrary information, we intend to instruct CBP to assess antidumping duties on all appropriate entries at a rate equal to the cash deposit rate of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue assessment instructions to CBP for these companies no earlier than 35 days after the date of publication of the final results in the
In accordance with section 751(a)(2)(C) of the Act, the final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by the final results of this review and for future deposits of estimated antidumping duties, as applicable.
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for shipments of the subject merchandise from China entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided by section 751(a)(2)(C) of the Act: (1) for Shanghai Yueda, the cash deposit rate will be equal to the weighted-average dumping margin established in the final results of this review (except that if the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
This administrative review and notice are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act, 19 CFR 351.213, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that producers and/or exporters subject to this administrative review made sales of subject merchandise at less than normal value (NV) during the period of review (POR) August 1, 2022, through July 31, 2023. We are also rescinding the review with respect to
Applicable September 13, 2024.
Fred Baker or Theodora Mattei, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-2924 or (202) 482-4834, respectively.
On August 24, 2017, Commerce published in the
For a complete description of the events that followed the initiation of this review,
The merchandise covered by the
Pursuant to 19 CFR 351.213(d)(3), Commerce will rescind an administrative review when there are no entries of subject merchandise during the POR for which liquidation is suspended.
Based on our analysis of Customs and Border Protection (CBP) information, we determined that 27 companies had no entries of subject merchandise during the POR.
Additionally, Aditya Forge Limited (Aditya), withdrew its request for a review of its entries. Therefore, because Aditya was the only company that requested a review of Aditya's entries, and it timely withdrew its request, we are rescinding the review with respect to Aditya in accordance with 19 CFR 351.213(d)(1).
Commerce is conducting this review in accordance with sections 751(a)(1)(B) and (2) of the Act. Export price is calculated in accordance with section 772 of the Act. NV is calculated in accordance with section 773 of the Act. For a full description of the methodology underlying these preliminary results,
The Act and Commerce's regulations do not address the establishment of a rate to be applied to companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(c)(2) of the Act. Generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a market economy investigation, for guidance when calculating the rate for companies which were not selected for individual examination in an administrative review. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted average of the estimated weighted average dumping margins established for exporters and producers individually investigated, excluding any
In this administrative review, we preliminarily calculated weighted-average dumping margins for Norma Group and RNG that are not zero,
Commerce preliminarily determines that the following estimated weighted-average dumping margins exist for the period August 1, 2022, through July 31, 2023:
Commerce intends to disclose to interested parties the calculations performed for these preliminary results within five days of the date of publication of this notice.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, filed electronically via ACCESS, within 30 days after the date of publication of this notice. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; (3) whether any participant is a foreign national; and (4) a list of the issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case and rebuttal briefs.
Unless the deadline is extended pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(2), Commerce intends to issue the final results of this administrative review, including the results of our analysis of the issues raised by the parties in any written briefs, no later than 120 days after the date of publication of these preliminary results.
Upon completion of this administrative review, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries. If the weighted-average dumping margin for a mandatory respondent is not zero or
For the companies which were not selected for individual examination, we intend to assign an antidumping duty assessment rate equal to the weighted-average dumping margin determined for
For the companies for which the administrative review is rescinded, antidumping duties shall be assessed at a rate equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i).
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following cash deposit requirements will be effective upon publication in the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of countervailing duties.
These preliminary results of review are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(4).
5. Bebitz Flanges Works Private Limited
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) has determined that a request for a new shipper review (NSR) of the antidumping duty order on prestressed concrete steel wire strand (PC strand) from the United Arab Emirates (UAE) meets the statutory and regulatory requirements for initiation. The period of review (POR) for the NSR is February 1, 2024, through July 31, 2024.
Applicable September 13, 2024,
Alexander Cipolla or Brendan Quinn, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4956 or (202) 482-5848, respectively.
Commerce published the order on PC Strand from the UAE on February 1, 2021.
In its submission, Essen Steel certified that it is the producer and exporter of the subject merchandise subject to this NSR request.
In its submission, pursuant to 19 CFR 351.214(b)(2)(iv), Essen Steel certified that it will provide necessary information related to the unaffiliated customer in the United States during the NSR.
In addition to the certifications described above, pursuant to 19 CFR 351.214(b)(2)(v), Essen Steel submitted documentation establishing the following: (1) the date on which the subject merchandise was first entered, or withdrawn from warehouse, for consumption; (2) the volume of its first shipment, including whether such shipment was made in a commercial quantity; and (3) the date of its first sale to an unaffiliated customer in the United States.
Additionally, Essen Steel submitted documentation establishing the circumstances surrounding such sale, including: (1) the price of such sale; (2) any expenses arising from such sale; (3) whether the subject merchandise involved in such sale was resold in the United States at a profit; and (4) whether such sale were made on an arms-length basis.
Commerce conducted a query of U.S. Customs and Border Protection (CBP) data and confirmed that Essen Steel's subject merchandise entered the United States for consumption and that liquidation of such entries had been properly suspended for antidumping duties. The CBP data that Commerce examined are consistent with information provided by Essen Steel in its NSR request. In particular, the CBP data confirm the price and quantity reported by Essen Steel for the sale that forms the basis of its NSR request.
In accordance with 19 CFR 351.214(g)(1)(i)(B), the POR for an NSR initiated in the month immediately following the semiannual anniversary month will be the six-month period immediately preceding the semiannual anniversary month. Therefore, the POR for this NSR is February 1, 2024, through July 31, 2024.
Pursuant to section 751(a)(2)(B) of the Act and 19 CFR 351.214(b), and based on the information on the record, we find that Essen Steel's NSR request meets the threshold requirements for initiation of an NSR of its shipment of PC strand to the United States.
We intend to conduct this NSR in accordance with section 751(a)(2)(B) of the Act.
Interested parties requiring access to proprietary information in this NSR should submit applications for disclosure under administrative protective order in accordance with 19 CFR 351.305 and 351.306. This initiation notice is published in accordance with section 751(a)(2)(B) of the Act and 19 CFR 351.214 and 351.221(c)(1)(i).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of certain epoxy resins (epoxy resins) from India for the period of investigation (POI) January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Eliza DeLong or Colin Thrasher, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3878 or (202) 482-6458, respectively.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 29, 2024.
For a complete description of events that followed the initiation of this investigation,
The products covered by this investigation are epoxy resins. For a complete description of the scope of this investigation,
In accordance with the
We received several comments concerning the scope of this investigation, as well as in the companion less-than-fair-value (LTFV) and CVD investigations of epoxy resins, as it appeared in the
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
As noted in the Preliminary Decision Memorandum, in accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination with the final determination in the companion LTFV investigation of epoxy resins from India based on a request made by the petitioner.
Sections 703(d) and 705(c)(5)(A) of the Act provide that, in the preliminary determination, Commerce shall determine an estimated all-others rate for companies not individually examined. This rate shall be an amount equal to the weighted average of the estimated subsidy rates established for those companies individually examined, excluding any rates that are zero,
In this investigation, Commerce preliminarily assigned a rate based entirely on facts available to Champion.
Commerce preliminarily determines that the following estimated countervailable subsidy rates exist:
In accordance with sections 703(d)(1)(B) and (d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise as described in the scope of the investigation entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Commerce intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Consistent with 19 CFR 351.224(e), Commerce will analyze and, if appropriate, correct any timely allegations of significant ministerial errors by amending the preliminary determination. However, consistent with 19 CFR 351.224(d), Commerce will not consider incomplete allegations that do not address the significance standard under 19 CFR 351.224(g) following the preliminary determination. Instead, Commerce will address such allegations in the final determination together with issues raised in the case briefs or other written comments.
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination for Atul. Because Champion did not respond to Commerce's request for information in a timely manner, and Commerce preliminarily determines that Champion failed to cooperate by not acting to the best of its ability to respond to Commerce's request for information pursuant to section 776(b) of the Act, Commerce does not intend to conduct verification of Champion's information.
All interested parties will have the opportunity to submit scope case and rebuttal briefs on the preliminary decision regarding the scope of the LTFV and CVD investigations. The deadlines to submit scope case and rebuttal briefs will be provided in the preliminary scope decision memorandum. For all scope case and rebuttal briefs, parties must file identical documents simultaneously on the records of the ongoing LTFV and CVD epoxy resins investigations. No new factual information or business proprietary information may be included in either scope case or rebuttal briefs.
Case briefs or other written comments on non-scope issues may be submitted to the Assistant Secretary for Enforcement and Compliance no later than seven days after the date on which the last verification report is issued in this investigation. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce via ACCESS within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, and a list of the issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, parties will be notified of the time and date for the hearing.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of epoxy resins from India are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 703(f) and 777(i)(1) of the Act, and 19 CFR 351.205(c).
The merchandise subject to this investigation is fully or partially uncured epoxy resins, also known as epoxide resins, polyepoxides, oxirane resins, ethoxyline
Epoxy resins may contain modifiers or additives, such as hardeners, curatives, colorants, pigments, diluents, solvents, thickeners, fillers, plasticizers, softeners, flame retardants, toughening agents, catalysts, Bisphenol F, and ultraviolet light inhibitors, so long as the modifier or additive has not chemically reacted so as to cure the epoxy resin or convert it into a different product no longer containing epoxy groups. Such epoxy resins with modifiers or additives are included in the scope where the epoxy resin component comprises no less than 30 percent of the total weight of the product. The scope also includes blends of epoxy resins with different types of epoxy resins, with or without the inclusion of modifiers and additives, so long as the combined epoxy resin component comprises at least 30 percent of the total weight of the blend.
Epoxy resins that enter as part of a system or kit with separately packaged co-reactants, such as hardeners or curing agents, are within the scope. The scope does not include any separately packaged co-reactants that would not fall within the scope if entered on their own.
The scope includes merchandise matching the above description that has been processed in a third country, including by commingling, diluting, introducing, or removing modifiers or additives, or performing any other processing that would not otherwise remove the merchandise from the scope of this investigation if performed in the subject country.
The scope also includes epoxy resin that is commingled or blended with epoxy resin from sources not subject to these investigations. Only the subject component of such commingled products is covered by the scope of this investigation.
Excluded from the scope are phenoxy resins, which are polymers with a weight greater than 11,000 Daltons, a Melt Flow Index (MFI) at 200 °C (392 °F) no less than 4 grams and no greater than 70 grams per 10 min, Glass-Transition Temperatures (Tg) no less than 80 °C (176 °F) and no greater than 100 °C (212 °F), and which contain no epoxy groups other than at the terminal ends of the molecule.
Excluded from the scope are certain paint and coating products, which are blends, mixtures, or other formulations of epoxy resin, curing agent, and pigment, in any form, packaged in one or more containers, wherein (1) the pigment represents a minimum of 10 percent of the total weight of the product, (2) the epoxy resin represents a maximum of 80 percent of the total weight of the product, and (3) the curing agent represents 5 to 40 percent of the total weight of the product. Excluded from the scope are preimpregnated fabrics or fibers, often referred to as “pre-pregs,” which are composite materials consisting of fabrics or fibers (typically carbon or glass) impregnated with epoxy resin.
This merchandise is currently classifiable under Harmonized Tariff Schedule of the United States (HTSUS) subheading 3907.30.0000. Subject merchandise may also be entered under subheadings 3907.29.0000, 3824.99.9397, 3214.10.0020, 2910.90.9100, 2910.90.9000, 2910.90.2000, and 1518.00.4000. The HTSUS subheadings are provided for convenience and customs purposes only; the written description of the scope is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of certain epoxy resins (epoxy resins) from the People's Republic of China (China) for the period of investigation (POI) January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Nathan James, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-5305.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 29, 2024.
For a complete description of events that followed the initiation of this investigation,
The products covered by this investigation are epoxy resins. For a complete description of the scope of this investigation,
In accordance with the
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
In accordance with section 703(e)(1) of the Act, we preliminarily find that critical circumstances exist with respect to imports of subject merchandise for Jiangsu Sanmu Group Co., Ltd. (Sanmu), Shandong Bluestar Dongda Chemical (Bluestar), and all other producers and/or exporters. For a full discussion of our preliminary critical circumstances determination,
As noted in the Preliminary Decision Memorandum, in accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination with the final determination in the companion LTFV investigation of epoxy resins from China based on a request made by the petitioner.
Sections 703(d) and 705(c)(5)(A) of the Act provide that, in the preliminary determination, Commerce shall determine an estimated all-others rate for companies not individually examined. This rate shall be an amount equal to the weighted average of the estimated subsidy rates established for those companies individually examined, excluding any rates that are zero,
Pursuant to section 705(c)(5)(A)(ii) of the Act, if the individual estimated countervailable subsidy rates established for all exporters and producers individually examined are zero,
Commerce preliminarily determines that the following estimated countervailable subsidy rates exist:
In accordance with section 703(d)(1)(B) and (d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise as described in the scope of the investigation entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Section 703(e)(2) of the Act provides that, given an affirmative determination of critical circumstances, any suspension of liquidation shall apply to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption on or after the later of: (a) the date which is 90 days before the date on which the suspension of liquidation was first ordered; or (b) the date on which notice of initiation of the investigation was published. Commerce preliminarily finds that critical circumstances exist for imports of subject merchandise produced and/or exported by Bluestar, Sanmu, and all other producers and/or exporters. In accordance with section 703(e)(2)(A) of the Act, the suspension of liquidation shall apply to unliquidated entries of merchandise from the exporters/producers identified in this paragraph that were entered, or withdrawn from warehouse, for consumption on or after the date which is 90 days before the publication of this notice.
Normally, Commerce discloses its calculations performed in connection with the preliminary determination to interested parties within five days of its public announcement, or if there is no public announcement, within five days of the date of publication of the notice, in accordance with 19 CFR 351.224(b). However, because Commerce preliminarily applied facts available
Because the examined respondents in this investigation did not provide information Commerce requested and Commerce preliminarily determines that each of the examined respondents has been uncooperative, it will not conduct verification.
All interested parties will have the opportunity to submit scope case and rebuttal briefs on the preliminary decision regarding the scope of the LTFV and CVD investigations. The deadlines to submit scope case and rebuttal briefs will be provided in the preliminary scope decision memorandum. For all scope case and rebuttal briefs, parties must file identical documents simultaneously on the records of the ongoing LTFV and CVD epoxy resins investigations. No new factual information or business proprietary information may be included in either scope case or rebuttal briefs.
Case briefs or other written comments on non-scope issues may be submitted to the Assistant Secretary for Enforcement and Compliance at a time to be determined.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, via ACCESS within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, and a list of the issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, parties will be notified of the time and date for the hearing.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of epoxy resins from China are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 703(f) and 777(i)(1) of the Act, and 19 CFR 351.205(c).
The merchandise subject to this investigation is fully or partially uncured epoxy resins, also known as epoxide resins, polyepoxides, oxirane resins, ethoxyline resins, diglycidyl ether of bisphenol, (chloromethyl)oxirane, or aromatic diglycidyl, which are polymers or prepolymers containing epoxy groups (
Epoxy resins may contain modifiers or additives, such as hardeners, curatives, colorants, pigments, diluents, solvents, thickeners, fillers, plasticizers, softeners, flame retardants, toughening agents, catalysts, Bisphenol F, and ultraviolet light inhibitors, so long as the modifier or additive has not chemically reacted so as to cure the epoxy resin or convert it into a different product no longer containing epoxy groups. Such epoxy resins with modifiers or additives are included in the scope where the epoxy resin component comprises no less than 30 percent of the total weight of the product. The scope also includes blends of epoxy resins with different types of epoxy resins, with or without the inclusion of modifiers and additives, so long as the combined epoxy resin component comprises at least 30 percent of the total weight of the blend.
Epoxy resins that enter as part of a system or kit with separately packaged co-reactants, such as hardeners or curing agents, are within the scope. The scope does not include any separately packaged co-reactants that would not fall within the scope if entered on their own.
The scope includes merchandise matching the above description that has been processed in a third country, including by commingling, diluting, introducing, or removing modifiers or additives, or performing any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the subject country.
The scope also includes epoxy resin that is commingled or blended with epoxy resin from sources not subject to this investigation. Only the subject component of such commingled products is covered by the scope of this investigation.
Excluded from the scope are phenoxy resins, which are polymers with a weight greater than 11,000 Daltons, a Melt Flow Index (MFI) at 200 °C (392 °F) no less than 4 grams and no greater than 70 grams per 10 min, Glass-Transition Temperatures (Tg) no less than 80 °C (176 °F) and no greater than 100 °C (212 °F), and which contain no epoxy groups other than at the terminal ends of the molecule.
Excluded from the scope are certain paint and coating products, which are blends, mixtures, or other formulations of epoxy resin, curing agent, and pigment, in any form, packaged in one or more containers, wherein (1) the pigment represents a minimum of 10 percent of the total weight of the product, (2) the epoxy resin represents a maximum of 80 percent of the total weight of the product,
Excluded from the scope are preimpregnated fabrics or fibers, often referred to as “pre-pregs,” which are composite materials consisting of fabrics or fibers (typically carbon or glass) impregnated with epoxy resin.
This merchandise is currently classifiable under Harmonized Tariff Schedule of the United States (HTSUS) subheading 3907.30.0000. Subject merchandise may also be entered under subheadings 3907.29.0000, 3824.99.9397, 3214.10.0020, 2910.90.9100, 2910.90.9000, 2910.90.2000, and 1518.00.4000. The HTSUS subheadings are provided for convenience and customs purposes only; the written description of the scope is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) is rescinding the administrative review of the antidumping duty order on certain cased pencils (pencils) from the People's Republic of China (China) for the period of review (POR) December 1, 2022, through November 30, 2023.
Applicable September 13, 2024.
Robert Copyak, AD/CVD Operations, Office IX, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3642.
On December 28, 1994, Commerce published in the
On February 14, 2024, Commerce released the U.S. Customs and Border Protection (CBP) data to all interested parties under an administrative protective order and requested comments regarding the data and respondent selection.
On March 7, 2024, the petitioner submitted an objection to Aloha's request for administrative review alleging that Aloha did not qualify for producer, manufacturer, or wholesaler status during the POR.
On March 13, 2024, Commerce issued a questionnaire to Aloha to assess its standing as a domestic producer, manufacturer, or wholesaler of pencils during the POR.
On April 9, 2024, based on the information on the record, Commerce determined that Aloha was not a
On May 2, 2024, we received comments from Aloha on the Standing Determination, arguing that Aloha had provided sufficient information to support its claims that it was a
On June 7, 2024, Commerce notified all interested parties of its intent to rescind this review in full because there were no reviewable, suspended entries of subject merchandise from the three remaining companies under review and invited comments from interested
On July 22, 2024, Commerce tolled certain deadlines in this administrative proceeding by seven days. The deadline for the preliminary results is now September 9, 2024.
We continue to determine that Aloha is not a
Aloha also contends that Commerce failed to seek clarification of any ambiguities in Aloha's questionnaire response.
Aloha's Reconsideration Request also does not specify where such supposed deficiencies exist. Ultimately, the burden of creating an adequate record lies with the interested party.
Pursuant to 19 CFR 351.213(d)(3), it is Commerce's practice to rescind an administrative review of an antidumping duty order when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
Commerce will instruct CBP to assess antidumping duties on all appropriate entries.
Antidumping duties shall be assessed at rates equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, in accordance with 19 CFR 351.212(c)(1)(i). Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of this rescission notice in the
This notice serves as the only reminder to parties subject to an administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return or destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation subject to sanction.
This notice is issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.213(d)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of certain epoxy resins (epoxy resins) from Taiwan for the period of investigation (POI) January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Ian Riggs, AD/CVD Operations, Office IX, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3810.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 29, 2024.
For a complete description of the events that followed the initiation of this investigation,
The products covered by this investigation are epoxy resins. For a complete description of the scope of this investigation,
In accordance with the preamble to Commerce's regulations,
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
As noted in the Preliminary Decision Memorandum, in accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination in this investigation with the final determination in the companion LTFV investigation of epoxy resins from Taiwan based on a request made by the petitioner.
Sections 703(d) and 705(c)(5)(A) of the Act provide that in the preliminary determination, Commerce shall determine an estimated all-others rate for companies not individually examined. This rate shall be an amount equal to the weighted average of the estimated subsidy rates established for those companies individually examined, excluding any zero and
In this investigation, Commerce calculated individual estimated countervailable subsidy rates for Chang Chun Plastics Co. Ltd. (CCPC) and Nan Ya Plastics Corp. (Nan Ya) that are not zero,
Commerce preliminarily determines that the following estimated countervailable subsidy rates exist:
In accordance with section 703(d)(1)(B) and (d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise as described in the scope of the investigation section entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Commerce intends to disclose its calculations and analysis performed to interested parties in this preliminary determination within five days of its public announcement, or if there is no public announcement, within five days of the date of this notice in accordance with 19 CFR 351.224(b).
Consistent with 19 CFR 351.224(e), Commerce will analyze and, if appropriate, correct any timely allegations of significant ministerial errors by amending the preliminary determination. However, consistent with 19 CFR 351.224(d), Commerce will not consider incomplete allegations that do not address the significance standard under 19 CFR 351.224(g) following the preliminary determination. Instead, Commerce will address such allegations in the final determination together with issues raised in the case briefs or other written comments.
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination.
All interested parties will have the opportunity to submit scope case and rebuttal briefs on the preliminary decision regarding the scope of the LTFV and CVD investigations. The deadlines to submit scope case and rebuttal briefs will be provided in the preliminary scope decision memorandum. For all scope case and rebuttal briefs, parties must file identical documents simultaneously on the records of the ongoing LTFV and CVD epoxy resins investigations. No new factual information or business proprietary information may be included in either scope case or rebuttal briefs.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance no later than seven days after the date on which the last verification report is issued in this investigation. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date, time, and location of the hearing two days before the scheduled date.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of epoxy resins from Taiwan are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published pursuant to sections 703(f) and 777(i) of the Act and 19 CFR 351.205(c).
The merchandise subject to this investigation is fully or partially uncured epoxy resins, also known as epoxide resins, polyepoxides, oxirane resins, ethoxyline resins, diglycidyl ether of bisphenol, (chloromethyl)oxirane, or aromatic diglycidyl, which are polymers or prepolymers containing epoxy groups
Epoxy resins may contain modifiers or additives, such as hardeners, curatives, colorants, pigments, diluents, solvents, thickeners, fillers, plasticizers, softeners, flame retardants, toughening agents, catalysts, Bisphenol F, and ultraviolet light inhibitors, so long as the modifier or additive has not chemically reacted so as to cure the epoxy resin or convert it into a different product no longer containing epoxy groups. Such epoxy resins with modifiers or additives are included in the scope where the epoxy resin component comprises no less than 30 percent of the total weight of the product. The scope also includes blends of epoxy resins with different types of epoxy resins, with or without the inclusion of modifiers and additives, so long as the combined epoxy resin component comprises at least 30 percent of the total weight of the blend.
Epoxy resins that enter as part of a system or kit with separately packaged co-reactants, such as hardeners or curing agents, are within the scope. The scope does not include any separately packaged co-reactants that would not fall within the scope if entered on their own.
The scope includes merchandise matching the above description that has been processed in a third country, including by commingling, diluting, introducing, or removing modifiers or additives, or performing any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the subject country.
The scope also includes epoxy resin that is commingled or blended with epoxy resin from sources not subject to this investigation. Only the subject component of such commingled products is covered by the scope of this investigation.
Excluded from the scope are phenoxy resins, which are polymers with a weight greater than 11,000 Daltons, a Melt Flow Index (MFI) at 200 °C (392 °F) no less than 4 grams and no greater than 70 grams per 10 min, Glass-Transition Temperatures (Tg) no less than 80 °C (176 °F) and no greater than 100 °C (212 °F), and which contain no epoxy groups other than at the terminal ends of the molecule.
Excluded from the scope are certain paint and coating products, which are blends, mixtures, or other formulations of epoxy resin, curing agent, and pigment, in any form, packaged in one or more containers, wherein (1) the pigment represents a minimum of 10 percent of the total weight of the product, (2) the epoxy resin represents a maximum of 80 percent of the total weight of the product, and (3) the curing agent represents 5 to 40 percent of the total weight of the product.
Excluded from the scope are preimpregnated fabrics or fibers, often referred to as “pre-pregs,” which are composite materials consisting of fabrics or fibers (typically carbon or glass) impregnated with epoxy resin.
This merchandise is currently classifiable under Harmonized Tariff Schedule of the United States (HTSUS) subheading 3907.30.0000. Subject merchandise may also be entered under subheadings 3907.29.0000, 3824.99.9397, 3214.10.0020, 2910.90.9100, 2910.90.9000, 2910.90.2000, and 1518.00.4000. The HTSUS subheadings are provided for convenience and customs purposes only; the written description of the scope is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) finds that revocation of the countervailing duty orders on glycine from India and the People's Republic of China (China) would be likely to lead to continuation or recurrence of countervailable subsidies at the levels as indicated in the “Final Results of Sunset Reviews” section of this notice.
Applicable September 13, 2024.
Theodora Mattei or Tyler Weinhold, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4834 and (202) 482-3362 respectively.
On June 21, 2019, Commerce published the
On May 20, 2024, Commerce received adequate substantive responses from the domestic interested parties within the 30-day deadline specified in 19 CFR 351.218(d)(3)(i).
The product covered by these
A complete discussion of all issues raised in this sunset review, including the likelihood of continuation or recurrence of countervailable subsidies and the net countervailable subsidy likely to prevail if the
Pursuant to sections 751(c)(1) and 752(b) of the Act, Commerce determines that revocation of the
This notice serves as the only reminder to parties subject to an administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a). Timely written notification of the destruction of APO materials or conversion to judicial protective order is hereby requested. Failure to comply with the regulations and terms of an APO is a violation which is subject to sanction.
Commerce is issuing and publishing this notice in accordance with sections 751(c), 752(b), and 777(i)(1) of the Act and 19 CFR 351.218.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies were provided to certain producers and/or exporters of finished carbon steel flanges (steel flanges) from India. The period of review (POR) is January 1, 2022, through December 31, 2022. In addition, we are notifying parties of our intent to rescind the review with respect to 30 companies. Interested parties are invited to comment on these preliminary results.
Applicable September 13, 2024.
Preston N. Cox or Amber Hodak, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-5041 or (202) 842-8034, respectively.
On October 18, 2023, Commerce published in the
For a complete description of the events that followed the initiation of this review,
The product covered by the
It is Commerce's practice to rescind an administrative review of a CVD order, pursuant to 19 CFR 351.213(d)(3), when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
According to the CBP data on the record, the companies listed in Appendix III did not have reviewable entries of subject merchandise during the POR for which liquidation is suspended. Accordingly, in the absence of reviewable, suspended entries of subject merchandise during the POR, we intend to rescind this review with respect to these companies, in accordance with 19 CFR 351.213(d)(3). Parties are invited to comment on the intent to rescind for these companies.
Commerce is conducting this administrative review in accordance with section 751(a)(l)(A) of the Act. For each of the subsidy programs found to be countervailable, Commerce preliminarily determines that there is a subsidy,
The Act and Commerce's regulations do not address the establishment of a rate to apply companies not selected for individual examination when Commerce limits its examination in an administrative review pursuant to section 777A(e)(2) of the Act. However, Commerce normally determines the rates for non-selected companies in reviews in a manner that is consistent with section 705(c)(5) of the Act, which provides instructions for calculating the all-others rate in an investigation. Section 777A(e)(2) of the Act provides that “the individual countervailable subsidy rates determined under subparagraph (A) shall be used to determine the all-others rate under section 705(c)(5) {of the Act}.” Section 705(c)(5)(A) states that for companies not investigated, in general, we will determine an all-others rate by weight averaging the countervailable subsidy rates established for each of the companies individually investigated, excluding zero and
Accordingly, to determine the rate for companies not selected for individual examination, Commerce's practice is to weight average the net subsidy rates for the selected mandatory respondents, excluding rates that are zero,
As a result of this review, Commerce preliminarily determines the following net countervailable subsidy rates exist for the period January 1, 2022, through December 31, 2022:
Commerce intends to disclose its calculations and analysis performed in connection with the preliminary results to interested parties within five days of any public announcement, or if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS by 5:00 p.m. Eastern Time within 30 days after the date of publication of this notice. Requests should contain: (1) the party's name, address and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, Commerce will inform parties of the schedule date for the hearing.
Consistent with section 751(a)(1) of the Act and 19 CFR 351.212(b)(2), upon issuance of the final results, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, countervailing duties on all appropriate entries covered by this review. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
Pursuant to section 751(a)(2)(C) of the Act, upon publication of the final results, Commerce intends to instruct CBP to collect cash deposits of estimated countervailing duties for each of the companies listed above on shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review, except where the rate calculated in the final results is zero or
Unless the deadline is extended pursuant to section 751(a)(3)(a) of the Act and 19 CFR 351.213(h)(2), Commerce intends to issue the final results of this administrative review, including the results of its analysis of issues by the parties in any written briefs, no later than 120 days after the date of publication of these preliminary results.
We are issuing and publishing these preliminary results in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily finds that certain exporters made sales of certain metal lockers and parts thereof (metal lockers) from the People's Republic of China (China) and that certain companies had no shipments of metal lockers from China during the
Applicable September 13, 2024.
Deborah Cohen or Matthew Palmer, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4521 or (202) 482-1678, respectively.
On August 20, 2021, Commerce published in the
For a complete description of the events that followed the initiation of this administrative review,
The products covered by the
Pursuant to 19 CFR 351.213(d)(1), based on the timely withdrawal of the requests for review, we are rescinding this administrative review with respect to: (1) Zhejiang Safewell Security Technology Co., Ltd. (Zhejiang Safewell); (2) Ningbo Safewell Group Smart Security Products Co., Ltd. (Ningbo Safewell); (3) Ningbo Safewell Safes; (4) Xpedition LLC (doing business as (DBA) Safewell Gr.) (Xpedition); and (5) Safewell Group Holdings, Ltd. (Safewell Group).
Based on the no-shipment certification provided by Zhejiang Xingyi Metal Products Co., Ltd. (ZXM),
Further, on April 2, 2024, Commerce notified parties that, as a result of its final results of changed circumstances review,
Under Commerce's policy regarding the conditional review of the China-wide entity,
Commerce is conducting this review in accordance with section 751(a)(1)(B) of the Act. Commerce has calculated export prices in accordance with section 772(a) of the Act and constructed export prices in accordance with section 772(b) of the Act. Because China is an NME, within the meaning of section 771(18) of the Act, Commerce has calculated normal value (NV) in accordance with section 773(c) of the Act. For a full description of the methodology underlying Commerce's preliminary results,
We preliminarily determine that the following estimated weighted-average dumping margins exist for the period February 11, 2021, through July 31, 2022:
Commerce intends to disclose the calculations performed in connection with these preliminary results to interested parties within five days after the date of publication of this notice, in accordance with 19 CFR 351.224(b). Interested parties may submit case briefs no later than 30 days after the date of publication of these preliminary results of review.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, filed electronically via Commerce's electric records system, ACCESS. An electronically-filed request must be received successfully in its entirety by 5:00 p.m. Eastern Time within 30 days after the date of publication of this notice.
Upon issuance of the final results, Commerce will determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review, in accordance with 19 CFR 351.212(b)(1). Commerce intends to issue assessment instructions to CBP 35 days after the publication of the final results of this review. If a timely summons is filed at the U.S. Court of International Trade, the assessment instructions will direct CBP not to liquidate relevant entries until the time for parties to file a request for a statutory injunction has expired (
We will calculate importer/customer-specific assessment rates equal to the ratio of the total amount of dumping calculated for examined sales to a particular importer/customer to the total entered value of those sales, in accordance with 19 CFR 351.212(b)(1).
Pursuant to Commerce's refinement to its practice, for sales that were not reported in the U.S. sales database submitted by a respondent individually examined during this review, Commerce will instruct CBP to liquidate the entry of such merchandise at the dumping margin assigned to the China-wide entity.
For the companies for which this review is rescinded with these preliminary results, we will instruct CBP to assess antidumping duties on all appropriate entries at a rate equal to the cash deposit of estimated antidumping duties required at the time of entry, or withdrawal from warehouse, for consumption, during the POR, in accordance with 19 CFR 351.212(c)(l)(i). For the companies rescinded from review, Commerce intends to issue assessment instructions to CBP 35 days after the publication of this notice in the
In accordance with section 751(a)(2)(C) of the Act, the final results of this review shall be the basis for the assessment of antidumping duties on entries of merchandise covered by the final results of this review and for future deposits of estimated ADs, where applicable.
The following cash deposit requirements will be effective upon publication of the final results of this review for all shipments of the subject merchandise from China entered, or withdrawn from warehouse, for consumption on or after the date of publication of the notice of the final results of administrative review in the
Unless otherwise extended, we intend to issue the final results of this administrative review, which will include the results of our analysis of the issues raised in the case and rebuttal briefs, within 120 days of publication of these preliminary results in the
This notice also serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties, and/or an increase in the amount of antidumping duties by the amount of the countervailing duties.
We are issuing and publishing the preliminary results of this review in accordance with sections 751(a)(l) and 777(i)(l) of the Act, 19 CFR 351.213(d)(4), and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S Department of Commerce (Commerce) is conducting the administrative review of the countervailing duty (CVD) order on light-walled rectangular pipe and tube (LWRPT) from the People's Republic of China (China). The period of review (POR) is January 1, 2022, through December 31, 2022. Commerce preliminarily finds that Hoa Phat Steel Pipe Company Limited (Hoa Phat) had no subject shipments of LWRPT and that Hoa Phat will be eligible to participate in the certification program previously established with respect to the CVD order on LWRPT from China. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Christopher Hargett, AD/CVD Operations, Office II, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4161.
On August 5, 2008, Commerce published in the
Subsequently, we initiated an administrative review of the
On November 9, 2023, we published in the
Due to the common prerequisite issues in the concurrent administrative reviews of the antidumping duty (AD) and CVD orders,
On April 12, 2024, Commerce extended the deadline for these preliminary results to August 30, 2024.
The merchandise subject to this
For the preliminary results of this CVD review, Commerce is hereby adopting the preliminary finding and Preliminary Decision Memorandum issued in the concurrent AD administrative review only with respect to Hoa Phat. For a full description of the methodology underlying the results,
Thus, if our preliminary finding in the concurrent AD administrative review is unchanged in the final results, we will determine in the final results of this CVD review that Hao Phat will be eligible to participate in the certification program previously established with respect to the CVD
Because Commerce intends to conduct verification of the questionnaire responses of Hoa Phat in the concurrent AD review, the results of which will be adopted in this CVD review, interested parties will be notified of the deadline for the
Upon issuance of the final results of this review, Commerce will determine, and CBP will assess, CVD duties on all appropriate entries covered by this review.
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of review, as provided for by section 751(a)(2)(C) of the Act: (1) for Hoa Phat, the cash deposit rate will remain unchanged (
Unless otherwise extended, Commerce intends to issue the final results of this administrative review, by adopting the findings in the concurrent AD review, within 120 days of publication of these preliminary results of review, pursuant to section 751(a)(3)(A) of the Act.
This determination is issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of 2,4-dichlorophenoxyacetic acid (2,4-D) from the People's Republic of China (China). The period of investigation (POI) is January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Claudia Cott or Thomas Schauer, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-4270 or (202) 482-0410, respectively.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 30, 2024.
For a complete description of events that followed the initiation of this investigation,
The product covered by this investigation is 2,4-D from China. For a complete description of the scope of this investigation,
In accordance with the
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found to be countervailable, Commerce preliminarily determines that there is a subsidy,
Commerce notes that, in making these findings, it relied, in part, on facts available, and, because it finds that certain respondents and the Government of China did not act to the best of their ability to respond to Commerce's requests for information, it drew an adverse inference where appropriate in selecting from among the facts otherwise available.
In accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination in this investigation with the final determination in the concurrent less-than-fair-value (LTFV) investigation of 2,4-D from China, based on a request made by the petitioner.
Sections 703(d) and 705(c)(5)(A) of the Act provide that, in the preliminary determination, Commerce shall determine an estimated all-others rate for companies not individually examined. This rate shall be an amount equal to the weighted average of the estimated subsidy rates established for those companies individually examined, excluding any rates that are zero,
In this investigation, Commerce preliminarily calculated individual estimated countervailable subsidy rates for Jiangxi Tianyu Chemical Co., Ltd. (Tianyu) and Shandong Rainbow Agrosciences Co., Ltd. (Rainbow Agrosciences) that are not zero,
Commerce preliminarily determines that the following estimated countervailable subsidy rates exist:
Commerce intends to disclose to interested parties the calculations performed to interested parties in this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Consistent with 19 CFR 351.224(e), Commerce will analyze and, if appropriate, correct any timely allegations of significant ministerial errors by amending the preliminary determination. However, consistent with 19 CFR 351.224(d), Commerce will not consider incomplete allegations that do not address the significance standard under 19 CFR 351.224(g) following the preliminary determination. Instead, Commerce will address such allegations in the final determination together with issues raised in the case briefs or other written comments.
In accordance with section 703(d)(1)(B) and (d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise as described in the scope of the investigation entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance no later than seven days after the date on which the last verification report is issued in this investigation. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce via ACCESS within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants and whether any participant is a foreign national, and a list of the issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, parties will be notified of the time and date for the hearing.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of 2,4-D from China are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published in accordance with sections 703(f) and 777(i)(1) of the Act, and 19 CFR 351.205(c).
The merchandise covered by this investigation is 2,4-dichlorophenoxyacetic acid (2,4-D) and its derivative products, including salt and ester forms of 2,4-D. 2,4-D has the Chemical Abstracts Service (CAS) registry number of 94-75-7 and the chemical formula C
Salt and ester forms of 2,4-D include 2,4-D sodium salt (CAS 2702-72-9), 2,4-D diethanolamine salt (CAS 5742-19-8), 2,4-D dimethyl amine salt (CAS 2008-39-1), 2,4-D isopropylamine salt (CAS 5742-17-6), 2,4-D tri-isopropanolamine salt (CAS 3234180-3), 2,4-D choline salt (CAS 1048373-72-3), 2,4-D butoxyethyl ester (CAS 1929-733), 2,4-D 2-ethylhexylester (CAS 1928-43-4), and 2,4-D isopropylester (CAS 94-11-1). All 2,4-D, as well as the salt and ester forms of 2,4-D, is covered by the scope irrespective of purity, particle size, or physical form.
The conversion of a 2,4-D salt or ester from 2,4-D acid, or the formulation of nonsubject merchandise with the subject 2,4-D, its salts, and its esters in the country of manufacture or in a third country does not remove the subject 2,4-D, its salts, or its esters from the scope. For any such formulations, only the 2,4-D, 2,4-D salt, and 2,4-D ester components of the mixture is covered by the scope of the investigation. Formulations of 2,4-D are products that are registered for end-use applications with the Environmental Protection Agency and contain a dispersion agent.
The country of origin of any 2,4-D derivative salt or ester is determined by the country in which the underlying 2,4-D acid is produced. 2,4-D, its salts, and its esters are classified under Harmonized Tariff Schedule of the United States (HTSUS) subheading 2918.99.2010. Subject merchandise, including the abovementioned formulations, may also be classified under HTSUS subheadings 2922.12.0001, 2921.11.0000, 2921.19.6195, 2922.19.9690, 3808.93.0500, and 3808.93.1500. The HTSUS subheadings and CAS registry numbers are provided for convenience and customs purposes. The written description of the scope of the investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are being provided to producers and exporters of 2,4-Dichlorophenoxyacetic Acid (2,4-D) from India. The period of investigation is January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Harrison Tanchuck or George McMahon, AD/CVD Operations, Office VI, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-7421 or (202) 482-1167, respectively.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 30, 2024.
For a complete description of the events that followed the initiation of this investigation, see the Preliminary
The product covered by this investigation is 2,4-D from India. For a complete description of the scope of this investigation, see Appendix I.
In accordance with the
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
Commerce notes that, in making these findings, it relied, in part, on facts available and, because it finds that the Government of India did not act to the best of its ability to respond to Commerce's requests for information, it drew an adverse inference where appropriate in selecting from among the facts otherwise available.
In accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination in this investigation with the final determination in the companion less-than-fair-value (LTFV) investigation of 2,4-D from India based on a request made by the petitioner.
Sections 703(d) and 705(c)(5)(A) of the Act provide that in the preliminary determination, Commerce shall determine an estimated all-others rate for companies not individually examined. This rate shall be an amount equal to the weighted average of the estimated subsidy rates established for those companies individually examined, excluding any zero and
In this investigation, Commerce calculated individual estimated countervailable subsidy rates for Atul Limited and Meghmani Organics Limited that are not zero,
Commerce preliminarily determines that the following estimated countervailable subsidy rates exist:
In accordance with section 703(d)(1)(B) and (d)(2) of the Act, Commerce will direct U.S. Customs and Border Protection (CBP) to suspend liquidation of entries of subject merchandise as described in the scope of the investigation entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Commerce intends to disclose its calculations and analysis performed to interested parties in this preliminary determination within five days of its public announcement, or if there is no public announcement, within five days of the date of this notice in accordance with 19 CFR 351.224(b).
Consistent with 19 CFR 351.224(e), Commerce will analyze and, if appropriate, correct any timely allegations of significant ministerial errors by amending the preliminary determination. However, consistent with 19 CFR 351.224(d), Commerce will not consider incomplete allegations that do not address the significance standard under 19 CFR 351.224(g) following the preliminary determination. Instead, Commerce will address such allegations in the final determination together with issues raised in the case briefs or other written comments.
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination.
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance no later than seven days after the date on which the last verification report is issued in this investigation. A timeline for the submission of case briefs and written comments will be notified to interested parties at a later date. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the beginning of their briefs a public executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce via ACCESS within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants and whether any participant is a foreign national, and a list of the issues to be discussed. Oral presentations at the hearing will be limited to issues raised in the briefs. If a request for a hearing is made, parties will be notified of the time and date for the hearing.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 45 days after the final determination whether imports of 2, 4-D from India are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published pursuant to sections 703(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The merchandise covered by this investigation is 2,4-dichlorophenoxyacetic acid (2,4-D) and its derivative products, including salt and ester forms of 2,4-D. 2,4-D has the Chemical Abstracts Service (CAS) registry number of 94-75-7 and the chemical formula C8H6 Cl2O3.
Salt and ester forms of 2,4-D include 2,4-D sodium salt (CAS 2702-72-9), 2,4-D diethanolamine salt (CAS 5742-19-8), 2,4-D dimethyl amine salt (CAS 2008-39-1), 2,4-D isopropylamine salt (CAS 5742-17-6), 2,4-D tri-isopropanolamine salt (CAS 3234180-3), 2,4-D choline salt (CAS 1048373-72-3), 2,4-D butoxyethyl ester (CAS 1929-733), 2,4-D 2-ethylhexylester (CAS 1928-43-4), and 2,4-D isopropylester (CAS 94-11-1). All 2,4-D, as well as the salt and ester forms of 2,4-D, is covered by the scope irrespective of purity, particle size, or physical form.
The conversion of a 2,4-D salt or ester from 2,4-D acid, or the formulation of nonsubject merchandise with the subject 2,4-D, its salts, and its esters in the country of manufacture or in a third country does not remove the subject 2,4-D, its salts, or its esters from the scope. For any such formulations, only the 2,4-D, 2,4-D salt, and 2,4-D ester components of the mixture is covered by the scope of the investigation. Formulations of 2,4-D are products that are registered for end-use applications with the Environmental Protection Agency and contain a dispersion agent.
The country of origin of any 2,4-D derivative salt or ester is determined by the country in which the underlying 2,4-D acid is produced. 2,4-D, its salts, and its esters are classified under Harmonized Tariff Schedule of the United States (HTSUS) subheading 2918.99.2010. Subject merchandise, including the abovementioned formulations, may also be classified under HTSUS subheadings 2922.12.0001, 2921.11.0000, 2921.19.6195, 2922.19.9690, 3808.93.0500, and 3808.93.1500. The HTSUS subheadings and CAS registry numbers are provided for convenience and customs purposes. The written description of the scope of the investigation is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that sales of silicon metal from Malaysia were not sold in the United States at less than normal value (NV) during the period of review (POR), August 1, 2022, through July 31, 2023. Interested parties are invited to comment on these preliminary results.
Applicable September 13, 2024.
Kabir Archuletta, AD/CVD Operations, Office V, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: 202-482-2593.
On August 19, 2021, Commerce published in the
On April 8, 2024, Commerce extended the deadline for completing the preliminary results of this review until August 30, 2024.
The merchandise covered by the scope of this
Commerce is conducting this review in accordance with section 751(a) of the Tariff Act of 1930, as amended (the Act). Export price is calculated in accordance with section 772 of the Act. NV is calculated in accordance with section 773 of the Act.
For a full description of the methodology underlying these preliminary results,
Commerce preliminarily determines that the following estimated weighted-average dumping margin exists during the period August 1, 2022, through July 31, 2023:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their briefs that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Upon issuance of the final results of this administrative review, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries covered by this review.
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by PMB Silicon for which PMB Silicon did not know that the merchandise was destined for the United States, we will instruct CBP to liquidate those entries at the all-others rate established in the original less-than-fair-value (LTFV) investigation (
Commerce intends to issue instructions to CBP no earlier than 35 days after the publication date of the final results of this review in the
The following cash deposit requirements will be effective upon publication in the
Unless extended, Commerce intends to issue the final results of this administrative review, including the results of its analysis of the issues raised in any written briefs, not later than 120 days after the date of publication of this notice, pursuant to section 751(a)(3)(A) of the Act and 19 CFR 351.213(h)(1).
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during the POR. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
Commerce is issuing and publishing these results in accordance with sections 751(a)(1) and 777(i)(1) of the Act and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that countervailable subsidies are not being provided to producers and exporters of Certain Epoxy Resins (epoxy resins) from the Republic of Korea (Korea). The period of investigation is January 1, 2023, through December 31, 2023. Interested parties are invited to comment on this preliminary determination.
Applicable September 13, 2024.
Thomas Martin or Benjamin Blythe, AD/CVD Operations, Office IV, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3936 or (202) 482-3457, respectively.
This preliminary determination is made in accordance with section 703(b) of the Tariff Act of 1930, as amended (the Act). Commerce published the notice of initiation of this countervailing duty (CVD) investigation on April 29, 2024.
For a complete description of the events that followed the initiation of this investigation, see the Preliminary Decision Memorandum.
The products covered by this investigation are epoxy resins. For a complete description of the scope of this investigation, see Appendix I.
In accordance with the Preamble to Commerce's regulations,
Commerce is conducting this investigation in accordance with section 701 of the Act. For each of the subsidy programs found countervailable, Commerce preliminarily determines that there is a subsidy,
In accordance with section 703(e)(1) of the Act, Commerce preliminarily determines that critical circumstances do not exist with respect to imports of epoxy resins from Korea for Kukdo Chemical Co., Ltd. (Kukdo), Kumho P&B Chemicals Inc. (Kumho), all other exporters or producers not individually examined. For a full description of the methodology and results of Commerce's analysis, see the Preliminary Decision Memorandum.
As noted in the Preliminary Decision Memorandum, in accordance with section 705(a)(1) of the Act and 19 CFR 351.210(b)(4), Commerce is aligning the final CVD determination with the final determination in the companion LTFV investigation of epoxy resins from Korea based on a request made by the petitioner.
For this preliminary determination, Commerce calculated
Consistent
Because Commerce preliminarily determines that no countervailable subsidies are being provided to the production or exportation of subject merchandise, Commerce will not direct U.S. Customs and Border Protection to suspend liquidation of any such entries.
Commerce intends to disclose to interested parties the calculations performed in connection with this preliminary determination within five days of its public announcement or, if there is no public announcement, within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Consistent with 19 CFR 351.224(e), Commerce will analyze and, if appropriate, correct any timely allegations of significant ministerial errors by amending the preliminary determination. However, consistent with 19 CFR 351.224(d), Commerce will not consider incomplete allegations that do not address the significance standard under 19 CFR 351.224(g) following the preliminary determination. Instead, Commerce will address such allegations in the final determination together with issues raised in the case briefs or other written comments.
As provided in section 782(i)(1) of the Act, Commerce intends to verify the information relied upon in making its final determination.
All interested parties will have the opportunity to submit scope case and
Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance no later than seven days after the date on which the last verification report is issued in this investigation. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this investigation, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, limited to issues raised in the case and rebuttal briefs, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce within 30 days after the date of publication of this notice. Requests should contain the party's name, address, and telephone number, the number of participants, whether any participant is a foreign national, and a list of the issues to be discussed. If a request for a hearing is made, Commerce intends to hold the hearing at a time and date to be determined. Parties should confirm by telephone the date, time, and location of the hearing two days before the scheduled date.
In accordance with section 703(f) of the Act, Commerce will notify the U.S. International Trade Commission (ITC) of its determination. If the final determination is affirmative, the ITC will determine before the later of 120 days after the date of this preliminary determination or 75 days after the final determination whether imports of epoxy resins from Korea are materially injuring, or threaten material injury to, the U.S. industry.
This determination is issued and published pursuant to sections 703(f) and 777(i) of the Act and 19 CFR 351.205(c).
The merchandise subject to this investigation is fully or partially uncured epoxy resins, also known as epoxide resins, polyepoxides, oxirane resins, ethoxyline resins, diglycidyl ether of bisphenol, (chloromethyl)oxirane, or aromatic diglycidyl, which are polymers or prepolymers containing epoxy groups (
Epoxy resins may contain modifiers or additives, such as hardeners, curatives, colorants, pigments, diluents, solvents, thickeners, fillers, plasticizers, softeners, flame retardants, toughening agents, catalysts, Bisphenol F, and ultraviolet light inhibitors, so long as the modifier or additive has not chemically reacted so as to cure the epoxy resin or convert it into a different product no longer containing epoxy groups. Such epoxy resins with modifiers or additives are included in the scope where the epoxy resin component comprises no less than 30 percent of the total weight of the product. The scope also includes blends of epoxy resins with different types of epoxy resins, with or without the inclusion of modifiers and additives, so long as the combined epoxy resin component comprises at least 30 percent of the total weight of the blend.
Epoxy resins that enter as part of a system or kit with separately packaged co-reactants, such as hardeners or curing agents, are within the scope. The scope does not include any separately packaged co-reactants that would not fall within the scope if entered on their own.
The scope includes merchandise matching the above description that has been processed in a third country, including by commingling, diluting, introducing, or removing modifiers or additives, or performing any other processing that would not otherwise remove the merchandise from the scope of the investigation if performed in the subject country.
The scope also includes epoxy resin that is commingled or blended with epoxy resin from sources not subject to this investigation. Only the subject component of such commingled products is covered by the scope of this investigation.
Excluded from the scope are phenoxy resins, which are polymers with a weight greater than 11,000 Daltons, a Melt Flow Index (MFI) at 200 °C (392 °F) no less than 4 grams and no greater than 70 grams per 10 min, Glass-Transition Temperatures (Tg) no less than 80 °C (176 °F) and no greater than 100 °C (212 °F), and which contain no epoxy groups other than at the terminal ends of the molecule.
Excluded from the scope are certain paint and coating products, which are blends, mixtures, or other formulations of epoxy resin, curing agent, and pigment, in any form, packaged in one or more containers, wherein (1) the pigment represents a minimum of 10 percent of the total weight of the product, (2) the epoxy resin represents a maximum of 80 percent of the total weight of the product, and (3) the curing agent represents 5 to 40 percent of the total weight of the product. Excluded from the scope are preimpregnated fabrics or fibers, often referred to as “pre-pregs,” which are composite materials consisting of fabrics or fibers (typically carbon or glass) impregnated with epoxy resin.
This merchandise is currently classifiable under Harmonized Tariff Schedule of the United States (HTSUS) subheading 3907.30.0000. Subject merchandise may also be entered under subheadings 3907.29.0000, 3824.99.9397, 3214.10.0020, 2910.90.9100, 2910.90.9000, 2910.90.2000, and 1518.00.4000. The HTSUS subheadings are provided for convenience and customs purposes only; the written description of the scope is dispositive.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that certain exporters/producers of stainless steel sheet and strip in coils (SSSS in coils) from the Republic of Korea (Korea) received countervailable subsidies during the period of review (POR) January 1, 2022, through December 31, 2022. We invite interested parties to comment on these preliminary results.
Applicable September 13, 2024.
Patrick Barton, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-0012.
On August 6, 1999, Commerce published in the
On April 17, 2024, Commerce extended the deadline for issuance of the preliminary results of this review until August 30, 2024, in accordance with 19 CFR 351.213(h)(2).
For a complete description of the events that followed the initiation of this review,
The product covered by this
Commerce is conducting this CVD administrative review in accordance with section 751(a)(l)(A) of the Tariff Act of 1930, as amended (the Act). For each of the subsidy programs found countervailable, we preliminarily determine that there is a subsidy,
It is Commerce's practice to rescind an administrative review of a countervailing duty order, pursuant to 19 CFR 351.213(d)(3), when there are no reviewable entries of subject merchandise during the POR for which liquidation is suspended.
According to the CBP import data on the record, there is one company subject to this review (
As a result of this review, we preliminarily determine the following net countervailable subsidy rates for the period January 1, 2022, through December 31, 2022:
In accordance with 19 CFR 351.221(b)(4)(i), Commerce has preliminarily assigned subsidy rates as indicated above. Consistent with section 751(a)(2)(C) of the Act, upon issuance of the final results, Commerce shall determine, and CBP shall assess, countervailing duties on all appropriate entries covered by this review. For the company for which we intend to rescind this review, upon issuance of the final rescission, Commerce will instruct CBP to assess CVDs on all appropriate entries at a rate equal to the cash deposit of estimated CVDs required at the time of entry, or withdrawal from warehouse, for consumption, during the period January 1, 2022, through December 31, 2022. Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
Pursuant to section 751(a)(2)(C) of the Act, Commerce intends to instruct CBP to collect cash deposits of estimated countervailing duties in the amount indicated above with regard to shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this review. For all non-reviewed firms, we will instruct CBP to continue to collect cash deposits of estimated countervailing duties at the most recent company-specific or all-others rate applicable to the company, as appropriate. These cash deposit instructions, when imposed, shall remain in effect until further notice.
We intend to disclose the calculations performed to parties within five days after public announcement of the preliminary results.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5 p.m. Eastern Time within 30 days after the date of publication of this notice.
Unless the deadline is extended, we intend to issue the final results of this administrative review, which will include the results of our analysis of the issues raised in the case briefs, within 120 days of publication of these preliminary results in the
These preliminary results and notice are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act, and 19 CFR 351.213 and 19 CFR 351.221(b)(4).
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) is conducting an administrative review of the antidumping duty order on light-walled rectangular pipe and tube (LWRPT) from Mexico. We preliminarily determine that Maquilacero S.A. de C.V. (Maquilacero)/Tecnicas de Fluidos S.A. de C.V. (TEFLU) and Perfiles LM, S.A. de C.V. (Perfiles) made sales of subject merchandise at less than normal value
Applicable September 13, 2024.
John Conniff or Charles Doss, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-1009 or (202) 482-4474, respectively.
On August 5, 2008, Commerce published in the
The products covered by the
Commerce is conducting this review in accordance with section 751(a)(2) of the Tariff Act of 1930, as amended (the Act). We calculated export price in accordance with section 772 of the Act. We calculated normal value in accordance with section 773 of the Act. For a full description of the methodology underlying these preliminary results,
Pursuant to 19 CFR 351.213(d)(3), it is Commerce's practice to rescind an administrative review of an antidumping duty order where it determines that there were no suspended entries of subject merchandise during the POR.
As discussed in greater detail in the Preliminary Decision Memorandum, the POR entry totals reflected in the data query provided by U.S. Customs Border Protection (CBP) in the Attachment of the CBP Data Memorandum reflected no POR entries of subject merchandise from: (1) Arco Metal S.A. de C.V.; (2) Fabricaciones y Servicios de Mexico; (3) Galvak, S.A. de C.V.; (4) Grupo Estructuras y Perfiles; (5) Industrias Monterrey S.A. de C.V.; (6) Internacional de Aceros, S.A. de C.V.; (7) PEASA-Productos Especializados de Acero; (8) Talleres Acero Rey S.A. de C.V.; (9) Tuberias Aspe S.A. de C.V.; (10) Tuberia Laguna, S.A. de C.V.; and (11) Tuberias y Derivados S.A. de C.V.
In the absence of any suspended entries of subject merchandise from these companies during the POR, Commerce hereby notifies all interested parties of its intent to rescind this administrative review with respect to these companies. Commerce is providing interested parties with an opportunity to submit comments on this preliminary decision, including factual information. Comments, including factual information, from interested parties are due to Commerce no later than 5:00 p.m. Eastern Time (ET) on September 13, 2024. Rebuttal comments, including rebuttal factual information, are due seven days thereafter, by 5:00 p.m. ET on September 20, 2024. All submissions must be filed electronically at
For the rate for companies not selected for individual examination in an administrative review, generally, Commerce looks to section 735(c)(5) of the Act, which provides instructions for calculating the all-others rate in a less-than-fair-value investigation. Under section 735(c)(5)(A) of the Act, the all-others rate is normally “an amount equal to the weighted average of the estimated weighted-average dumping margins established for exporters and producers individually investigated, excluding any zero or
Commerce preliminarily determines the following estimated weighted-average dumping margins exist for the POR:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b).
Pursuant to 19 CFR 351.309(c), interested parties may submit case briefs to Commerce no later than 30 days after the date of publication of this notice. Rebuttal briefs, limited to issues raised in the case briefs, may be filed not later than five days after the date for filing case briefs.
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS. Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; and (3) a list of issues to be discussed. Issues raised in the hearing will be limited to those raised in the respective case briefs. An electronically filed hearing request must be received successfully in its entirety by Commerce's electronic records system, ACCESS, by 5:00 p.m. ET within 30 days after the date of publication of this notice.
Upon issuance of the final results, Commerce shall determine, and CBP shall assess, antidumping duties on all appropriate entries covered by this review. Commerce intends to issue assessment instructions to CBP no earlier than 41 days after the date of publication of the final results of this review in the
If the weighted-average dumping margin for Maquilacero/TEFLU or Perfiles is not zero or
For the companies which were not selected for individual examination, we will instruct CBP to assess antidumping duties at an
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date of the final results of this administrative review, as provided by section 751(a)(2)(C) of the Act: (1) the cash deposit rate for each company listed above will be that established in the final results of this administrative review, except if the rate is less than 0.50 percent, and therefore,
Unless extended, we intend to issue the final results of this administrative review, which will include the results of our analysis of all issues raised in the case and rebuttal briefs, within 120 days of publication of these preliminary results in the
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
We are issuing and publishing these preliminary results in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The U.S. Department of Commerce (Commerce) preliminarily determines that the sole respondent under review sold subject merchandise at less than normal value during the period of review (POR) August 1, 2022, through July 31, 2023. We invite interested parties to comment on the preliminary results of this review.
Applicable September 13, 2024.
Reginald Anadio, AD/CVD Operations, Office IV, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 1401 Constitution Avenue NW, Washington, DC 20230; telephone: (202) 482-3166.
On August 23, 2021, Commerce published the antidumping duty (AD) order on seamless carbon and alloy steel standard, line, and pressure pipe (seamless pipe) from Ukraine.
On October 18, 2023, based on a timely request for review,
The merchandise covered by the
Commerce is conducting this review in accordance with section 751(a) of the Act. We calculated constructed export prices in accordance with section 772 of the Act and normal value in accordance with section 773 of the Act.
For a full description of the methodology underlying these preliminary results,
We are assigning the following estimated weighted-average dumping margin to the firm listed below for the period August 1, 2022, through July 31, 2023:
Commerce intends to disclose its calculations and analysis performed to interested parties for these preliminary results of review within five days of any public announcement or, if there is no public announcement, within five days of the date of publication of this notice in the
Pursuant to 19 CFR 351.309(c)(1)(ii), interested parties may submit case briefs to Commerce via ACCESS no later than 30 days after the date of publication of these preliminary results of review in the
As provided under 19 CFR 351.309(c)(2) and (d)(2), in prior proceedings we have encouraged interested parties to provide an executive summary of their brief that should be limited to five pages total, including footnotes. In this review, we instead request that interested parties provide at the beginning of their briefs a public, executive summary for each issue raised in their briefs.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing must submit a written request for a hearing to the Assistant Secretary for Enforcement and Compliance, filed electronically via ACCESS, by no later than 5 p.m. Eastern Time within 30 days after the date of publication of this notice in the
All submissions to Commerce must be filed electronically via ACCESS. An electronically filed document must be received successfully in its entirety via ACCESS by 5:00 p.m. Eastern Time on the due date.
Commerce intends to issue the final results of this administrative review, which will include the results of its analysis of issues raised in any written briefs, within 120 days of publication of these preliminary results of review in the
Pursuant to section 751(a)(2)(A) of the Act and 19 CFR 351.212(b)(1), upon completion of this administrative review, Commerce shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries of subject merchandise covered by this review.
In accordance with Commerce's “automatic assessment” practice, for entries of subject merchandise during the POR produced by Interpipe for which it did not know was destined for the United States, we intend to instruct CBP to liquidate those entries at the all-others rate (
Commerce intends to issue assessment instructions to CBP no earlier than 35 days after the date of publication of the final results of this review in the
The following cash deposit requirements will be in effect for all shipments of subject merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the notice of the final results of this administrative review in the
This notice serves as a preliminary reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in Commerce's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of double antidumping duties.
We are issuing and publishing these preliminary results of review in accordance with sections 751(a)(1) and 777(i) of the Act, and 19 CFR 351.213(h)(2) and 351.221(b)(4).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of issuance of letter of authorization.
In accordance with the Marine Mammal Protection Act (MMPA), as amended, its implementing regulations, and NMFS' MMPA Regulations for Taking Marine Mammals Incidental to Geophysical Surveys Related to Oil and Gas Activities in the Gulf of Mexico, notification is hereby given that NMFS has issued a Letter of Authorization (LOA) to bp Exploration and Production, Inc., (bp) for the take of marine mammals incidental to geophysical survey activity in the Gulf of Mexico (GOM).
The LOA is effective from September 9, 2024, through February 14, 2025.
The LOA, LOA request, and supporting documentation are available online at:
Rachel Wachtendonk, Office of Protected Resources, NMFS, (301) 427-8401.
Sections 101(a)(5)(A) and (D) of the MMPA (16 U.S.C. 1361
An authorization for incidental takings shall be granted if NMFS finds that the taking will have a negligible impact on the species or stock(s), will not have an unmitigable adverse impact on the availability of the species or stock(s) for subsistence uses (where relevant), and if the permissible methods of taking and requirements pertaining to the mitigation, monitoring and reporting of such takings are set forth. NMFS has defined “negligible impact” in 50 CFR 216.103 as an impact resulting from the specified activity that cannot be reasonably expected to, and is not reasonably likely to, adversely affect the species or stock through effects on annual rates of recruitment or survival.
Except with respect to certain activities not pertinent here, the MMPA defines “harassment” as: any act of pursuit, torment, or annoyance which (i) has the potential to injure a marine mammal or marine mammal stock in the wild (Level A harassment); or (ii) has the potential to disturb a marine mammal or marine mammal stock in the wild by causing disruption of behavioral patterns, including, but not limited to, migration, breathing, nursing, breeding, feeding, or sheltering (Level B harassment).
On January 19, 2021, we issued a final rule with regulations to govern the unintentional taking of marine mammals incidental to geophysical survey activities conducted by oil and gas industry operators, and those persons authorized to conduct activities on their behalf (collectively “industry operators”), in U.S. waters of the GOM over the course of 5 years (86 FR 5322, January 19, 2021). The rule was based on our findings that the total taking from the specified activities over the 5-year period will have a negligible impact on the affected species or stock(s) of marine mammals and will not have an unmitigable adverse impact on the availability of those species or stocks for subsistence uses, and became effective on April 19, 2021.
The regulations at 50 CFR 217.180
NMFS subsequently discovered that the 2021 rule was based on erroneous take estimates. We conducted another rulemaking using correct take estimates and other newly available and pertinent information relevant to the analyses supporting some of the findings in the 2021 final rule and the taking allowable under the regulations. We issued a final rule in April 2024, effective May 24, 2024 (89 FR 31488, April 24, 2024).
The 2024 final rule made no changes to the specified activities or the specified geographical region in which those activities would be conducted, nor to the original 5-year period of effectiveness. In consideration of the new information, the 2024 rule presented new analyses supporting affirmance of the negligible impact determinations for all species, and affirmed that the existing regulations, which contain mitigation, monitoring, and reporting requirements, are consistent with the “least practicable adverse impact” standard of the MMPA.
Bp plans to conduct a three-dimensional (3D) ocean bottom node (OBN) survey over 325 lease blocks in the Alaminos Canyon, Garden Banks, Keathley Canyon, and East Breaks areas, with water depths ranging from approximately 1,000 to 2,500 m. See section F of the LOA application for a map of the area.
Bp anticipates using two dual-source vessels, and would preferentially use the low-frequency airgun source known as Gemini (also referred to as a dual barbell source). Alternatively, bp may use conventional airgun sources, with each source configured as an array consisting of 28 elements with a total volume of 4,430 cubic inches (in
The Gemini source was not included in the acoustic exposure modeling developed in support of the rules. However, the Gemini was previously described and evaluated in support of a previous LOA and we rely on that analysis here (88 FR 72739, October 23, 2023). For additional detail regarding sources, see section C of the LOA application. Based on this information we have determined there will be no effects of a magnitude or intensity different from those evaluated in support of the rules. NMFS therefore expects that use of modeling results supporting the final rule relating to use of the 32 element, 5,110 in
The survey effort proposed by bp in its LOA request was used to develop LOA-specific take estimates based on the acoustic exposure modeling results described in our rule preamble (89 FR 31488, April 24, 2024). In order to generate the appropriate take number for authorization, the following information was considered: (1) survey type; (2) location (by modeling zone
No 3D OBN surveys were included in the modeled survey types, and use of existing proxies (
The survey will take place over approximately 142 days with 66 days of sound source operation (12 days planned in zone 5 and 54 days planned in zone 7). The monthly distribution of survey days is not known in advance, so take estimates for each species are based on the time period that produces the greatest value.
Based on the results of our analysis, NMFS has determined that the level of taking expected for this survey and authorized through the LOA is consistent with the findings made for the total taking allowable under the regulations. See table 1 in this notice and table 6 of the rule (89 FR 31488, April 24, 2024).
Under the GOM rule, NMFS may not authorize incidental take of marine mammals in an LOA if it will exceed “small numbers.” In short, when an acceptable estimate of the individual marine mammals taken is available, if the estimated number of individual animals taken is up to, but not greater than, one-third of the best available abundance estimate, NMFS will determine that the numbers of marine mammals taken of a species or stock are small (89 FR 31535, May 24, 2024). For more information please see NMFS' discussion of small numbers in the 2021 final rule (86 FR 5438, January 19, 2021).
The take numbers for authorization are determined as described above in the Summary of Request and Analysis section. Subsequently, the total incidents of harassment for each species are multiplied by scalar ratios to produce a derived product that better reflects the number of individuals likely to be taken within a survey (as compared to the total number of instances of take), accounting for the likelihood that some individual marine mammals may be taken on more than 1 day (86 FR 5404, January 19, 2021; 89 FR 31535, May 24, 2024). The output of this scaling, where appropriate, is incorporated into adjusted total take estimates that are the basis for NMFS' small numbers determinations, as depicted in table 1.
This product is used by NMFS in making the necessary small numbers determinations through comparison with the best available abundance estimates (see discussion at 86 FR 5391, January 19, 2021). For this comparison, NMFS' approach is to use the maximum theoretical population, determined through review of current stock assessment reports (SAR;
Based on the analysis contained herein of bp's proposed survey activity described in its LOA application and the anticipated take of marine mammals, NMFS finds that small numbers of marine mammals will be taken relative to the affected species or stock sizes (
NMFS has determined that the level of taking for this LOA request is consistent with the findings made for the total taking allowable under the incidental take regulations and that the amount of take authorized under the LOA is of no more than small numbers. Accordingly, we have issued an LOA to bp authorizing the take of marine mammals incidental to its geophysical survey activity, as described above.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of public meetings.
The South Atlantic Fishery Management Council (Council) will hold six in-person port meetings to gather input on Atlantic king mackerel and Atlantic Spanish mackerel as managed by the Fishery Management Plan for Coastal Migratory Pelagic Resources in the Gulf of Mexico and Atlantic Region.
The port meetings will take place September 30, 2024-October 8, 2024. The port meetings will begin at 6 p.m., local time. For specific dates and times, see
Christina Wiegand, Fishery Social Scientist, SAFMC; phone: (843) 571-4366 or toll free: (866) SAFMC-10; fax: (843) 769-4520; email:
The Council is hosting a series of port meetings along the Atlantic coast throughout 2024 to take a focused look at the Atlantic king mackerel and Atlantic Spanish mackerel fisheries. The agenda for in-person port meetings is as follows: Council staff will briefly introduce port meetings and the Council's goals and objectives. Attendees will then have the opportunity, through a series of discussion-based breakout groups, to provide input on a variety of issues related to the Atlantic king mackerel and Spanish mackerel fisheries including changing environmental conditions, needed management changes, commercial and recreational fishery dynamics, and the goals and objectives of the Coastal Migratory Pelagics Fishery Management Plan. Information provided during port meetings will be summarized and presented to the Council for use in management decision-making. Additional port meetings will be scheduled along the Atlantic coast throughout the remainder of 2024.
•
•
•
•
•
•
These meetings are physically accessible to people with disabilities. Requests for auxiliary aid should be directed to the Council office (see
The times and sequence specified in this agenda are subject to change.
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Notice of hybrid conference.
The North Pacific Fishery Management Council (Council) and its advisory committees will meet September 30, 2024 through October 8, 2024.
The Council's Scientific and Statistical Committee (SSC) will begin at 8 a.m. on Monday, September 30, 2024, and continue through Wednesday, October 2, 2024. The Council's Advisory Panel (AP) will begin at 8 a.m. on Tuesday, October 1, 2024, and continue through Friday, October 4, 2024. The Council will begin at 8 a.m. on Thursday, October 3, 2024, and continue through Tuesday, October 8, 2024. The Legislative Committee will meet Wednesday, October 2, 2024, from 1 p.m. to 5 p.m. at the North Pacific Fishery Management Council's Conference Room; 1007 W 3rd Ave., Suite 400, Anchorage, AK 99501-2252. All times listed are Alaska Time.
The meetings will be a hybrid conference. The in-person component of the meeting will be held at the Egan Center, 555 W 5th Ave., Anchorage, AK 99501, or join the meeting online through the links at
Diana Evans, Council staff; email:
The SSC agenda will include the following issues:
The agenda is subject to change, and the latest version will be posted at
In addition to providing ongoing scientific advice for fishery management decisions, the SSC functions as the Council's primary peer review panel for scientific information, as described by the Magnuson-Stevens Act section 302(g)(1)(e), and the National Standard 2 guidelines (78 FR 43066). The peer-review process is also deemed to satisfy the requirements of the Information Quality Act, including the OMB Peer Review Bulletin guidelines.
Legislative Committee Agenda:
The Legislative Committee agenda will include approval of a terms of reference, a review of recently introduced federal legislation regarding fisheries management, and an evaluation of potential impacts of legislation on the Council's ability to perform the functions specified in its grant, fulfill its responsibilities under the MSA, or affect the Council's ability to conserve and manage marine resources and resource users. The agenda is subject to change, and the latest version will be posted at
The Advisory Panel agenda will include the following issues:
The Council agenda will include the following issues. The Council may take appropriate action on any of the issues identified.
You can attend the meeting online using a computer, tablet, or smart phone; or by phone only. Connection information will be posted online at:
If you are attending the meeting in-person, please refer to the COVID avoidance protocols on our website,
Public comment letters will be accepted and should be submitted electronically through the links at
Although other non-emergency issues not on the agenda may come before this group for discussion, those issues may not be the subject of formal action during these meetings. Actions will be restricted to those issues specifically listed in this notice and any issues arising after publication of this notice that require emergency action under Section 305(c) of the Magnuson-Stevens Fishery Conservation and Management Act, provided the public has been notified of the Council's intent to take final action to address the emergency.
The United States Patent and Trademark Office (USPTO) will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. The USPTO invites comments on this information collection renewal, which helps the USPTO assess the impact of its information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
35 U.S.C. 257 permits a patent owner to request supplemental examination of a patent by the USPTO to consider, reconsider, or correct information believed to be relevant to the patent. The regulations outlining supplemental examination are found at 37 CFR 1.601-1.625.
The Leahy-Smith America Invents Act terminated
The provisions of 35 U.S.C. 301 and 37 CFR 1.501 govern the ability of a person to submit into the file of an issued patent (1) prior art consisting of patents or printed publications which the person making the submission believes to have a bearing on the patentability of any claim of the issued patent and (2) statements of the owner of the issued patent filed in a proceeding before a federal court or the USPTO in which the owner of the issued patent took a position on the scope of any claim of the issued patent.
Thus, the items included in this collection cover (1) requests for
This information collection request may be viewed at
Written comments and recommendations for this information collection should be submitted within 30 days of the publication of this notice on the following website,
Further information can be obtained by:
•
•
The United States Patent and Trademark Office (USPTO) will submit the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, on or after the date of publication of this notice. The USPTO invites comments on this information collection renewal, which helps the USPTO assess the impact of its information collection requirements and minimize the public's reporting burden. Public comments were previously requested via the
37 CFR 1.290 provides a mechanism for third parties to submit to the USPTO for consideration and inclusion in the record of a patent application, any patents, published patent applications, or other printed publications of potential relevance to the examination of the application.
A third-party submission under 37 CFR 1.290 may be made in any nonprovisional utility, design, and plant application, including any continuing application. A third-party submission under 37 CFR 1.290 must include a concise description of the asserted relevance of each document submitted, and must be submitted within a certain statutorily specified time period.
37 CFR 1.291 permits a member of the public to file a protest against a pending application. Protests pursuant to 37 CFR 1.291 are supported by a separate statutory provision from third-party submissions under 37 CFR 1.290. As a result, there are several differences between protests and third-party submissions, as explained in the table below.
For example, 37 CFR 1.291 permits the submission of information that is not permitted in a third-party submission under 37 CFR 1.290. Specifically, 37 CFR 1.291 provides for the submission of information other than publications, including any facts or information adverse to patentability. Unlike the concise explanation of the relevance required for a preissuance submission under 37 CFR 1.290, which is limited to a description of a document's relevance, the concise explanation for a protest under 37 CFR 1.291 allows for arguments against patentability. Additionally, the specified time period for submitting a protest differs from the time period for submitting third-party submissions and is impacted by whether the protest is accompanied by the written consent of the applicant.
This information collection covers the items used by the public to submit information and protests regarding patent applications to the USPTO. This information collection is necessary so that the public can contribute to the quality of issued patents. The USPTO will use this information, as appropriate, to assist in evaluating the patent application as it moves through the patent examination process.
This information collection request may be viewed at
Written comments and recommendations for this information collection should be submitted within 30 days of the publication of this notice on the following website,
Further information can be obtained by:
•
•
Committee for Purchase From People Who Are Blind or Severely Disabled.
Proposed additions to and deletions from the Procurement List.
The Committee is proposing to add product(s) to the Procurement List that will be furnished by nonprofit agencies employing persons who are blind or have other severe disabilities and deletes product(s) and service(s) previously furnished by such agencies.
Comments must be received on or before: October 13, 2024.
Committee for Purchase From People Who Are Blind or Severely Disabled, 355 E Street SW, Suite 325, Washington DC 20024.
For further information or to submit comments contact: Michael R. Jurkowski, Telephone: (703) 489-1322, or email
This notice is published pursuant to 41 U.S.C. 8503 (a)(2) and 41 CFR 51-2.3. Its purpose is to provide interested persons an opportunity to submit comments on the proposed actions.
If the Committee approves the proposed additions, the entities of the Federal Government identified in this notice will be required to procure the product(s) listed below from nonprofit agencies employing persons who are blind or have other severe disabilities.
The following product(s) are proposed for addition to the Procurement List for production by the nonprofit agencies listed:
The following product(s) and service(s) are proposed for deletion from the Procurement List:
Committee for Purchase From People Who Are Blind or Severely Disabled.
Additions to and deletions from the Procurement List.
This action adds service(s) to the Procurement List that will be furnished by nonprofit agencies employing persons who are blind or have other severe disabilities and deletes product(s) from the Procurement List previously furnished by such agencies.
Committee for Purchase From People Who Are Blind or Severely Disabled, 355 E Street SW, Suite 325, Washington, DC 20024.
Michael R. Jurkowski, Telephone: (703) 785-6404, or email
On 6/30/2024, the Committee for Purchase From People Who Are Blind or Severely Disabled (operating as the U.S. AbilityOne Commission) published an initial notice of proposed additions to the Procurement List. (89 FR 53965). The Committee determined that the service listed below is suitable for procurement by the Federal Government and has added this service to the Procurement List as a mandatory purchase for the contracting activity listed. In accordance with 41 CFR 51-5.3(b), the mandatory purchase requirement is limited to the contracting activity at location listed, and in accordance with 41 CFR 51-5.2, the Committee has authorized nonprofit agency listed as the authorized source of supply.
After consideration of the material presented to it concerning capability of qualified nonprofit agencies to provide the service(s) and impact of the additions on the current or most recent contractors, the Committee has determined that the product(s) and service(s) listed below are suitable for procurement by the Federal Government under 41 U.S.C. 8501-8506 and 41 CFR 51-2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities. The major factors considered for this certification were:
1. The action will not result in any additional reporting, recordkeeping or other compliance requirements for small entities other than the small organizations that will furnish the service(s) to the Government.
2. The action will result in authorizing small entities to furnish the product(s) and service(s) to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501-8506) in connection with the service(s) proposed for addition to the Procurement List.
Accordingly, the following service(s) are added to the Procurement List:
The Committee finds good cause to dispense with the 30-day delay in the effective date normally required by the Administrative Procedure Act. See 5 U.S.C. 553(d). This addition to the Committee's Procurement List is effectuated because of the expiration of the Department of the Air Force, Mail Service, USAF, Official Mail Center and Postal Service Center, Little Rock AFB, AR contract. The Federal customer contacted and has worked diligently with the AbilityOne Program to fulfill this service need under the AbilityOne Program. To avoid performance disruption, and the possibility that the Air Force will refer its business elsewhere, this addition must be effective on 9/29/2024, ensuring timely execution for a 10/1/2024 start date. The Committee published an initial notice of proposed Procurement List addition in the
On 8/9/2024 (89 FR 53965), the Committee for Purchase From People Who Are Blind or Severely Disabled published notice of proposed deletions from the Procurement List. This notice is published pursuant to 41 U.S.C. 8503 (a)(2) and 41 CFR 51-2.3.
After consideration of the relevant matter presented, the Committee has determined that the product(s) listed below are no longer suitable for procurement by the Federal Government under 41 U.S.C. 8501-8506 and 41 CFR 51-2.4.
I certify that the following action will not have a significant impact on a substantial number of small entities. The major factors considered for this certification were:
1. The action will not result in additional reporting, recordkeeping or other compliance requirements for small entities.
2. The action may result in authorizing small entities to furnish the product(s) to the Government.
3. There are no known regulatory alternatives which would accomplish the objectives of the Javits-Wagner-O'Day Act (41 U.S.C. 8501-8506) in connection with the product(s) deleted from the Procurement List.
Accordingly, the following product(s) are deleted from the Procurement List:
Commodity Futures Trading Commission.
Notice.
The Commodity Futures Trading Commission (“CFTC” or “Commission”) is announcing an opportunity for public comments on the proposed extension of a collection of certain information by the agency. Under the Paperwork Reduction Act (“PRA”), Federal agencies are required to publish notice in the
Comments must be submitted on or before November 12, 2024.
You may submit comments, identified by OMB Control No. 3038-0033 by any of the following methods:
• The Agency's website, at
•
•
Please submit your comments using only one method. All comments must be submitted in English, or if not, accompanied by an English translation. Comments will be posted as received to
Lynn Bulan, Managing Counsel, Office of the General Counsel, Commodity Futures Trading Commission, (202) 418-5143; email:
Under the PRA, 44 U.S.C. 3501
With respect to the following collection of information, the CFTC invites comments on:
• Whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information will have a practical use;
• The accuracy of the Commission's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Ways to enhance the quality, usefulness, and clarity of the information to be collected; and
• Ways to minimize the burden of collection of information on those who are to respond, including through the use of appropriate automated electronic, mechanical, or other technological collection techniques or other forms of information technology;
You should submit only information that you wish to make available publicly. If you wish the Commission to consider information that you believe is exempt from disclosure under the Freedom of Information Act, a petition
The Commission reserves the right, but shall have no obligation, to review, pre-screen, filter, redact, refuse or remove any or all of your submission from
There are no capital costs or operating and maintenance costs associated with this collection.
Wednesday, September 18, 2024—10 a.m.
The meeting will be held remotely, and in person at 4330 East West Highway, Bethesda, Maryland 20814.
Commission Meeting—Open to the Public.
Alberta E. Mills, Office of the Secretary, U.S. Consumer Product Safety Commission, 4330 East West Highway, Bethesda, MD 20814, 301-504-7479 (Office) or 240-863-8938 (Cell).
Office of Environmental Management, Department of Energy.
Notice of open meeting.
This notice announces an in-person/virtual hybrid meeting of the Environmental Management Site-Specific Advisory Board (EM SSAB), Oak Ridge. The Federal Advisory Committee Act requires that public notice of this meeting be announced in the
Wednesday, October 9, 2024; 6-8 p.m. EDT.
Department of Energy (DOE) Information Center, Office of Science and Technical Information, 1 Science.gov Way, Oak Ridge, Tennessee 37831. This hybrid meeting will be in-person at the DOE Information Center and virtually via Zoom. To attend virtually or to register for in-person attendance, please send an email to:
Melyssa P. Noe, Deputy Designated Federal Officer, U.S. Department of Energy, Oak Ridge Office of Environmental Management (OREM), P.O. Box 2001, EM-942, Oak Ridge, TN 37831; Phone (865) 241-3315; or Email:
Take notice that the following hydroelectric application has been filed with the Commission and is available for public inspection.
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k. Pursuant to section 4.32(b)(7) of 18 CFR of the Commission's regulations, if any resource agency, Indian Tribe, or person believes that an additional scientific study should be conducted in order to form an adequate factual basis for a complete analysis of the application on its merit, the resource agency, Indian Tribe, or person must file a request for a study with the Commission not later than 60 days from the date of filing of the application, and serve a copy of the request on the applicant.
l.
The Commission strongly encourages electronic filing. Please file additional study requests and requests for cooperating agency status using the Commission's eFiling system at
m. The application is not ready for environmental analysis at this time.
n.
The project is operated as run-of-river with daily impoundment fluctuations of one foot or less but is licensed to operate with up to four feet of impoundment fluctuation to allow for adjustments between inflow and a minimum flow requirement of 1,430 cubic feet per second or in response to operating emergencies. The estimated annual generation is 157,614 megawatt-hours.
The project recreation facilities include: (1) the Lewiston Falls Impoundment Boat Launch (also known as Haggins Boat Launch), (2) the West Pitch Park Overlook, and (3) the Durham Boat Launch.
o. A copy of the application is available for review on the Commission's website at
You may also register online at
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202)502-6595 or
p.
Final amendments to the application must be filed with the Commission no later than 30 days from the issuance date of the notice of ready for environmental analysis.
On December 13, 2022, Pacific Gas and Electric Company and Pacific Generation LLC (applicants) filed a joint application for approval to transfer the following licenses:
On August 12, 2024, applicants filed a notice of withdrawal of their application.
No motion in opposition to the notice of withdrawal has been filed, and the Commission has taken no action to disallow the withdrawal. Pursuant to Rule 216(b) of the Commission's Rules of Practice and Procedure,
Take notice that based on requests at the meeting on July 23, 2024, hosted by the North American Energy Standards Board (NAESB), the implementation of a revised version of eTariff will be delayed until November 25, 2024. As requested at the meeting, this delay will permit a single deployment of the revisions to eTariff to include the lead applicant name, as detailed in the June 11, 2024, Notice, along with additional revisions to the Type of Filing and Validation Error Codes. The Type of Filing and Validation Error Codes revisions will ensure that parties differentiate between (1) compliance filings in a current proceeding for which the filer has a filing identifier, which are assigned a subdocket, and (2) compliance filings, such as compliance with complaint orders and rulemakings, where the filer has no existing filing identifier and therefore must establish a new docket. New filing codes also will be assigned to allow utilities to distinguish baseline rate change filings from baseline initial rate filings.
Starting on September 30, 2024, the currently deployed test sandbox will include the revised filing type and validation error codes. A subsequent notice will be issued with the revised filing type and validation codes to be used in the sandbox testing.
Questions on these changes should be directed to: Michael Goldenberg at
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
Any person desiring to protest in any the above proceedings must file in accordance with Rule 211 of the Commission's Regulations (18 CFR 385.211) on or before 5:00 p.m. Eastern time on the specified comment date.
The filings are accessible in the Commission's eLibrary system (
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
To afford additional time for further consideration of the matters at issue in the above-captioned proceeding, the 60-day period for action is hereby tolled.
Take notice that on August 30, 2024, Florida Gas Transmission Company, LLC (FGT), 1300 Main St., Houston, Texas 77002, filed in the above referenced docket, a prior notice request pursuant to sections 157.205, 157.208, 157.210, and 157.211 of the Commission's regulations under the Natural Gas Act (NGA), and FGT's blanket certificate issued in Docket No. CP82-553-000, for authorization to: (1) complete minor auxiliary facility modifications at its existing Compressor Station 13 in Washington County, Florida; (2) construct 2.57 miles of 12-inch-diameter lateral loop pipeline in Putnam County, Florida; (3) modify the existing Palatka—CertainTeed Gypsum Meter and Regulation Station in Putnam County, Florida; and (4) construct appurtenant facilities under section 2.55(a) of the Commission's regulations (Palatka Project or Project). The Project will allow FGT to add up to 12,000 million British thermal units per day of additional firm capacity to serve the CertainTeed Gypsum Palatka, LLC's gypsum plant in Palatka, Florida. The estimated cost for the Project is $19,300,000, all as more fully set forth in the request which is on file with the Commission and open to public inspection.
In addition to publishing the full text of this document in the
User assistance is available for eLibrary and the Commission's website during normal business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at
Any questions concerning this request should be directed to Blair Lichtenwalter, Senior Director of Certificates, Florida Gas Transmission Company, LLC, 1300 Main St., Houston, Texas 77002, or phone (713) 989-2605, or fax (713) 989-1205, or by email
There are three ways to become involved in the Commission's review of this project: you can file a protest to the project, you can file a motion to intervene in the proceeding, and you can file comments on the project. There is no fee or cost for filing protests, motions to intervene, or comments. The deadline for filing protests, motions to intervene, and comments is 5:00 p.m. Eastern Time on November 8, 2024. How to file protests, motions to intervene, and comments is explained below.
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
Pursuant to section 157.205 of the Commission's regulations under the NGA,
Protests must comply with the requirements specified in section 157.205(e) of the Commission's regulations,
Any person has the option to file a motion to intervene in this proceeding. Only intervenors have the right to request rehearing of Commission orders issued in this proceeding and to subsequently challenge the Commission's orders in the U.S. Circuit Courts of Appeal.
To intervene, you must submit a motion to intervene to the Commission in accordance with Rule 214 of the Commission's Rules of Practice and Procedure
All timely, unopposed motions to intervene are automatically granted by operation of Rule 214(c)(1). Motions to intervene that are filed after the intervention deadline are untimely and may be denied. Any late-filed motion to intervene must show good cause for being late and must explain why the time limitation should be waived and provide justification by reference to factors set forth in Rule 214(d) of the Commission's Rules and Regulations. A person obtaining party status will be placed on the service list maintained by the Secretary of the Commission and will receive copies (paper or electronic) of all documents filed by the applicant and by all other parties.
Any person wishing to comment on the project may do so. The Commission considers all comments received about the project in determining the appropriate action to be taken. To ensure that your comments are timely and properly recorded, please submit your comments on or before November 8, 2024. The filing of a comment alone will not serve to make the filer a party to the proceeding. To become a party, you must intervene in the proceeding.
There are two ways to submit protests, motions to intervene, and comments. In both instances, please reference the Project docket number CP24-516-000 in your submission.
(1) You may file your protest, motion to intervene, and comments by using the Commission's eFiling feature, which is located on the Commission's website (
(2) You can file a paper copy of your submission by mailing it to the address below. Your submission must reference the Project docket number CP24-516-000.
The Commission encourages electronic filing of submissions (option 1 above) and has eFiling staff available to assist you at (202) 502-8258 or
Protests and motions to intervene must be served on the applicant either by mail at Blair Lichtenwalter, Senior Director of Certificates, Florida Gas Transmission Company, LLC, 1300 Main St., Houston, Texas 77002, or by email (with a link to the document) at
Throughout the proceeding, additional information about the project will be available from the Commission's Office of External Affairs, at (866) 208-FERC, or on the FERC website at
In addition, the Commission offers a free service called eSubscription which allows you to keep track of all formal issuances and submittals in specific dockets. This can reduce the amount of time you spend researching proceedings by automatically providing you with notification of these filings, document summaries, and direct links to the documents. For more information and to register, go to
Take notice that the Commission received the following electric corporate filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system (
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
Take notice that the Commission has received the following Natural Gas Pipeline Rate and Refund Report filings:
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
Any person desiring to protest in any the above proceedings must file in accordance with Rule 211 of the Commission's Regulations (18 CFR 385.211) on or before 5:00 p.m. Eastern time on the specified comment date.
The filings are accessible in the Commission's eLibrary system (
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
On November 23, 2021, as supplemented,
By this notice, Commission staff is updating the procedural schedule for completing the draft EIS. The revised schedule is shown below. Further revisions to the schedule may be made as appropriate.
Any questions regarding this notice may be directed to Sarah Salazar at (202) 502-6863 or
Take notice that the Commission received the following exempt wholesale generator filings:
Take notice that the Commission received the following electric rate filings:
The filings are accessible in the Commission's eLibrary system (
Any person desiring to intervene, to protest, or to answer a complaint in any of the above proceedings must file in accordance with Rules 211, 214, or 206 of the Commission's Regulations (18 CFR 385.211, 385.214, or 385.206) on or before 5:00 p.m. Eastern time on the specified comment date. Protests may be considered, but intervention is necessary to become a party to the proceeding.
eFiling is encouraged. More detailed information relating to filing requirements, interventions, protests, service, and qualifying facilities filings can be found at:
The Commission's Office of Public Participation (OPP) supports meaningful public engagement and participation in Commission proceedings. OPP can help members of the public, including landowners, environmental justice communities, Tribal members and others, access publicly available information and navigate Commission processes. For public inquiries and assistance with making filings such as interventions, comments, or requests for rehearing, the public is encouraged to contact OPP at (202) 502-6595 or
On April 30, 2021, the Village of Enosburg Falls, Vermont (Village) filed a relicense application for the 975-kilowatt Enosburg Falls Hydroelectric Project No. 2905. On August 9, 2022, Commission staff issued a notice of intent to prepare an Environmental Assessment (EA) to evaluate the effects of relicensing the project. The notice included an anticipated schedule for issuing the EA.
By this notice, Commission staff is updating the procedural schedule for completing the EA. The revised schedule is shown below. Further revisions to the schedule may be made as appropriate.
Any questions regarding this notice may be directed to Arash Barsari at (202) 502-6207, or by email at
On Friday, September 27, 2024, Commission staff will hold a technical conference to seek clarification from Scott's Mill Hydro, LLC regarding its responses to additional information requests filed from February 26, 2024 through May 3, 2024 for the proposed Scott's Mill Hydroelectric Project No. 14867.
The conference will be held via teleconference beginning at 1:00 p.m. Eastern Daylight Time. Discussion topics for the technical conference are included in Appendix A.
All local, state, and federal agencies, Indian tribes, and other interested parties are invited to participate. There will be no transcript of the conference, but a summary of the meeting will be prepared for the project record. If you are interested in participating in the meeting you must contact Jody Callihan at (202) 502-8278 or
Section 309(a) of the Clean Air Act requires that EPA make public its comments on EISs issued by other Federal agencies. EPA's comment letters on EISs are available at:
Environmental Protection Agency (EPA).
Notice.
In November 2022, the Environmental Protection Agency (EPA or Agency) announced the expansion of the Recommendations of Specifications, Standards and Ecolabels for Federal Purchasing (Recommendations) and invited managers of standards development organizations, ecolabel programs, and associated conformity assessment bodies to apply for potential assessment against EPA's Framework for the Assessment of Environmental Performance Standards and Ecolabels. In August 2023, EPA announced the first five purchase categories chosen for assessment. With this document, EPA is announcing the availability of and seeking feedback on the proposed additions to the Recommendations based on assessments against the Framework, as well as the proposed removals of standards/ecolabels already included in the Recommendations based on implementation of new eligibility criteria.
Comments must be received on or before October 15, 2024.
Submit your comments, identified by docket identification (ID) number EPA-HQ-OPPT-2022-0835, through the
Jenna Larkin, Environmental Protection Specialist, Environmentally Preferable Purchasing Program (7409M), Office of Chemical Safety and Pollution Prevention, Environmental Protection Agency, 1200 Pennsylvania Ave. NW, Washington, DC 20460-0001; telephone number: (202) 564-3395; email address:
These updates may be of specific interest to those who represent or use sustainability standards and ecolabels, including institutional or governmental purchasers, manufacturers seeking certification, and standards development organizations.
EPA has completed the assessment of the standards and ecolabels that volunteered to be assessed in November 2022 against the Framework for the Assessment of Environmental Performance Standards and Ecolabels in the following product and service categories:
• Healthcare;
• Laboratories;
• Uniforms & Clothing;
• Food Service Ware (
• Professional Services.
Based on these assessments, EPA is now seeking feedback on the proposed additions of specifications, standards, and ecolabels in the above categories. EPA is also seeking feedback on the proposed removals of standards and ecolabels in already existing purchase categories.
Executive Order 14057, entitled “Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability” (86 FR 70935, December 13, 2021), and associated implementing instructions direct EPA to consider expanding the Recommendations to facilitate net-zero emissions procurement and other related sustainable purchasing goals. In addition, Executive Order 14057 directs Federal purchasers to prioritize products and services that address multiple environmental impacts. After meeting applicable statutory mandates (BioPreferred, SNAP, CPG, ENERGY STAR/FEMP), agencies are directed to buy products and services that meet one or more of the applicable EPA purchasing programs, including those meeting the specifications, standards, and ecolabels included in the Recommendations.
Executive Order 14008, entitled “Tackling the Climate Crisis at Home and Abroad” (86 FR 7619, February 1, 2021), directs the Federal Government to lead by example and leverage its buying power to “catalyze private sector investment into, and accelerate the advancement of America's industrial capacity to supply domestic clean energy, buildings, vehicles, and other necessary products and materials.” The expansion of the Recommendations will help to spur this market demand for more sustainable products and services.
Section 12(d) of the National Technology Transfer and Advancement Act (NTTAA), 15 U.S.C. 272 note, as well as mandates from the Office of Management and Budget (OMB) identified as Circular A-119, entitled “Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities,” direct Federal agencies to use voluntary consensus standards (VCS) in lieu of government-unique standards as a means to carry out policy and procurement objectives, except where inconsistent with applicable law or otherwise impractical.
Section 6604(b)(11) of the Pollution Prevention Act (PPA), 42 U.S.C. 13103(b)(11), directs EPA to identify opportunities to use Federal procurement to encourage pollution prevention.
1.
2.
The Recommendations of Specifications, Standards, and Ecolabels help Federal purchasers identify and procure environmentally preferable products and services. Federal purchasers are directed in the implementing instructions issued by the Council on Environmental Quality, entitled “Implementing Instructions for Executive Order 14057, Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability” (2022) and 48 CFR 23.108 of the Federal Acquisition Regulation to procure products and services meeting the Recommendations to meet net-zero emissions procurement and other sustainability goals. In November 2022, EPA announced the expansion of the Recommendations and invited managers of standards development organizations, ecolabel programs, and associated conformity assessment bodies to apply for potential assessment against the Framework (87 FR 66176, November 2, 2022 (FRL-10293-01-OCSPP)). In August 2023, EPA announced the first five purchase categories chosen for assessment via a listserv announcement available at
In April 2022, the standard/ecolabel organizations included in the Recommendations were notified of new eligibility criteria to be implemented in 2023. These criteria ensure consistency with U.S. Federal Government standards policy and assists with implementation into General Services Administration (GSA) procurement tools and contracts. Standards/ecolabels were given until December 31, 2023, to demonstrate that they meet the eligibility criteria. Those that were not able to meet the criteria, are being proposed for removal from the Recommendations.
• There must be a publicly available and current (
• All standards and ecolabels are required to demonstrate that they have a competent certification program—either via accreditation or the alternative pathway provided in Section III of EPA's Framework for the Assessment of Environmental Performance Standards and Ecolabels.
The Recommendations help purchasers easily identify credible and effective environmental performance standards/ecolabels/certifications by product/service category for incorporation into Federal procurement activities (
The Framework, available at
The Framework includes:
•
The four sections of Assessment Criteria include:
•
•
•
•
EPA is seeking public input on the addition of the following standards and ecolabels in the following product categories. Standards and ecolabels listed below meet all applicable baseline criteria in the Framework and are being proposed to be added to the Recommendations.
• None.
EPA is also seeking public input on the removal of the following standards and ecolabels in the following categories, including the reason for removal.
•
•
•
•
•
•
•
EPA is particularly interested in receiving comments that include the following:
• Name of person or organization submitting the comments;
• Product or service category that pertains to your comments;
• Reasons for the support or opposition of the proposed updates;
• Impacts the updates may have on your organization;
• Input on new product category naming and sub-product category naming; and
• Product or service categories you would like EPA to consider performing assessments in during the next update cycle. This may include product/service categories already included in the Recommendations.
• If your standard or ecolabel organization is interested in being assessed in the next update cycle, please provide the name of the standard or ecolabel, the product or service category(ies) that it covers, and a link to the publicly available website.
EPA is not seeking comments on the Framework tool used to assess standards and ecolabels. The Framework went through a separate multi-stakeholder development process that included several public comment opportunities. See
Export-Import Bank of the United States
Notice
This Notice is to inform the public that Export-Import Bank of the United States (“EXIM”) is expected to consider one or more requests to increase the amount of the long-term general guarantee on the interest of Secured Notes issued by the Private Export Funding Corporation (PEFCO). Comments received within the comment period specified below will be presented to the EXIM Board of Directors prior to any final action during the fiscal year ending on September 30, 2025.
Comments must be received on or before October 8, 2024 to be assured of consideration before any final decision on one or more additional guarantees during the course of fiscal year 2025.
Comments may be submitted through
Federal Communications Commission.
Notice of a modified system of records.
The Federal Communications Commission (FCC, Commission, or Agency) proposes to modify an existing system of records, FCC/MB-1, Ownership Reports for Commercial and Noncommercial Broadcast Stations, subject to the Privacy Act of 1974, as amended. This action is necessary to meet the requirements of the Privacy Act to publish in the
This modified system of records will become effective on September 13, 2024. Written comments on the routine uses are due by October 15, 2024. The routine uses in this action will become effective on October 15, 2024 unless comments are received that require a contrary determination.
Send comments to Brendan McTaggart, Federal Communications Commission, 45 L Street NE, Washington, DC 20554, or
Brendan McTaggart, (202) 418-1738, or
This notice serves to update and modify FCC/MB-1 as a result of the various necessary changes and updates. The substantive changes and modifications to the previously published version of the FCC/MB-1 system of records include:
1. Renaming the SORN “MB-1, Media Ownership and Equal Employment Opportunity Forms and Reports,” and updating the Purposes, Categories of Records, Categories of Individuals, and Record Source Categories to reflect the collection of Equal Employment Opportunity (EEO) data through FCC Form 2100, Schedule 396-B, the Broadcast Equal Employment Opportunity Program Report (Form 396-B), through Form 396-C, the Multi-Channel Video Program Distributors EEO Program Annual Report (Form 396-C); and through any related attachments or supporting documentation; and adding the Enforcement Bureau to System Location and System Manager, to reflect the Bureau's role in enforcing the Commission's EEO requirements;
2. Updating the language in the Security Classification and Authority for Maintenance of the System to follow OMB guidance;
3. Otherwise modifying the language in the Categories of Individuals and Categories of Records to be consistent with the language and phrasing now used in FCC SORNs;
4. Adding one new routine use (listed by the routine use number provided in this SORN): (9) Assistance to Federal Agencies and Entities Related to Breaches, the addition of which is required by OMB M-17-12;
5. Updating and/or revising language in eight routine uses (listed by the
6. Deleting one routine use: former routine use (3) Financial Obligations under the Debt Collection Acts, which is no longer applicable;
7. Updating language in the Purposes of the System to reflect changes to the Commission's media ownership rules.
The system of records is also updated to reflect various administrative changes related to the system managers and system addresses; policy and practices for storage, retention, disposal and retrieval of the information; administrative, technical, and physical safeguards; and updated notification, records access, and contesting records procedures.
FCC/MB-1, Media Ownership and Equal Employment Opportunity Forms and Reports
Unclassified.
Media Bureau (MB) and Enforcement Bureau (EB), Federal Communications Commission (FCC), 45 L Street NE, Washington, DC 20554.
MB and EB, FCC, 45 L Street NE, Washington, DC 20554.
47 U.S.C. 151, 152(a), 154(i), 257, 303(r), 307, 308, 309, 310, 554(e).
The Commission uses the records in this system:
(1) To assess the data contained in responses to Form 323, and/or Form 323-E, which the Commission uses to evaluate licensees' or permittees' compliance with the Commission's rules applicable to owners of commercial broadcast stations, including AM and FM radio and television (full power, Class A, and low power); and noncommercial broadcast stations, including AM and FM radio and full-power television. These forms are filed: (a) To satisfy the biennial filing requirement (Biennial Ownership Report); (b) As a validation and resubmission of a previously filed Biennial Ownership Report; (c) In connection with the transfer of control or assignment of a broadcast station; (d) By a permittee within 30 days after the grant of a construction permit and on the date that the permittee files its license application; (e) As a certification of accuracy of the initial or post-consummation Ownership Report filed by the permittee in conjunction with its application for a station license; or (f) As an amendment of a previously filed Ownership Report.
(2) To undertake studies of minority and female ownership in responses to Form 323, and/or Form 323-E that include studies that support the Commission's diversity policy goals and other ownership studies to support its statutory requirement to review the media ownership goals quadrennially to determine whether they are necessary in the public interest as the result of competition.
(3) To assess the data contained in Form 396-B and annual EEO Public File Reports attached to both the Form 396-B and the Form 396-C Supplemental Investigation Sheet (SIS). The FCC uses the Form 396-B to evaluate licensees' EEO compliance under applicable FCC requirements at the time they apply for license renewal. The Form 396-C SIS is filed no less than once every five years to provide supplemental data on the EEO compliance of a cable operator or DBS provider.
(4) To otherwise utilize Form 323, Form 323-E, Form 396-B, Form 396-C and annual EEO Public File Reports for other lawful purposes, including analyzing effectiveness and efficiency of related FCC programs, informing future rule and policy-making activity, and improving staff efficiency.
The categories of individuals covered by this system include: (1) Licensees, permittees, and respondents, and other individuals or entities with interests therein that are required to file or have their interests reported on: (a) Form 323, “Ownership Report for Commercial Broadcast Stations” pursuant to 47 CFR 73.3615, 73.6026, and 74.797; and/or (b) Form 323-E, “Ownership Report for Noncommercial Broadcast Stations pursuant to 47 CFR 73.3615; (2) Contact individuals reported on: (a) Form 323,
The categories of records in this system include: (1) Information that is required to be submitted on Form 323, and/or Form 323-E, including the ownership or other interests of the licensee/permittee/respondent, mailing address, telephone number, email address, FCC Registration Number (FRN), Restricted Use FRN (RUFRN), listing type, relationship to licensee/permittee/respondent/other interest holder, positional interest, joint interest status, Tribal Nation/entity status, marital/familial relationship, and gender, ethnicity, race, and citizenship, etc.; (2) All exhibits, organizational charts, supporting documentation, and any other materials included with the report (
The sources for the information in this system are all broadcast stations,
In addition to those disclosures generally permitted under 5 U.S.C. 552a(b) of the Privacy Act, all or a portion of the records or information contained in this system may be disclosed to authorized entities, as is determined to be relevant and necessary, outside of the FCC as a routine use pursuant to 5 U.S.C. 552a(b)(3) as follows:
1. Public Access—Ownership and EEO Information submitted in Form 323, Form 323-E, Form 396-B, Form 396-C SIS and EEO Public File Reports in the Consolidated Database System (CDBS), the Licensing and Management System (LMS), and the Cable Operations and Licensing System (COALS), as applicable, can be viewed by the public on the Commission's website.
2. Litigation—Records may be disclosed to the Department of Justice (DOJ) when: (a) the FCC or any component thereof; (b) any employee of the FCC in his or her official capacity; (c) any employee of the FCC in his or her individual capacity where the DOJ or the FCC has agreed to represent the employee; or (d) the United States Government is a party to litigation or has an interest in such litigation, and by careful review, the FCC determines that the records are both relevant and necessary to the litigation, and the use of such records by the Department of Justice is for a purpose that is compatible with the purpose for which the FCC collected the records.
3. Adjudication—Records may be disclosed in a proceeding before a court or adjudicative body, when: (a) the FCC or any component thereof; or (b) any employee of the FCC in his or her official capacity; or (c) any employee of the FCC in his or her individual capacity; or (d) the United States Government, is a party to litigation or has an interest in such litigation, and by careful review, the FCC determines that the records are both relevant and necessary to the litigation, and that the use of such records is for a purpose that is compatible with the purpose for which the agency collected the records.
4. Law Enforcement and Investigation—When the FCC investigates any violation or potential violation of a civil or criminal law, regulation, policy, executed consent decree, order, or any other type of compulsory obligation, and determines that a record in this system, either alone or in conjunction with other information, indicates a violation or potential violation of law, regulation, policy, consent decree, order, or other compulsory obligation, the FCC may disclose pertinent information as it deems necessary to the target of an investigation, as well as with the appropriate Federal, State, local, Tribal, international, or multinational agencies, or a component of such an agency, responsible for investigating, prosecuting, enforcing, or implementing a statute, rule, regulation, or order.
5. Congressional Inquiries—Information may be provided to a Congressional office in response to an inquiry from that Congressional office made at the written request of the individual to whom the information pertains.
6. Government-wide Program Management and Oversight—Information may be disclosed to the DOJ to obtain that department's advice regarding disclosure obligations under the Freedom of Information Act (FOIA); or to the Office of Management and Budget (OMB) to obtain that office's advice regarding obligations under the Privacy Act.
7. Breach Notification—Records may be disclosed to appropriate agencies, entities, and persons when: (a) the Commission suspects or has confirmed that there has been a breach of the system of records; (b) the Commission has determined that as a result of the suspected or confirmed breach there is a risk of harm to individuals, the Commission (including its information system, programs, and operations), the Federal Government, or national security; and; and (c) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Commission's efforts to respond to the suspected or confirmed breach or to prevent, minimize, or remedy such harm.
8. Assistance to Federal Agencies and Entities Related to Breaches—Records may be disclosed to another Federal agency or Federal entity, when the Commission determines that information from this system is reasonably necessary to assist the recipient agency or entity in: (a) responding to a suspected or confirmed breach or (b) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, program, and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
9. Non-Federal Personnel—Information may be disclosed to non-Federal personnel, including contractors, other vendors (
This an electronic system of records that resides on the FCC's network or on an FCC vendor's network.
Records in this system of records can be retrieved by an authorized FCC user by any category field,
The information in this system is limited to electronic files, records, and data, which includes: (1) The information that pertains to current filing requirements; and (2) the information that pertains to historical records, which is used for archival purposes. National Archives and Records Administration (NARA) Records Schedule N1-173-86-2, authorizes permanent retention of original documents of information reported pursuant to Sections 73.3613 and 73.3615 of the Commission's rules, including ownership reports (FCC Form 323). In the absence of a more specific NARA-approved records schedule, any information in this system that is not covered by the agency records control schedule N1-173-86-2 will also be treated as permanent.
Access to the records (
Individuals wishing to request access to and/or amendment of records about themselves should follow the Notification Procedures below.
Individuals wishing to request access to and/or amendment of records about themselves should follow the Notification Procedures below.
Individuals wishing to determine whether this system of records contains information about themselves may do so by writing to
None.
81 FR 72047 (October 19, 2016)
Federal Communications Commission.
Federal Communications Commission.
Notice of a modified system of records.
The Federal Communications Commission (FCC, Commission, or Agency) proposes to modify an existing system of records, FCC/MB-2, Broadcast Station Public Inspection Files, which has been renamed FCC/MB-2, Online Public Inspection File. The Commission requires television broadcasters to submit their public filing information to the FCC to be posted in an online public inspection file. In 2016, the Commission expanded its Online Public Inspection File (OPIF) requirements to cable operators, satellite TV (also referred to as “Direct Broadcast Satellite” or “DBS”) providers, broadcast radio licensees, and satellite radio (also referred to as “Satellite Digital Audio Radio Services” or “SDARS”) licensees. This system of records covers the personally identifiable information (PII) that may be contained in an OPIF.
This modified system of records will become effective on September 13, 2024. Written comments on the routine uses are due by October 15, 2024. The routine uses in this action will become effective on October 15, 2024 unless comments are received that require a contrary determination.
Send comments to Brendan McTaggart, Federal Communications Commission, 45 L Street NE, Washington, DC 20554, or
Brendan McTaggart, (202) 418-1738, or
This notice serves to update and modify FCC/MB-2 as a result of various necessary changes and updates. The substantive changes and modifications to the previously published version of the FCC/MB-2 system of records include:
1. Updating the SORN to reflect the addition of cable operators, DBS providers, broadcast radio licensees, and SDARS licensees, and changing the name of the system to “Online Public Inspection File;”
2. Updating the Purposes, Categories of Records, Categories of Individuals, and Record Source Categories to reflect the collection of Equal Employment Opportunity (EEO) and related data through FCC Form 2100 Schedule 396 Broadcast Equal Employment Opportunity Program Report (Form 396-B), annual EEO Public File Reports (certain years of which can also be attached to Form 396-B, attached to the Multichannel Video Program Distributor EEO Program Report (Form 396-C), or submitted in response to an EEO audit), and audit responses related to the administration of the Commission's responsibilities under 47 CFR 73.2080; and adding the Enforcement Bureau to System Location and System Manager, to reflect the Bureau's role in enforcing the Commission's EEO requirements;
3. Updating the language in the Security Classification to follow OMB guidance;
4. Otherwise modifying the language in the Categories of Individuals and Categories of Records to be consistent with the language and phrasing now used in FCC SORNs;
5. Deleting three former routine uses (listed by the routine use number in the previous iteration of this SORN: (9) FCC Enforcement Actions, which is duplicative of the expanded Law Enforcement and Investigation routine use in this notice; and (10) Due Diligence Inquiries and (11) Financial Obligations under the Debt Collection Acts, both of which are no longer applicable.
6. Adding one new routine use (listed by the routine use number provided in this SORN): (8) Assistance to Federal Agencies and Entities Related to Breaches, the addition of which is required by OMB M-17-12;
7. Updating and/or revising language in seven routine uses (listed by the routine use number provided in this SORN): (2) Law Enforcement and Investigation; (3) Litigation and (4) Adjudication (now two separate routine uses); (5) Congressional Inquiries; (6) Government-wide Program Management and Oversight; (7) Breach Notification, the modification of which is required by OMB M-17-12; and (9) Nonfederal Personnel.
8. Updating the SORN to include the National Archives and Records Administration (NARA) records schedule DAA-0173-2020-0003, EEO Audits.
The system of records is also updated to reflect various administrative changes related to the system managers and system addresses; policy and practices for storage, retention, disposal and retrieval of the information; administrative, technical, and physical safeguards; and updated notification, records access, and contesting records procedures.
FCC/MB-2, Online Public Inspection File.
Unclassified.
Media Bureau (MB) and Enforcement Bureau (EB), Federal Communications Commission (FCC), 45 L Street NE, Washington, DC 20554.
MB and EB, FCC, 45 L Street NE, Washington, DC 20554.
47 U.S.C. 151, 152, 154(i), 154(j), 303, 307, 315, and 335.
The Commission requires television broadcasters to submit their public filing information to the FCC to be posted in an online public inspection file. In 2016, the Commission expanded its OPIF requirements to cable operators, DBS providers, broadcast radio licensees, and SDARS licensees. This system of records covers the PII that may be contained in an OPIF. This includes information related to individuals associated with broadcast entities and SDARS licensees as well as individuals identified in EEO data (including the name of any EEO complainants) collected through Form 396-B pursuant to 47 CFR 73.2080 as well as in audit responses. EEO data are also provided in EEO Public File Reports (including PII related to recruitment and referral sources), which are uploaded to OPIF annually and, in certain years, are attached to Form 396-B and/or an EEO audit response. Further, this system of records also includes information related to individuals associated with cable operators and DBS providers identified in EEO data provided in annual EEO Public File Reports (including PII related to recruitment and referral sources), which are required to be uploaded to OPIF annually, and, every fifth year, the most recent report must be attached by cable operators and DBS providers to the Supplemental Investigation Sheet (SIS) of the Form 396-C, under 47 CFR 76.77. The Commission hosts OPIF in an online, publicly available database for the purpose of making the files more accessible to the public.
This system also includes information about individuals who are required to file personal information pertaining to their political campaigns, including requests for broadcast time made by or on behalf of a candidate and the disposition of those requests, information regarding other appearances by candidates (excluding those in certain news programming exempt from the equal opportunities provision), and information about issue advertising that communicates a message relating to any political matter of national importance. Requiring these entities to maintain complete and up to date political files is critical because the information in these files directly affects, among other things, the statutory rights of opposing candidates to request equal opportunities under Section 315(a) of the Communications Act and present their positions to the public prior to an election. In addition, the political files allow the public to verify that Commission licensees and regulatees have complied with their obligations relating to use of their facilities by candidates for political office and to obtain information about entities sponsoring candidate and issue advertisements.
The categories of individuals in this system include: (1) Individuals who are required to file personal information pertaining to their political campaigns, as described above; (2) Individuals who are associated with a television or radio broadcast station licensee, cable operator, DBS provider, or SDARs licensee and are required to submit information under 47 CFR 73.3526, 73.3527, 25.701, 25.702, and 76.1700; and (3) Individuals filing Form 396-B on behalf of broadcast stations and SDARS licensees and individuals who have filed discrimination complaints involving those licensees and are named in attachments to Form 396-B, which is required under 47 CFR 73.2080, and individuals identified in audit responses and EEO Public File Reports; (4) Individuals associated with EEO data provided by cable operators and DBS providers in annual EEO Public File Reports, including the year subject to SIS which is attached to the Form 396-C.
The categories of records in this system may include an individual's name, home address, home telephone number, personal cell phone number, personal email address(es), personal fax number, and other personal information that stations may include in their public files, and which may be included in the documents, files, and records (including Form 396) that television and radio broadcast stations, cable operators, DBS providers, SDARS licensees, and certain individuals are required to either submit to the FCC or to post in the FCC's Online Public Inspection File.
The sources for the information in the Online Public Inspection File include the documents, files, and records (including Form 396, EEO Public File Reports, and, as applicable, responses to audit letters) that television and radio broadcasters, cable operators, DBS providers, and SDARS licensees are required to make available for public inspection in OPIF, as well as information imported from the FCC Licensing and Management System (LMS).
Information about individuals in this system of records may routinely be disclosed under the following conditions:
1. Public Access—Under the rules of the Commission, documents in the Online Public Inspection File are available for public inspection on the FCC's website.
2. Law Enforcement and Investigation—When the FCC investigates any violation or potential violation of a civil or criminal law, regulation, policy, executed consent decree, order, or any other type of compulsory obligation and determines that a record in this system, either alone or in conjunction with other information, indicates a violation or potential violation of law, regulation, policy, consent decree, order, or other compulsory obligation, the FCC may disclose pertinent information as it deems necessary to the target of an investigation, as well as with the appropriate Federal, State, local, Tribal, international, or multinational agencies, or a component of such an agency, responsible for investigating, prosecuting, enforcing, or implementing a statute, rule, regulation, or order.
3. Litigation—Records may be disclosed to the Department of Justice (DOJ) when: (a) the FCC or any component thereof; (b) any employee of the FCC in his or her official capacity; (c) any employee of the FCC in his or her individual capacity where the DOJ or the FCC has agreed to represent the employee; or (d) the United States Government is a party to litigation or has an interest in such litigation, and by careful review, the FCC determines that the records are both relevant and necessary to the litigation, and the use of such records by the Department of Justice is for a purpose that is compatible with the purpose for which the FCC collected the records.
4. Adjudication—Records may be disclosed in a proceeding before a court
5. Congressional Inquiries—Information may be provided to a Congressional office in response to an inquiry from that Congressional office made at the written request of the individual to whom the information pertains.
6. Government-wide Program Management and Oversight—Information may be disclosed to DOJ to obtain that department's advice regarding disclosure obligations under the Freedom of Information Act (FOIA); or to the Office of Management and Budget (OMB) to obtain that office's advice regarding obligations under the Privacy Act.
7. Breach Notification—Records may be disclosed to appropriate agencies, entities, and persons when: (a) the Commission suspects or has confirmed that there has been a breach of the system of records; (b) the Commission has determined that as a result of the suspected or confirmed breach there is a risk of harm to individuals, the Commission (including its information system, programs, and operations), the Federal Government, or national security; and (c) the disclosure made to such agencies, entities, and persons is reasonably necessary to assist in connection with the Commission's efforts to respond to the suspected or confirmed breach or to prevent, minimize, or remedy such harm.
8. Assistance to Federal Agencies and Entities Related to Breaches—Records may be disclosed to another Federal agency or Federal entity, when the Commission determines that information from this system is reasonably necessary to assist the recipient agency or entity in: (a) Responding to a suspected or confirmed breach or (b) preventing, minimizing, or remedying the risk of harm to individuals, the recipient agency or entity (including its information systems, program, and operations), the Federal Government, or national security, resulting from a suspected or confirmed breach.
9. Non-Federal Personnel—Records may be disclosed to non-Federal personnel, including contractors, other vendors (
This an electronic system of records that resides on the FCC's network or on an FCC vendor's network.
Records in this system of records can be retrieved by any category field,
The information in this system is limited to electronic files, records, and data, which includes: (1) The information that pertains to current filing requirements; and (2) the information that pertains to historical records, which is used for archival purposes. National Archives and Records Administration (NARA) Records Schedule N1-173-86-2, authorizes permanent retention of original documents of information reported pursuant to 47 CFR 73.3526, 73.3527, 25.701, 25.702, and 76.1700 of the Commission's rules. EEO audit records are retained in accordance with NARA records schedule DAA-0173-2020-0003, EEO Audits. In the absence of a more specific NARA-approved records schedule, such as the schedule for EEO audits, any information in this system that is not covered by the agency records control schedule N1-173-86-2 will also be treated as permanent.
Access to the information,
Individuals wishing to request access to and/or amendment of records about themselves should follow the Notification Procedures below.
Individuals wishing to request access to and/or amendment of records about themselves should follow the Notification Procedures below.
Individuals wishing to determine whether this system of records contains information about themselves may do so by writing to
None.
77 FR 32111 (May 31, 2012).
Federal Communications Commission.
Notice and request for comments.
As part of its continuing effort to reduce paperwork burdens, and as required by the Paperwork Reduction Act (PRA) of 1995, the Federal Communications Commission (FCC or
Written PRA comments should be submitted on or before November 12, 2024. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, you should advise the contact listed below as soon as possible.
Direct all PRA comments to Nicole Ongele, FCC, via email
For additional information about the information collection, contact Nicole Ongele, (202) 418-2991.
10 a.m. on September 17, 2024.
This Board meeting will be open to public observation only by webcast. Visit
Observers requiring auxiliary aids (
Open to public observation via webcast.
The Federal Deposit Insurance Corporation's Board of Directors will meet to consider the following matters:
Final Statement of Policy on Bank Merger Transactions.
Minutes of a Board of Directors' Meeting Previously Distributed.
Summary reports, status reports, and reports of actions taken pursuant to authority delegated by the Board of Directors.
Direct requests for further information concerning the meeting to Debra A. Decker, Executive Secretary of the Corporation, at 202-898-8748.
The companies listed in this notice have applied to the Board for approval, pursuant to the Home Owners' Loan Act (12 U.S.C. 1461
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments received are subject to public disclosure. In general, comments received will be made available without change and will not be modified to remove personal or business information including confidential, contact, or other identifying information. Comments should not include any information such as confidential information that would not be appropriate for public disclosure.
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington, DC 20551-0001, not later than October 15, 2024.
1.
Board of Governors of the Federal Reserve System.
The notificants listed below have applied under the Change in Bank Control Act (Act) (12 U.S.C. 1817(j)) and 225.41 of the Board's Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the applications are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)).
The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board's Freedom of Information Office at
Comments received are subject to public disclosure. In general, comments received will be made available without change and will not be modified to remove personal or business information including confidential, contact, or other identifying information. Comments should not include any information such as confidential information that would not be appropriate for public disclosure.
Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington, DC 20551-0001, not later than September 30, 2024.
1.
1.
Board of Governors of the Federal Reserve System.
Federal Trade Commission.
Announcement of petition; request for comment.
Cooperativa de Farmacias Puertorriqueñas (“Coopharma” or “the company”) has requested that the Federal Trade Commission (“FTC” or “Commission”) reopen and set aside or modify the Commission's Decision and Order entered on November 6, 2012 (the “Order”), concerning allegations of agreements among Coopharma's member pharmacies to fix prices with insurers and PBMs. The company requests that the FTC either modify or rescind the order given changes in both the applicable law as well as competitive conditions in the relevant marketplace. Publication of the petition from Coopharma is not intended to affect the legal status of the petition or its final disposition.
Comments must be received on or before October 15, 2024.
Interested parties may file comments online or on paper, by following the instructions in the Request for Comment part of the
Maribeth Petrizzi (202-326-2564), Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Avenue NW, Washington, DC 20580.
Pursuant to section 6(g) of the Federal Trade Commission Act, 15 U.S.C. 46(g), and FTC Rule 2.51, 16 CFR 2.51, notice is hereby given that the above-captioned petition has been filed with the Secretary of the Commission and is being placed on the public record for a period of 30 days. After the period for public comments has expired and no later than one hundred and twenty (120) days after the date of the filing of the request, the Commission shall determine whether to reopen the proceeding and modify or set aside the
The text of petition is provided below. An electronic copy of the filed petition and the exhibits attached to it can be obtained from the FTC website at this web address:
You can file a comment online or on paper. For the Commission to consider your comment, we must receive it on or before October 15, 2024. Write “Coopharma Petition to Reopen; Docket No. C-4374” on your comment. Your comment—including your name and your State—will be placed on the public record of this proceeding, including, to the extent practicable, on the
Because of the agency's heightened security screening, postal mail addressed to the Commission will be subject to delay. We strongly encourage you to submit your comments online through the
Because your comment will be placed on the publicly accessible website at
Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with FTC Rule 4.9(c). In particular, the written request for confidential treatment that accompanies the comment must include the factual and legal basis for the request and must identify the specific portions of the comment to be withheld from the public record.
Visit the FTC website at
Cooperativa de Farmacias Puertorriqueñas (“Coopharma”) is currently a party to a Decision and Order, dated November 6, 2012 (the “Order”). We write to petition the Commission to reopen and set aside or modify the Order. As set forth below, there has been a significant change in the law. The Puerto Rico Legislature passed Act 228, which was signed into law by the Governor on December 15, 2015. Act 228 directly impacts the underlying conduct on which the Federal Trade Commission (“the Commission”) based its Complaint against, and Order directed to, Coopharma. The Commission has previously recognized that Act 228 is the appropriate vehicle pursuant to which health care provider cooperatives can conduct collective negotiations with third party payors, and there is now State oversight of such negotiations in place by a designated government body that has issued relevant regulations. Accordingly, in light of the change of law, factual and market changes and their impact on the public interest, and the Commission's own rescission of prior guidance as to Pharmacy Benefit Managers (“PBMs”), the Order is unnecessary and inequitable. We, thus hereby, request that the Commission grant this Petition and reopen and set aside the Coopharma Order.
It is important to understand the backdrop in which Coopharma operates, which is unique from other pharmacy groups or associations in the United States. Because Puerto Rico is a small economy, the Commonwealth encourages the development of non-profit business cooperatives. The Puerto Rican Cooperative Movement is a “socioeconomic system which pursues the enfranchisement of human beings and their integrated betterment through economic justice and social cooperation. A cooperative is an autonomous association of persons who have united voluntarily to address their common economic, social and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.”
Puerto Rico has a rich history of creating small business cooperatives and the government has taken numerous actions to foster their development. In 1994, Puerto Rico enacted Act No. 50
Act 239 articulates an unambiguous legislative intent to create and improve the legal framework in support of continued development of Puerto Rican cooperatives: “the Cooperative Movement constitutes an integral piece and a stronghold for the economic and social development of the Island, for which reason, the growth and the strengthening of the cooperative movement in Puerto Rico is highly invested with public interest.”
Puerto Rican law also provides a comprehensive framework for the regulation and oversight of cooperatives in Puerto Rico. Act 239, as amended by Act 247,
Coopharma was formed in 2002 as a cooperative regulated under Act 239.
Coopharma is a cooperative in every sense of the word. It is a non-profit organization whose membership is entirely composed of community pharmacy owners.
The Consent Order has limited the ability of many independent pharmacies across the Island to obtain favorable contracting terms, leading to many pharmacies being forced out of business.
The majority of Puerto Rican pharmacies, including Coopharma members, are set in rural locations with relatively unsophisticated sole proprietors who lack the knowledge and time to decipher these complex agreements.
Unfortunately, the Order has limited the ability of many of Coopharma's independent pharmacy members across the Island to obtain just contracting terms, leading to many pharmacies
Moreover, the Commission is very familiar with the tactics that PBMs use to undermine the competitiveness of independent pharmacies. The Commission's on-going 6(b) study of PBMs explicitly recognizes that:
The largest PBMs are now vertically integrated with the largest health insurance companies and wholly owned mail order and specialty pharmacies. Those who own competing pharmacies have complained that PBMs impose unfair fees and clawbacks, impose byzantine contracts that often reimburse pharmacies less than their costs of acquisition, and steer patients to PBM-owned pharmacies. PBMs have also been accused of harming patients by extracting rebates and fees in exchange for refusing to cover generic and biosimilar drug products, ultimately raising the price that consumers pay for medicines. Doctors have also complained that PBMs impose unnecessary and burdensome prior authorization and other administrative requirements.
The Complaint in this matter was based on assertions that the Commission believed to be true at the time that, because Coopharma described itself as the “biggest chain of pharmacies in all of Puerto Rico,” it therefore had significant market power to “force Humana to maintain rates.”
A 2023 health market study commissioned by the Office of the Insurance Commissioner of Puerto Rico showed that the Herfindahl-Hirschman index (HHI)
Since October 2022, only one PBM, Abarca Health (“Abarca”), provides services to the majority of this vast insured population in the Island under the Medicare health insurance plan called Plan Vital, which is managed by the Puerto Rico Health Insurance Administration ((“PRHIA”), commonly referred to as Administración de Seguros de Salud (“ASES”) in Spanish).
Through Plan Vital, the same PBM provides management services for the second largest Medicare Advantage Organization (“MAO”).
By way of brief background, in August 2012, the Commission, via a Complaint against Coopharma, alleged a violation of section 5 of the Federal Trade Commission Act, as amended 15 U.S.C. 45. More specifically, the Commission alleged that Coopharma acted to fix prices in negotiations with certain third-party payors, including collectively negotiating contracts and contracting jointly. In order to save the time, expense and burden of an Adjudicative Proceeding, Coopharma elected to enter into the Order.
The Order, in pertinent part, requires Coopharma to refrain from engaging in the following activities:
A. Entering into, adhering to, participating in, maintaining, organizing, implementing, enforcing, or otherwise facilitating any combination, conspiracy, agreement, or understanding between or among any Pharmacies with respect to the provision of Pharmacy services:
1. To negotiate on behalf of any Pharmacy with any Payer;
2. To refuse to deal or threaten to refuse to deal with any Payer, in furtherance of any conduct or agreement that is prohibited by any other provision of Paragraph II of this Order;
3. Regarding any term, condition, or requirement upon which any Pharmacy deals, or is willing to deal, with any Payer, including, but not limited to, price terms; or
4. Not to deal individually with any Payer, or not to deal with any Payer other than through Respondent;
B. Exchanging or facilitating in any manner the exchange or transfer of information among Pharmacies concerning any Pharmacy's willingness to deal with a Payer, or the terms or conditions, including price terms, on which the Pharmacy is willing to deal with a Payer;
C. Attempting to engage in any action prohibited by Paragraphs II.A through II.B above; and
D. Encouraging, suggesting, advising, pressuring, inducing, or attempting to induce any Person to engage in any action that would be prohibited by Paragraphs II.A through II.C above.
The provisions of this Order prevent the above-listed actions for twenty (20) years, terminating on November 6, 2032.
For the reasons described below, Coopharma requests the following relief:
1. That the Order be set aside in its entirety;
2. Or, in the alternative, that the Order be amended to permit Coopharma to collectively negotiate contracts with PBMs and other third party payors consistent with Act 228.
If the preceding relief is not granted, Coopharma requests in the alternative such relief as the Commission may deem fitting and just.
According to the FTC Act section 5(b), 15 U.S.C. 45(b), the Commission may at any time “reopen and alter, modify, or set aside, in whole or in part any report or order made or issued by it under this section, whenever in the opinion of the Commission conditions of fact or of law have so changed as to require such action or if the public interest shall so require.”
To show that public interest requires a change to an existing Order, “the burden is on the petitioner to make a `satisfactory showing' of a prima facie case that modification is in the public interest.”
In 2015, three (3) years after the entry of the Order, the Puerto Rico Legislature passed Act 228, which became law on December 15, 2015, and is codified at 26 P.R. Laws §§ 3101-3108 (“Act 228”). The Legislature's desire to pass Act 228 was heightened by its recognition that it was becoming increasingly more difficult for Health Care Provider Cooperatives across Puerto Rico, such as Coopharma, to obtain fair contracting terms with, often much larger, and more sophisticated payors.
According to the Preamble of Act 228, Health Service Provider Cooperatives, which include cooperatives of pharmacies, such as Coopharma, were never meant to be “considered as an organized instrument to reduce competition of any kind, but rather to carry out lawful activities for the benefit of customers and other entities in the market.”
Act 228 specifically recognized the need to amend Act 239 to implement additional language to “fully comply with the Doctrine of State Immunity” (also referred to as the State Action Doctrine), established in
As explained above, Act 239, as amended by Act 247, provides the Corporación para la Supervisión y Seguro de Cooperativas de Puerto Rico (“COSSEC”), a regulatory body, with the authority to oversee, supervise and otherwise regulate the creation and operations of cooperatives.
In support of its role in setting regulations and engaging in oversight of Coopharma and all other cooperatives in Puerto Rico, in particular after the change in law, COSSEC Executive President, Mabel Jiménez Miranda, signed an affidavit, dated April 4, 2024, which explains the role of COSSEC (referred to internally as the Corporation).
For the purpose of complying with the public policy of the Government of Puerto Rico, striking a balance in the negotiations between the HPCs, TAs and HSOs, and improving access and the quality of health care services to the patients of the Government of Puerto Rico, as well as exercising the oversight and supervision powers granted by Act No. 239, on February 5, 2020, the Board of Directors of THE CORPORATION approved the Regulation for the Supervision and Oversight of Collective Negotiations between Health Care Provider Cooperatives (HPCs) Third-party Administrators (TAs) and Health Care Services Organizations (HSOs), Regulation No. 9161, in order to establish the supervision and oversight procedures of THE CORPORATION on the activities and actions of HPCs during any negotiation process with HSOs and TAs.
As shown by this affidavit, COSSEC's oversight over Coopharma is established and it has issued Regulation No. 9161 for the governance of the cooperative's actions in negotiating with PBMs. This change in law is a significant deviation from the legal scheme under which the Order was issued, and warrants reopening and review of the Order.
The Order was based in part on the Commission's concerns that there was a lack of oversight such that the State Action Doctrine could not apply.
The “Purpose and Scope” of Regulation 9161 now in place provides that:
In the exercise of its functions, COSSEC will ensure that, in and during the negotiation process, a balance permeates the negotiations between the parties, in such a way as to improve access and quality of health services to patients in the Government of Puerto Rico. Specifically, that the [Cooperatives of Health Service Providers] fully comply with all the requirements of the cooperative order and that promote the public policy of the Government of Puerto Rico for the benefit of the orderly development of cooperativism as a business model.
Moreover, the regulation provides for “controls and procedures to avoid” and provides COSSEC with the authority to “investigate and prosecute illicit practices under collective bargaining authorized by the Subchapter 20A of Act No. 239-2004, as amended.”
Here, it is clear from the language of the regulation that, not only is there a specific scheme and procedures in place for COSSEC to actively monitor and be engaged in the process of collective negotiations between Health Care Provider Cooperatives and third party payors, but also that COSSEC is actively overseeing such negotiations—namely, the type of negotiations in which Coopharma would engage with PBMs and third party payors. This comports with the standard set forth by the Supreme Court in
That detailed structure of COSSEC's active oversight of all negotiations by healthcare cooperatives is clear from the language of Regulation No. 9161. Under the regulation, healthcare cooperatives must follow strict procedures and notify COSSEC of their intention to negotiate.
In addition to laying out this formula for fees, which alone could satisfy the active supervision prong of the Midcal test, the regulation creates a seven-member Supervisory Committee, which is comprised of representatives from the Department of Health, the Patient Ombudsman, health insurance companies, third-party administrators, cooperatives, an economist who is a certified actuary, and a COSSEC representative.
The regulation also outlines how the Supervisory Committee must evaluate the reports and how it should assess the final report to accept, deny, or request amendments to it.
It is clear from the foregoing that the change in the law has altered the analysis of Coopharma's collective negotiation activity in a substantial and legally significant way. Any concerns that the Commission had about a lack of oversight are clearly addressed by Act 228 and Regulation No. 9161. Moreover, absent the relief requested, Coopharma will be left in the proverbial “competitive dust” of other similar entities across Puerto Rico. Those entities unaffiliated with Coopharma and, therefore, unbound by the Commission Order, can take advantage of the ability to collectively negotiate contracts with the same payors that Coopharma cannot. This inequity should now be rectified by further Commission action to set aside the Order.
In addition to the change in law described above, the market dynamics concerning PBMs have shifted significantly since twelve (12) years ago when the Order was imposed. In 2012, there was a host of guidance, reports, studies and letters authored by the Commission in support of the supposed “procompetitive” impact of PBMs. The policy of such support for PBMs has since been overturned.
The FTC is now pursuing an inquiry into the PBM industry, one that is designed to capture and detail the current realities on the ground in this complex marketplace. While we finalize our market study, we urge the public not to continue to cite or rely on these outdated comments, reports, and studies. It is important that the FTC's work reflect current market dynamics. I am pleased that the FTC is alerting the public to the risks of relying on earlier work based on outdated market conditions and assumptions.
This inquiry into the PBM industry by the Commission is in conjunction with increased State and Federal government investigation into PBMs, spurred by independent reporting on the fact that there has been a substantial change in the healthcare/pharmaceutical and health insurance marketplace in the last 10 years.
The “public interest” presumptively favors competition, and restraints on competition harm the public interest by depriving consumers of the benefits of competition including for example, lower prices, better products and increased innovation. A Commission order that restrains competition will be in the public interest only if, and to the extent that, the benefits of preventing or deterring relevant anticompetitive activity outweigh the losses to competition and consumers cause by the restraint.
And in
The public interest dictates that the Order be reopened and set aside. The Preamble to Act 228 states that its purpose is to authorize Health Service Provider Cooperatives to negotiate collectively with [third-party payors] to prevent the current system of imbalanced negotiations, resulting in contracts of adhesion. The Legislature stated that this was intended to “improve access and quality of health services to patients in the Commonwealth of Puerto Rico.”
Puerto Rico suffers from poor health care infrastructure and a rapidly declining health care workforce, rendering the delivery of health care in Puerto Rico severely compromised.
Pharmacy advocacy groups such as the National Community Pharmacists Association (“NCPA”) are sounding the alarm about the changing pharmaceutical market and the market power associated with independent pharmacists.
In locations where there are very few providers, such as Puerto Rico, the impact of the profit margin growth for PBMs and significantly smaller profits for pharmacies is a dire issue indeed. Although Puerto Rico has a unique infrastructure, as described above, it is also akin to a rural location in the mainland United States. As early as 2016, the then-President and Executive Director of the Puerto Rico Community Pharmacies Association, Idalia Bonilla and Marylis Gavillán Cruz, respectively, drafted a letter to Senator Orrin Hatch, Member of the United States Senate's Economic Development Task Force and Jose B. Carrión III, President of Puerto Rico's Financial Oversight and Management Board, to express interest in providing assistance to the Task Force in identifying “ways and means of providing Puerto Rico equitable access to federal health care programs.”
An analysis by the Rural Policy Research Institute (“RUPRI”) Center for Rural Health Policy analysis of data collected by the National Council for Prescription Drug Programs on pharmacies in the United States from 2003 to 2021 supports the conclusion that PBMs have been harmful to independent, and particularly rural, pharmacies.
Moreover, government entities at both the State and Federal levels, including the Commission, the Centers for Medicare and Medicaid, and Congress, have recognized the shift in market status/market share for PBMs and the oversized impact and bargaining power they wield, as well as recognizing the increases in consumer pricing resulting from it.
The Commission's own precedent supports taking action to reopen and set aside the Order in this case. In
TRU had market power as a buyer and distributor of toys. TRU has demonstrated that it no longer has market power as a buyer of toys. Walmart and Target have overtaken TRU in competitive strength and market share. TRU has submitted data showing that TRU's loss of competitive position is consistent across product categories.
Moreover, it changed the record keeping requirements based on a recognition of the “changes in market conditions.”
Further, the Commission has granted petitions to set aside or modify orders where such orders impose a competitive disadvantages on firms that impairs their ability to offer full, vigorous competition. For example, in the matter regarding
Additionally, the Commission has modified and set aside orders where the order imposes restrictions to that party
The legal, factual, and market changes described herein are sufficient to meet the Commission's standard to reopen and modify or set aside the Order. First, as stated above, the significant change in law with the enactment of Act 228, in and of itself warrants a modification of the Order. While the Commission recognized, at the time of the Complaint, the applicability of the State Action Doctrine, which Coopharma whole-heartedly believed applied to its conduct given the regulatory scheme of Act 239 and the oversight of cooperative activities by COSSEC,
Second, the public interest also dictates that the Commission reopen and set aside the Order as a result of the changes in the pharmaceutical market and PBMs' increased market share, which has led to multiple government investigations. Federal and State government entities are currently investigating PBMs' vertical integration and market share consolidation as well as their heavy handed policies and contract terms, which have already forced many independent pharmacies out of business entirely.
In the foregoing paragraphs, Coopharma has provided verified information, which shows PBMs' and individual health insurance companies' unprecedented and outsized accumulation and concentration of market power. This market imbalance has placed Coopharma's members, primarily small, rural businesses, in a unique and precarious position given that the Order's restrictions on negotiations are still in place.
Without the ability to negotiate with PBMs due to the Order, Coopharma also stands at a direct competitive disadvantage to all other entities within Puerto Rico that can, and have, taken advantage of Act 228 to “improve access and quality of health services to patients in the Commonwealth of Puerto Rico. The ability of Puerto Rican independent pharmacies to continue to provide life-sustaining care depends on their ability to collectively negotiate as a cooperative—negotiations which are now regulated and overseen by a State government agency.
For the foregoing reasons, the Commission should reopen and set aside the Consent Order and enter an order in the form attached dismissing the Complaint with prejudice. In the alternative, to the extent the Commission determines that only modification is required, it should amend the order to permit Coopharma to engage in negotiations on behalf of its members with third party payors consistent with Act 228.
Dated: August 7, 2024
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Request for comment.
The National Institute for Occupational Safety and Health (NIOSH) in the Centers for Disease Control and Prevention (CDC), an Operating Division of the Department of Health and Human Services (HHS), requests public comment and technical review on the draft Hazard Review: Wildland Fire Smoke Exposure Among Farmworkers and Other Outdoor Workers.
Electronic or written comments must be received by November 12, 2024.
You may submit comments, identified by docket number CDC-2024-0065 and docket number NIOSH-352-A, by either of the following methods:
•
•
R. Todd Niemeier, Ph.D., National Institute for Occupational Safety and Health, MS-C15, 1090 Tusculum Avenue, Cincinnati, OH 45226. Telephone: (513) 533-8166.
NIOSH is requesting public comment and technical review of the draft Hazard Review: Wildland Fire Smoke Exposure Among Farmworkers and Other Outdoor Workers, which is accessible in the docket (CDC-2024-0065; NIOSH-352-A). The final document will be edited, so comments that focus on the technical content are requested. The final document will be used as the scientific evidence base to inform the development of supplementary educational materials for workers, employers, and other relevant audiences to support the implementation of the recommendations. Therefore, comments that focus on the understandability, accessibility, and feasibility of the recommendations are requested. To facilitate the review of this document, NIOSH requests that responses to the following specific questions be considered:
1. How could the outdoor worker populations who may be exposed to wildland fire smoke be more completely characterized in Chapter 2? Please provide supporting references.
2. How could this document better identify and characterize the health hazards of exposures to wildland fire smoke based on the available scientific literature in Chapter 3? Is there additional scientific information to be considered regarding the adverse health endpoints associated with exposure to wildland fire smoke? Please provide scientific references to support your response as necessary.
3. What additional information should NIOSH consider adding or how should NIOSH modify the discussion of exposure assessment methods for wildland fire smoke (based on PM
4. How can the recommendation in Chapter 4 to use the air quality index (AQI) for PM
5. What additional information should NIOSH consider to improve the strategies identified in Chapter 5 for controlling exposure to wildland fire smoke (
6. Do the recommendations in Chapter 5 adequately address the protection of potentially disadvantaged or at-risk outdoor workers, such as persons with pre-existing health conditions (
7. How could the recommendations in Chapter 5 better address accessibility and feasibility for outdoor workers and employers?
8. What are the potential barriers to the understandability of the recommendations in Chapter 5 for outdoor workers and employers? When developing supplementary educational materials to support the implementation of these recommendations, how can NIOSH best address those barriers?
9. What other research needs should be considered in addition to those included in Chapter 6, Research Needs? Please provide a scientific justification for additional research needs.
The draft Hazard Review was developed to provide the scientific rationale for characterizing hazards of exposure to wildland fire smoke for outdoor workers. The draft Hazard Review also provides recommendations and guidance for minimizing exposures and potential health effects associated with wildland fire smoke for outdoor workers.
After the comments received on the draft Hazard Review are considered and addressed, the final Hazard Review will be posted on the NIOSH website.
Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (HHS).
Notice.
The Centers for Disease Control and Prevention (CDC), located within the Department of Health and Human Services (HHS), announces the award of approximately $4,450,000, for Year 1 funding to Northwestern Provincial Health Office (NWPHO) in Zambia. The award will provide NWPHO with CDC Technical Assistance and financial support to maintain and sustain the province's overall oversight and quality assurance for the implementation of high-impact HIV combination prevention, treatment, and support services, including clinical, surveillance, and laboratory services as well as to identify and mitigate emerging disease threats for people
The period for this award will be January 1, 2025, through September 29, 2029.
Vance Brown, Global Health Center, Centers for Disease Control and Prevention, 351 Independence Avenue, P.O Box 320065, Lusaka, Zambia, Telephone: +260-761-428-720, email:
The sole source award will support the Zambian Ministry of Health (MOH) to achieve and sustain HIV epidemic control gains by providing programmatic oversight, coordination, and direct service delivery in the provision of comprehensive HIV/TB prevention, treatment, and support services, while strengthening health systems for sustainability.
NWPHO is the only entity that can carry out this work, as it is the sole government institution with the mandate to support the health service delivery through capacity building, systems strengthening and oversight for HIV program implementation for the population of the Northwestern Province (NWP) of Zambia by the National Public Health Act of Zambia. NWPHO has been actively implementing PEPFAR programs through support provided by USG-awarded implementing partners funded by USAID. The government-to-government award is only possible to be executed with NWPHO as the registered sub-national provincial health authority in NWP Zambia.
Centers for Medicare & Medicaid Services (CMS), Department of Health and Human Services (HHS).
Notice of meeting.
This notice announces a town hall meeting in accordance with the Social Security Act (the Act) to discuss fiscal year (FY) 2026 applications for add-on payments for new medical services and technologies under the hospital inpatient prospective payment system (IPPS). Interested parties are invited to this virtual meeting to present their comments, recommendations, and data regarding whether the FY 2026 new medical services and technologies applications meet the substantial clinical improvement criterion.
Drew Kasper, (410) 786-8926,
Effective for discharges beginning on or after October 1, 2001, section 1886(d)(5)(K)(i) of the Act requires the Secretary to establish (after notice and opportunity for public comment) a mechanism to recognize the costs of new services and technologies under the hospital inpatient prospective payment system (IPPS). In addition, section 1886(d)(5)(K)(vi) of the Act specifies that a medical service or technology will be considered “new” if it meets criteria established by the Secretary (after notice and opportunity for public comment). For further discussion on the new technology add-on payment criteria, we refer readers to the new technology add-on payment final rule (66 FR 46912, September 7, 2001), as well as the FY 2012 IPPS/LTCH PPS final rule (76 FR 51572 through 51574), the FY 2020 IPPS/LTCH PPS final rule (84 FR 42288 through 42300), and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58736 through 58742).
As finalized in the FY 2020 and FY 2021 IPPS/LTCH PPS final rules, technologies which are eligible for the alternative new technology pathway for transformative new devices or the alternative new technology pathway for certain antimicrobials do not need to meet the requirement under 42 CFR 412.87(b)(1) that the technology represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. These medical devices or products will also be considered not substantially similar to an existing technology for purposes of new technology add-on payment under the IPPS. See the FY 2020 IPPS/LTCH PPS final rule (84 FR 42292 through 42297) and the FY 2021 IPPS/LTCH PPS final rule (85 FR 58737 through 58739) for additional information.
In the FY 2020 IPPS/LTCH PPS final rule (84 FR 42289 through 42292), we codified in our regulations at § 412.87 the following aspects of how we evaluate substantial clinical improvement for purposes of new technology add-on payments under the IPPS to determine if a new technology meets the substantial clinical improvement requirement:
• The totality of the circumstances is considered when making a determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries.
• A determination that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries means—
++ The new medical service or technology offers a treatment option for a patient population unresponsive to, or ineligible for, currently available treatments;
++ The new medical service or technology offers the ability to diagnose a medical condition in a patient population where that medical condition is currently undetectable or offers the ability to diagnose a medical condition earlier in a patient population than allowed by currently available methods, and there must also be evidence that use of the new medical service or technology to make a diagnosis affects the management of the patient; or
++ The use of the new medical service or technology significantly improves clinical outcomes relative to services or technologies previously available as demonstrated by one or more of the following:
++ The totality of the circumstances otherwise demonstrates that the new medical service or technology substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries.
• Evidence from the following published or unpublished information sources from within the United States or elsewhere may be sufficient to establish that a new medical service or technology represents an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of Medicare beneficiaries: Clinical trials, peer reviewed journal articles; study results; meta-analyses; consensus statements; white papers; patient surveys; case studies; reports; systematic literature reviews; letters from major healthcare associations; editorials and letters to the editor; and public comments. Other appropriate information sources may be considered.
• The medical condition diagnosed or treated by the new medical service or technology may have a low prevalence among Medicare beneficiaries.
• The new medical service or technology may represent an advance that substantially improves, relative to services or technologies previously available, the diagnosis or treatment of a subpopulation of patients with the medical condition diagnosed or treated by the new medical service or technology.
Section 1886(d)(5)(K)(viii) of the Act requires that as part of the process for evaluating new medical services and technology applications, the Secretary shall do the following:
• Provide for public input regarding whether a new service or technology represents an advance in medical technology that substantially improves the diagnosis or treatment of Medicare beneficiaries before publication of a proposed rule.
• Make public and periodically update a list of all the services and technologies for which an application is pending.
• Accept comments, recommendations, and data from the public regarding whether the service or technology represents a substantial improvement.
• Provide for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data to the clinical staff of CMS as to whether the service or technology represents a substantial improvement before publication of a proposed rule.
The opinions and presentations provided during this meeting will assist us as we evaluate the new medical services and technology applications for FY 2026.
As noted in section I. of this notice, we are required to provide for a meeting at which organizations representing hospitals, physicians, manufacturers, and any other interested party may present comments, recommendations, and data to the clinical staff of CMS concerning whether the service or technology represents a substantial clinical improvement. This meeting will allow for a discussion of the substantial clinical improvement criterion for the FY 2026 applications for new technology add-on payments. Information regarding the applications can be found on our website at
The majority of the meeting will be reserved for presentations of comments, recommendations, and data from registered presenters. The time for each presentation will be approximately 10 minutes, with additional time reserved for questions, and will be based on the number of presentations. Individuals who would like to present must register and submit their agenda item(s) via email to
Depending on the number of presentations, we will determine if a second meeting day is necessary. The final schedule for the New Technology Town Hall meeting will be posted on the CMS website at
In addition, written comments will also be accepted and presented at the meeting if they are received via email to
As noted previously, the New Technology Town Hall meeting will be held virtually. There will be an option to participate in the New Technology Town Hall Meeting via webinar and a toll-free teleconference phone line. Information on the option to participate via webinar and a teleconference dial-in will be provided through an upcoming listserv/email notice to registrants and will appear on the final meeting agenda, which will be posted on the New Technology website at:
We cannot guarantee reliability for a webinar.
The Division of New Technology in CMS is coordinating the meeting registration for the New Technology Town Hall meeting on substantial clinical improvement. While there is no registration fee, individuals planning to present at the New Technology Town Hall meeting must register to present.
Registration for presenters may be completed by sending an email to
Registration for attendees not presenting at the meeting is not required.
This document does not impose information collection requirements, that is, reporting, recordkeeping, or third-party disclosure requirements. Consequently, there is no need for review by the Office of Management and Budget under the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35).
The Administrator of the Centers for Medicare & Medicaid Services (CMS), Chiquita Brooks-LaSure, having reviewed and approved this document, authorizes Chyana Woodyard, who is the Federal Register Liaison, to electronically sign this document for purposes of publication in the
Children's Bureau (CB), Administration for Children and Families (ACF), Department of Health and Human Services (HHS).
Notice of Issuance of a within scope awarding agency-initiated non-competitive supplement with extension.
The ACF, ACYF, CB, Division of Capacity Building announces the intent to award a within scope awarding agency-initiated non-competitive supplement with extension in the amount of up to $1,600,000, to the American Public Human Services Association for its affiliate the Association of Administrators of the Interstate Compact on the Placement of Children (AAICPC) in Washington, DC, for the further implementation and support nationally of the National Electronic Interstate Compact Enterprise (NEICE) system. The NEICE is an inter-jurisdictional electronic system to improve administrative efficiency in implementing the Interstate Compact on the Placement of Children (ICPC), a process that ensures safe and suitable interstate placements for children in foster care.
The proposed period of performance is September 30, 2024, through September 29, 2025.
June Dorn, National Adoption Specialist, Children's Bureau, Division of Capacity Building, 330 C St. SW, Suite 3521B, Washington, DC 20201. Telephone: (202) 205-9240; Email:
Award funds will support the continued
It is CB's intention to provide funding of up to $1,600,000 beginning September 30, 2024. The state members of the AAICPC contribute annual membership and connection fees; however, these are currently not adequate to meet the full operational costs of managing the national system. The APHSA is well-positioned to continue to scale the project nationally and to assure the continued optimal maintenance of the NEICE.
Food and Drug Administration, HHS.
Notice; establishment of a public docket; request for comments.
The Food and Drug Administration (FDA) announces a forthcoming public advisory committee meeting of the General and Plastic Surgery Devices Panel of the Medical Devices Advisory Committee (the Committee). The general function of the Committee is to provide advice and recommendations to the Agency on FDA's regulatory issues. The meeting will be open to the public. FDA is establishing a docket for public comment on this document.
The meeting will be held on November 7, 2024, from 9 a.m. to 6 p.m. eastern time.
Holiday Inn Gaithersburg, Two Montgomery Village Ave., Gaithersburg, MD 20879. The hotel's telephone number is 301-948-8900. The hotel's link can be found at:
Answers to commonly asked questions about FDA advisory committee meetings may be accessed at:
FDA is establishing a docket for public comment on this meeting. The docket number is FDA-2024-N-4057. The docket will close on December 9, 2024. Please note that late, untimely filed comments will not be considered. The
Comments received on or before October 17, 2024, will be provided to the Committee. Comments received after that date will be taken into consideration by FDA. In the event that the meeting is cancelled, FDA will continue to evaluate any relevant applications or information, and consider any comments submitted to the docket, as appropriate.
You may submit comments as follows:
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” FDA will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Candace Nalls, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 5214, Silver Spring, MD 20993-0002, 301-636-0510,
FDA intends to make background material available to the public no later than 2 business days before the meeting. If FDA is unable to post the background material on its website prior to the meeting, the background material will be made publicly available on FDA's website at the time of the advisory committee meeting, and the background material will be posted on FDA's website after the meeting. Background material will be available at the location of the advisory committee meeting and at
For press inquiries, please contact the Office of Media Affairs at
FDA welcomes the attendance of the public at its advisory committee meetings and will make every effort to accommodate persons with disabilities. If you require accommodations due to a disability, please contact Ann Marie Williams at
FDA is committed to the orderly conduct of its advisory committee meetings. Please visit our website at
Notice of this meeting is given under the Federal Advisory Committee Act (5 U.S.C. 1001
Food and Drug Administration, HHS.
Notice; request for comments.
The Food and Drug Administration (FDA, Agency, or we) is seeking public comments on the “New Drugs Regulatory Program Modernization: Integrated Assessment of Marketing Applications and Integrated Review Documentation.” The purpose is to seek public comments/feedback on the Integrated Review documentation generated by the Integrated Assessment of Marketing Applications for new drug products developed as part of the New Drugs Regulatory Program Modernization. The Agency hopes to receive public feedback on how this Integrated Review documentation can continue supporting our stakeholders' needs.
Submit either electronic or written comments on the notice by December 12, 2024.
You may submit comments as follows. Please note that late, untimely filed comments will not be considered. The
Submit electronic comments in the following way:
•
• If you want to submit a comment with confidential information that you do not wish to be made available to the public, submit the comment as a written/paper submission and in the manner detailed (see “Written/Paper Submissions” and “Instructions”).
Submit written/paper submissions as follows:
•
• For written/paper comments submitted to the Dockets Management Staff, FDA will post your comment, as well as any attachments, except for information submitted, marked, and identified, as confidential, if submitted as detailed in “Instructions.”
• Confidential Submissions—To submit a comment with confidential information that you do not wish to be made publicly available, submit your comments only as a written/paper submission. You should submit two copies total. One copy will include the information you claim to be confidential with a heading or cover note that states “THIS DOCUMENT CONTAINS CONFIDENTIAL INFORMATION.” The Agency will review this copy, including the claimed confidential information, in its consideration of comments. The second copy, which will have the claimed confidential information redacted/blacked out, will be available for public viewing and posted on
Rhonda M. Hearns-Stewart, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 22, Rm. 6460, Silver Spring, MD 20993-0002, 240-402-3180,
The Integrated Assessment of Marketing Applications, which is part of FDA's New Drugs Regulatory Program Modernization, includes a new review template for the assessment and documentation of new drug product marketing applications (
This new Integrated Review document replaces the previous documentation, which included a separate review document authored by each discipline. It also replaces the multidisciplinary review (
The following guiding principles informed the Integrated Review documentation:
• The importance of conducting an issue-focused assessment,
• Enhanced communication within the review team, and
• Strong interdisciplinary collaboration.
The Integrated Review documentation template has three main components:
In general, the first two parts of the Integrated Review document are expected to provide a complete explanation of FDA's action and supporting analyses, with the third component (the additional analyses and information) providing additional detail on the comprehensive analyses FDA conducted in its review of the drug application. The target audiences for this document are diverse and include those with a specific interest in the application, such as the lay public, drug sponsors, researchers, and others who are seeking to understand the basis for FDA's decision.
As part of FDA's ongoing evaluation of the Integrated Review documentation, the Agency welcomes comments and any relevant information specific to the Integrated Review that stakeholders wish to share in a submission to the docket. However, we emphasize that the focus is to seek input that prioritizes feedback specifically on characteristics of the Integrated Review document. Please see information and examples relevant to the Integrated Review at
Furthermore, we anticipate that the most informative suggestions would not be specific to an indication, a therapeutic area, or a disease but rather apply across multiple indications, therapeutic areas, or diseases. The Agency is interested in receiving responses to the following questions/topics, in addition to any general comments the public might have. For convenience, it would be helpful if commenters refer to the numbered question and topic when submitting responses and comments.
1. We are interested in preserving for stakeholders what they find most useful in FDA reviews.
a. Comparing the Integrated Review to previous review documentation, is there any information you are having difficulty locating?
b. Are you able to use the Integrated Review for the same purpose that you used previous reviews? If not, please provide specific examples.
2. We are interested in specific recommendations about any areas of the Integrated Review documentation of the Integrated Assessment that can be improved to meet the needs of stakeholders.
3. We are interested in stakeholders' views regarding the advantages and disadvantages of an interdisciplinary assessment presentation of key review issues and the resultant integration of the assessments of multiple disciplines into a single Integrated Review document.
4. We would like to know whether the new format of the Integrated Review documentation for the Integrated Assessment provides clarity of benefit-risk assessments and informs your knowledge of FDA's basis for making decisions.
5. Based on the integrated review, were the issues that concerned the review team clear and understandable? If so, what helped achieve this? If not, what can be improved?
Food and Drug Administration, HHS.
Notice; correction.
The Food and Drug Administration (FDA) is correcting a notice that appeared in the
Martha Nguyen, Center for Drug Evaluation and Research, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 75, Rm. 1676, Silver Spring, MD 20993-0002, 301-796-3471,
In the
On page 52058, in the table, the entries for ANDA 076648 and ANDA 090723 are removed.
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Notice is hereby given of a change in the meeting of the Biomedical Research Study Section, October 29, 2024, 09:00 a.m. to October 29, 2024, 03:30 p.m.,
This notice is being amended to change the Meeting Scientific Review Officer from Dr. Anna Ghambaryan, M.D., Ph.D. to Dr. Mamatha Garige, Ph.D., Extramural Project Review Branch, National Institute on Alcohol Abuse and Alcoholism, National Institutes of Health, 6700B Rockledge Drive, Room 2118, Bethesda, MD, 20817, Phone: (301) 443-9737, Email:
Pursuant to section 1009 of the Federal Advisory Committee Act, as amended, notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
U.S. Coast Guard, Department of Homeland Security.
Notice; request for applications.
The Coast Guard is requesting applications to fill ten vacancies on the National Offshore Safety Advisory Committee (Committee). This Committee advises the Secretary of the Department of Homeland Security on matters relating to activities directly involved with, or in support of, the exploration of offshore mineral and non-mineral energy resources, to the extent that such matters are within the jurisdiction of the Coast Guard.
Your completed application should reach the U.S. Coast Guard on or before October 15, 2024.
Applications must include: (a) a cover letter expressing interest in an appointment to the National Offshore Safety Advisory Committee and detailing the applicants qualifications to serve as Special Government Employee representing the general public, and/or as a representative in one or more of the ten other membership positions, (b) a resume detailing the applicant's relevant experience for the position applied for, and (c) a brief 2-3 paragraph biography written in third person. Applications should be submitted via email with subject line “NOSAC Vacancy Application” to
Mr. Patrick W. Clark, Designated Federal Officer of the National Offshore Safety Advisory Committee; telephone 571-607-8236; or email at
The National Offshore Safety Advisory Committee is a Federal advisory committee. The Committee was established on December 4, 2018, by section 601 of the
The Committee provides advice and recommendations to the Secretary of Homeland Security on matters relating to activities directly involved with, or in support of, the exploration of offshore mineral and non-mineral energy resources, to the extent that such matters are within the jurisdiction of the U.S. Coast Guard.
The Committee is required to meet at least once a year in accordance with 46 U.S.C. 15109(a). We expect the Committee to meet at least twice a year, but it may meet more frequently. The meetings are generally held in Houston, Texas and New Orleans, Louisiana.
Under provisions in 46 U.S.C. 15109(f)(6), if you are appointed as a member of the Committee, your membership term will expire on December 31st of the third full year after the effective date of your appointment. Under provisions in 46 U.S.C. 15109(f)(4) the Secretary of Homeland Security may require an individual to have passed an appropriate security background examination before appointment to the Committee. All members serve at their own expense and receive no salary or other compensation from the Federal Government.
If you are appointed as a member of the Committee, you will be required to sign a Non-Disclosure Agreement and a Gratuitous Services Agreement.
In this solicitation for Committee Members, we will consider applications for the following ten positions:
(a) Two members representing entities engaged in the production of petroleum. (Two of two positions are open).
(b) One member representing entities engaged in offshore drilling. (One of two positions is open).
(c) One member representing entities engaged in the support, by offshore supply vessels or other vessels, of offshore mineral and oil operations, including geophysical services. (One of two positions is open).
(d) One member representing entities engaged in diving services related to offshore construction, inspection, and maintenance.
(e) One member representing entities engaged in safety and training services related to offshore exploration and construction.
(f) One member representing entities providing subsea engineering construction or remotely operated vehicle support to the offshore industry.
(g) One member representing entities individuals employed in offshore operations and, of the two, one shall have recent practical experience on a vessel or offshore unit involved in the offshore mineral and energy industry. (One of two positions are open).
(h) One member representing national environmental entities and entities providing environmental protection, compliance, or response services to the offshore industry.
(i) One member representing the general public (but not a specific environmental group).
The members who will fill positions (a) through (h) as described above will be appointed to represent the interest of their respective groups and viewpoints and are not Special Government Employees as defined in 18 U.S.C. 202(a).
If you are selected to fill position (i) as described above, as a member drawn from the general public, you will be appointed and serve as a Special Government Employee as defined in 18 U.S.C. 202(a). Applicants for appointment as a Special Government Employee are required to complete a Confidential Financial Disclosure Report (OGE Form 450) for new entrants and if appointed as a member must submit OGE Form 450 annually. The U.S. Coast Guard may not release the reports or the information in them to the public except under an order issued by a Federal Court or as otherwise provided under the
Registered lobbyists are not eligible to serve on Federal Advisory Committees in an individual capacity. See “
In order for the Department, to fully leverage broad-ranging experience and education, the National Offshore Safety Advisory Committee must be diverse with regard to professional and technical expertise. The Department is committed to pursuing opportunities, consistent with applicable law, to compose a committee that reflects the diversity of the Nation's people.
If you are interested in applying to become a member of the Committee,
Applications for members who will serve to represent the general public must be accompanied by a completed OGE Form 450. Once we receive your application we will send you an email confirming receipt.
The U.S. Coast Guard will not consider incomplete or late applications.
Privacy Office, Department of Homeland Security (DHS).
Committee management; notice of open Federal advisory committee meeting.
The DHS Data Privacy and Integrity Advisory Committee will meet on Thursday, October 17, 2024, via virtual conference. The meeting will be open to the public. There will be a listening session related to the November 2023 tasking to the Committee.
The DHS Data Privacy and Integrity Advisory Committee will conduct a meeting on Thursday, October 17, 2024, from 1:30 p.m. to 4:30 p.m. EDT. The virtual meeting may end early if the Committee has completed its business.
The meeting will be held via a virtual forum (conference information will be posted on the Privacy Office website in advance of the meeting at
To facilitate the listening session, if you would like to address the Committee, please register in advance by contacting Sandra L. Taylor at the address provided below. The names and affiliations of individuals who address the Committee will be included in the public record of the meeting. Advanced written comments or comments for the record, including persons who wish to submit comments and who are unable to participate or speak at the meeting, should be sent to Sandra L. Taylor, Designated Federal Official, DHS Data Privacy and Integrity Advisory Committee,
•
•
•
The DHS Privacy Office encourages you to register for the meeting and listening session in advance by contacting Sandra L. Taylor, Designated Federal Official, DHS Data Privacy and Integrity Advisory Committee, at
Sandra L. Taylor, Designated Federal Official, DHS Data Privacy and Integrity Advisory Committee, Department of Homeland Security, 2707 Martin Luther King, Jr. Avenue SE, Mail Stop 0655, Washington, DC 20598, by telephone (202) 343-1717, or by email to
Notice of this meeting is given under the Federal Advisory Committee Act (FACA). The DHS Data Privacy and Integrity Advisory Committee provides advice at the request of the Secretary of Homeland Security and the DHS Chief Privacy Officer on programmatic, policy, operational, administrative, and technological issues within DHS that relate to personally identifiable information, as well as data integrity, transparency, information sharing, and other privacy-related matters. The
The Acting Chief Privacy Officer will make an introduction and provide the Committee with an update on DHS Privacy Office activities and discuss priorities. The Chairs of the Policy and Technology subcommittees will provide a progress update. In addition, the Committee will hold an open listening session for members of the public to provide insight and feedback on the office's authorities, resources, efficacy, and mission to meet the department's missions over the next twenty years. This listening session is in response to the November 7, 2023, tasking issued by former Chief Privacy Officer Mason Clutter and can be found here:
(1) How important is it for government agencies to have a dedicated office for privacy concerns?
(2) What privacy issues do you think will be most important for the government to address over the next twenty years?
(3) How do you believe the role of the Privacy Office should evolve as technology continue to advance?
(4) What emerging technologies do you think the Privacy Office should focus on regulating or monitoring?
(5) What actions could the Privacy Office take to increase your confidence in their ability to safeguard your privacy?
(6) In what ways could the Privacy Office better engage with the public to understand their privacy concerns?
(7) Any specific actions or policies issued by the Privacy Office that have impacted your community?
(8) What steps should the Privacy Office take to ensure that privacy protections keep pace with future developments?
(9) What specific privacy concerns would you like to see addressed by the Privacy Office over the next two decades?
(10) How important is public input in shaping the policies and activities of the DHS Privacy Office?
If you wish to submit written comments, you may do so in advance or post-meeting by submitting them to Docket Number (DHS-2024-0032) at
Department of Homeland Security (DHS).
30-Day notice and request for comments.
The Department of Homeland Security, DHS will submit the following information collection request (ICR) to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995. DHS previously published this information collection request (ICR) in the
Comments are encouraged and will be accepted until October 15, 2024. This process is conducted in accordance with 5 CFR 1320.10.
Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to
The Office of Management and Budget is particularly interested in comments which:
1. Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
2. Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
3. Enhance the quality, utility, and clarity of the information to be collected; and
4. Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
In accordance with Federal regulations and statutes, when protests are filed, the contracting officer will require information/documentation such as detailed statements of legal and factual grounds for the protests, copies of relevant documents, solicitation or contract number, and requests for a ruling by the agency. The Federal Acquisition Regulation (FAR) and 48 CFR chapter 1 provide general procedures on handling protests submitted by contractors to Federal agencies. FAR part 33, Protests, Disputes and Appeals, prescribes policies and procedures for filing protests and for processing contract disputes and appeals. While the FAR prescribes the procedures to be followed for protests to the agency, it allows agencies to determine the method of receipt. DHS will utilize electronic mediums (email or facsimile) for collection of information and will not prescribe a format or require more information than what is already required in the FAR. If DHS determines there is a need to collect additional information outside of what is required in the FAR, DHS will submit a request to the Office of Management and Budget (OMB) for approval. The prior information collection request for OMB No. 1600-0004 was approved through November 30, 2024, by OMB in a Notice of OMB Action. This justification supports a request for an extension of the approval.
The information being collected will be obtained from contractors as part of their submissions whenever they file a bid protest with DHS. The information will be used by DHS officials in deciding how the protest should be resolved. Failure to collect this information would result in delayed resolution of protests. Agency protest information is contained in each individual solicitation document, and provides the specified contracting officer's name, email, and mailing address that the contractors would use to submit its response. The FAR does not specify the format in which the contractor should submit protest information. However, most contractors use computers to prepare protest materials and submit time sensitive responses electronically (email or facsimile) to the specified Government point of contact. Since the responses must meet specific timeframes, a centralized mailbox or website would not be a practical method of submission. Submission of protest information through contracting officers' email or through facsimile are the best methods to use to document receipt of protest information, and are the methods most commonly used in the Government protest process. This information collection may involve small business contractors, depending on the particular transaction. The burden applied to small businesses is minimal and consistent with the goals of achieving timely resolution of agency protests. This information is collected only when contractors choose to file a protest to the agency. The information is requested from contractors so that the Government will be able to evaluate protests effectively and provide prompt resolution of issues in dispute when contractors file such claims.
DHS/ALL/PIA-006 General Contact Lists covers the basic contact information that must be collected for DHS to address these protests. The other information collected will typically pertain to the contract itself, and not individuals. However, all information for this information collection is submitted voluntarily. Technically, because this information is not retrieved by personal identifier, no SORN is required. However, DHS/ALL-021 DHS Contractors and Consultants provides coverage for the collection of records on DHS contractors and consultants, to include resume and qualifying employment information. There is no assurance of confidentiality provided to the respondents.
The burden estimates provided in response to Item 12 above are based upon the Department's findings in its FY 2022 Procurement Line of Business, Operational Status Report. No program changes have occurred or changes to the information being collected, however, the burden was adjusted to reflect an agency adjustment increase of 33 respondents within DHS for fiscal year 2022, as well as an increase in the average hourly wage rate.
Cybersecurity and Infrastructure Security Agency, DHS.
60-Day notice and request for comments; renewal of Information Collection Request (ICR): 1670-0015.
The Infrastructure Security Division (ISD) within the Cybersecurity and Infrastructure Security Agency (CISA) will submit the following Information Collection Request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995. The submission proposes to renew the information collection for an additional three years and to update both the burden estimates and the statutory authority for the information collection.
Comments are encouraged and will be accepted until November 12, 2024.
You may send comments, identified by docket number through the Federal eRulemaking Portal:
Annie Hunziker Boyer, 703-603-5000,
The Chemical Facility Anti-Terrorism Standards (CFATS) Program identified and regulated the security of high-risk chemical facilities using a risk-based approach. Pursuant to section 5 of the Protecting and Securing Chemical Facilities from Terrorist Attacks Act of 2014 (Pub. L. 113-254, as amended by Pub. L. 116-150; 6 U.S.C. 621 note), authorization had been granted for CFATS until July 27, 2023. Congress did not act to reauthorize the program in time and, as such, the authorization expired on July 28, 2023. Therefore, regulations written pursuant to CFATS authority are not currently active. While regulatory text for the CFATS regulation, including information protection requirements, is located in part 27 of title 6 of the Code of Federal Regulations (CFR), the text is inactive due to the lapse in authority.
CISA continues to possess and safeguard the information provided to CISA under the CFATS program prior to the program's lapse in authority on July 28, 2023. CISA also continues to receive requests for these government records and has continued to treat any information previously designated as CVI prior to the July 28, 2023 lapse consistent with the previously established CVI information handling protection regime. As a result, prior to granting access to information safeguarded as CVI, CISA verifies that the requestor is a CVI Authorized User. If that requestor has a need to know but is not a CVI Authorized User, CISA will provide the requestor with CVI training. The requestor then submits an application to become a CVI Authorized User.
CISA is authorized to safeguard information provided to CISA under CFATS prior to July 28, 2023 under 6 U.S.C. 652(e)(1)(J), which grants CISA the authority to safeguard information from unauthorized disclosure and to ensure that the information is handled and used only for the performance of official duties.
It is the Administration's position that CFATS should be reauthorized. However, even without statutory reauthorization, there is both a reason to continue collecting this information (
The current information collection for the CVI program (IC 1670-0015) will expire on November 30, 2024.
CISA proposes three revisions from the previously approved collection. Specifically, to renew the information collection for an additional three years, increase the loaded average hourly wage rate of respondents from $79.75 to $101.87 based on updated BLS wage and compensation data, and to cite 6 U.S.C. 652(e)(1)(J) as its statutory authority rather than 6 U.S.C. 623.
This process is conducted in accordance with 5 CFR 1320.8.
The current information collection estimated that 20,000 respondents submit a request to become a CVI Authorized User Number annually. The table below provides the number of respondents over the past three years (
Due to past fluctuations and uncertainty regarding the number of future respondents, CISA believes that 20,000 continues to be a reasonable estimate when CFATS is reauthorized. Therefore, CISA proposes to retain the estimated annual number of respondents.
In the current information collection, the estimated time per respondent to prepare and submit a CVI Authorization is 0.50 hours (30 minutes). CISA proposes to retain the estimated time per respondent.
The annual burden hours for the CVI Authorization is [0.50 hours × 20,000 respondents × 1 response per respondent], which equals 10,000 hours.
Prior to the expiration of CFATS' statutory authorization, the instrument through which the information was collected electronically was a web interface incorporated into CISA's Chemical Security Assessment Tool (CSAT). Since the lapse, and until reauthorization, the instrument is a PDF form sent via email to respondents. The PDF form is filled out by respondents and returned to CISA via email. When the CFATS program is reauthorized, a web-enabled interface will be made accessible to the public.
Thus, for the purposes of this notice, CISA continues to assume there is no annualized capital or start-up costs incurred by respondents for this information collection.
There are no recordkeeping burden costs incurred by respondents for this information collection.
CISA assumes that respondents are generally Site Security Officers (SSOs), although other types of respondents may also complete this instrument (
Fish and Wildlife Service, Interior.
Notice of receipt of permit applications; request for comments.
We, the U.S. Fish and Wildlife Service, have received applications for permits to conduct activities intended to enhance the propagation or survival of endangered species under the Endangered Species Act. We invite the public and local, State, Tribal, and Federal agencies to comment on these applications. Before issuing any of the requested permits, we will take into consideration any information that we receive during the public comment period.
We must receive written data or comments on the applications by October 15, 2024.
•
•
Karen Marlowe, Permit Coordinator, via telephone at 404-679-7097 or via email at
We, the U.S. Fish and Wildlife Service, invite review and comment from the public and local, State, Tribal, and Federal agencies on applications we have received for permits to conduct certain activities with endangered and threatened species under section 10(a)(1)(A) of the Endangered Species Act of 1973, as amended (ESA; 16 U.S.C. 1531
With some exceptions, the ESA prohibits take of listed species unless a federal permit is issued that authorizes such take. The definition of “take” in the ESA includes hunting, shooting, harming, wounding, or killing, and also such activities as pursuing, harassing, trapping, capturing, or collecting.
A recovery permit issued by us under section 10(a)(1)(A) of the ESA authorizes the permittee to take endangered or threatened species while engaging in activities that are conducted for scientific purposes that promote recovery of species or for enhancement of propagation or survival of species. These activities often include the capture and collection of species, which would result in prohibited take if a permit were not issued. Our regulations implementing section 10(a)(1)(A) of the ESA for these permits are found at 50 CFR 17.22 for endangered wildlife species, 50 CFR 17.32 for threatened wildlife species, 50 CFR 17.62 for endangered plant species, and 50 CFR 17.72 for threatened plant species.
The ESA requires that we invite public comment before issuing these permits. Accordingly, we invite local, State, Tribal, and Federal agencies, and the public to submit written data, views, or arguments with respect to these applications. The comments and recommendations that will be most useful and likely to influence agency decisions are those supported by quantitative information or studies. Proposed activities in the following permit requests are for the recovery and enhancement of propagation or survival of the species in the wild.
Written comments we receive become part of the administrative record associated with this action. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment—including your personal identifying information—may be made publicly available at any time. While you can ask us in your comment to withhold your personal identifying information from public review, we cannot guarantee that we will be able to do so. All submissions from organizations or businesses, and from individuals identifying themselves as representatives or officials of organizations or businesses, will be made available for public disclosure in their entirety.
If we decide to issue a permit to an applicant listed in this notice, we will publish a notice in the
We publish this notice under section 10(c) of the Endangered Species Act of 1973, as amended (16 U.S.C. 1531
Bureau of Land Management, Interior.
Notice of availability.
The Bureau of Land Management (BLM) announces the availability of the Record of Decision (ROD) for the Approved Resource Management Plan (RMP) and associated Final Environmental Impact Statement (EIS) for the Greenlink West Transmission Project located in Clark, Esmeralda, Lyon, Mineral, Nye, Storey, and Washoe Counties, Nevada. The Acting Deputy Secretary of the Interior signed the ROD on September 9, 2024, which constitutes the decision of the BLM and two other Department of Interior agencies (National Park Service, Bureau of Indian Affairs) and makes the Approved RMP Amendments for the BLM effective immediately. The Department of Energy/National Nuclear Security Administration, as a Cooperating Agency, also signed the ROD that constitutes the decision for the Department of Energy/National Nuclear Security Administration on September 9, 2024.
The Acting Deputy Secretary of the Interior, representative of the lead federal agency (BLM), signed the ROD/Approved RMP Amendment on September 9, 2024.
The ROD/Approved RMP Amendment is available online at
Brian Buttazoni, Project Manager, telephone (775) 861-6491; address 1340 Financial Boulevard, Reno, Nevada 89502; email
The Acting Deputy Secretary of the Interior has approved the RMP Amendments to re-classify the visual resources management classification of certain segments, and to make modifications to certain Section 368 corridors, which required amending the existing 2001 Carson City Consolidated RMP, 1997 Tonopah RMP and ROD, the 1998 ROD for the Approved Las Vegas RMP and Final EIS, and 2009 Approved RMP Amendment(s)/ROD for Designation of Energy Corridors on BLM-Administered Lands in the 11 Western States.
The ROD allows the BLM and three other federal agencies (National Park Service, Bureau of Indian Affairs (BIA), and Department of Energy/National Nuclear Security Administration) to issue their agency-specific authorizations for their segments within their jurisdiction for the construction, operation and maintenance, and decommissioning of the 472-mile long transmission project and ancillary facilities. As reflected in the ROD, the BIA is only authorized to grant the rights-of-way (ROW) across those Tribal
There were no changes to the Approved RMP from the Proposed RMP for BLM-administered lands, which was published on June 14, 2024. The Approved RMP allows the BLM to modify the visual resource classification for certain segments of the project, along with modification to the alignment of certain Section 368 corridor segments.
The BLM provided the Proposed RMP Amendment for a 30-day public protest period beginning on June 14, 2024, and at the end of the public protest period on July 15, 2024, six valid protests had been received. The BLM also received seven other comments which were not valid protests. The BLM Director resolved all protests. A copy of the Protest Resolution Report is available at:
The BLM provided the Proposed RMP Amendment to the Governor of Nevada for a 60-day Governor's consistency review. On July 25, 2024, the Governor's Office responded to this request and determined that no inconsistencies with Nevada state plans were identified.
Approval of this ROW constitutes the final decision of the Department of the Interior (DOI) and, in accordance with the regulations at 43 CFR 4.410(a)(3), is not subject to appeal under DOI regulations at 43 CFR part 4.
Bureau of Land Management, Interior.
Notice of application.
On behalf of the United States Department of Agriculture, the United States Forest Service (USFS) filed an application with the Bureau of Land Management (BLM) requesting that the Secretary of the Interior extend Public Land Order (PLO) No. 7625 for an additional 20-year term. PLO No. 7625 withdrew 140 acres of National Forest System land in Lincoln County, New Mexico, from location and entry under the United States mining laws, subject to valid existing rights, to protect the Gallinas Peak and West Turkey Cone Electronic Sites for a period of 20 years. The withdrawal created by PLO No. 7625 will expire on February 16, 2025, unless extended. This notice announces to the public a 90-day opportunity to comment on the withdrawal extension application and to request a public meeting.
Comments and requests for a public meeting regarding the withdrawal extension application must be received by December 12, 2024.
All written comments and meeting requests should be sent to the Cibola National Regional Forester's Office, Attn: Michiko Martin, 333 Broadway SE, Albuquerque, NM 87102.
Jillian Aragon, BLM Project Manager by phone at 505-635-9701 or email at
Individuals in the United States who are deaf, deafblind, hard of hearing, or have a speech disability may dial 711 (TTY, TDD, or Tele Braille) to access telecommunications relay services. Individuals outside the United States should use the relay services offered within their country to make international calls to the point-of-contact in the United States.
The purpose of the requested withdrawal extension is to protect the 140-acre electronic sites, identified as the Gallinas Peak Electronic Site and the West Turkey Cone Electronic Site, which are located within the Lincoln National Forest. The withdrawal was originally authorized under PLO No. 7625 effective February 17, 2005 (70 FR 8109), for an additional 20-year term and is incorporated herein by reference.
The use of a right-of-way, interagency agreement, or cooperative agreement would not provide adequate protection for this site.
There are no suitable alternative sites available.
No water rights will be needed to fulfill the purpose of the requested withdrawal.
Notice is hereby given that the opportunity for a public meeting is afforded in connection with the withdrawal application. All interested persons who wish to submit comments, suggestions, or objections in connection with the withdrawal extension application, or to request a public meeting, may submit a written request to the Regional Forester by December 12, 2024, at the address in the
This application will be processed in accordance with the regulations in 43 CFR part 2300.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), Indiana University has completed an inventory of human remains and has determined that there is a cultural affiliation between the human remains and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains in this notice may occur on or after October 15, 2024.
Dr. Jayne-Leigh Thomas, Office of the Native American Graves Protection and Repatriation Act, Student Building 318, 701 E Kirkwood Avenue, Bloomington, IN 47405, telephone (812) 856-5315, email
This notice is published as part of the National Park Service's administrative
On an unknown date, partial human remains labeled `Arikara' were delivered to Indiana University. It is assumed that these remains are part of other Arikara collections that were affiliated to the Three Affiliated Tribes of the Fort Berthold Reservation, North Dakota in 2021. There are no known contaminants present.
Based on the information available and the results of consultation, cultural affiliation is clearly identified by the available information about the human remains describe in this notice.
Indiana University has determined that:
• The human remains described in this notice represent the physical remains of one individuals of Native American ancestry.
• There is a connection between the human remains and associated funerary objects described in this notice and the Three Affiliated Tribes of the Fort Berthold Reservation, North Dakota.
Written requests for repatriation of the human remains in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, Indiana University must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains are considered a single request and not competing requests. Indiana University is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the University of California, Berkeley intends to repatriate a certain cultural item that meets the definition of a sacred object and an object of cultural patrimony and that has a cultural affiliation with the Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the cultural item in this notice may occur on or after October 15, 2024.
Alexandra Lucas, Repatriation Coordinator, Government and Community Relations (Chancellor's Office), University of California, Berkeley, 200 California Hall, Berkeley, CA 94720, telephone (510) 570-0964, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the University of California, Berkeley, and additional information on the determinations in this notice, including the results of consultation, can be found in the summary or related records. The National Park Service is not responsible for the determinations in this notice.
A total of one cultural item has been requested for repatriation. The sacred object and object of cultural patrimony is a Kyôiñ (war shield) estimated to have been created in 1792 by Black Horse (catalog number 2-4866a,b and formerly named Satanta's Shield). Black Horse passed guardianship of the Kyôiñ to his son Sét:t'áiñ:dè, who passed guardianship of the Kyôiñ to his son Grey Goose between 1872 and 1874. US Cavalry Captain Hugh Lenox Scott obtained the Kyôiñ from Grey Goose in 1894, purportedly through Grey Goose's will. Phoebe Apperson Hearst purchased the Kyôiñ along with 200 other Plains Indian objects from Hugh Knox in 1901. Kiowa people know the Kyôiñ to be the temporary residence of a spirit, and while cared for by individual caretakers entrusted by the Kyôiñ, as a spirit it cannot be individually owned. The Kyôiñ has held a vital ceremonial and protective role in the Kiowa Tribe of Oklahoma since its creation. Since 2000, the Kyôiñ has been on loan from the Phoebe A Hearst Museum of Anthropology to the U.S Army Fort Sill National Historic Landmark and Museum in Oklahoma to ensure its continued access by Kiowa people and inclusion in ceremony and cultural practice.
Collections and collection spaces at the Phoebe A Hearst Museum of Anthropology were treated with substances for preservation and pest control, some potentially hazardous. No records have been found to date at the Museum to indicate whether or not chemicals or natural substances were used prior to 1960. No chemicals are recorded to have been applied while on loan to the U.S. Army Fort Sill National Historic Landmark and Museum.
The University of California, Berkeley has determined that:
• The one sacred object/object of cultural patrimony described in this notice is, according to the Native American traditional knowledge of an Indian Tribe or Native Hawaiian organization, a specific ceremonial object needed by a traditional Native American religious leader for present-day adherents to practice traditional Native American religion, and have ongoing historical, traditional, or cultural importance central to the Native American group, including any constituent sub-group (such as a band, clan, lineage, ceremonial society, or other subdivision).
• There is a reasonable connection between the cultural item described in this notice and the Kiowa Indian Tribe of Oklahoma.
Additional, written requests for repatriation of the cultural item in this notice must be sent to the authorized
Repatriation of the cultural item in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the University of California, Berkeley must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the cultural item are considered a single request and not competing requests. The University of California, Berkeley is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice and to any other consulting parties.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the Western Washington University (WWU) has completed an inventory of associated funerary objects and has determined that there is a cultural affiliation between the associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice. The associated funerary objects were removed from 45-WH-67 in Whatcom County, WA.
Repatriation of the associated funerary objects in this notice may occur on or after October 15, 2024.
Dr. Judith Pine, Western Washington University, Department of Anthropology, Arntzen Hall 340, 516 High Street, Bellingham, WA 98225, telephone (360) 650-4783, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the WWU, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Three associated funerary objects have been newly identified during a recent repatriation and rehousing project. The three associated funerary objects consist of one wooden burial box, one lot of carbon 14 samples, and one antler wedge. These items were newly identified in consultation with Lummi Nation Cultural Specialist, R. Tom. No hazardous chemicals are known to have been used to treat the associated funerary objects while in the custody of WWU.
Western Washington State College signed a contract with Arcomm Construction Company, Inc. of Seattle in April of 1975 to conduct “salvage” archaeology during the development of the Birch Bay sewage treatment facility. The project was led by Jeannette Gaston and Garland Grabert (WWU). Most of the work consisted of monitoring and salvage archaeology during construction activities throughout the summer of 1975. A total of twenty-six test cuts were excavated within the pipeline right-of-way (Gaston and Grabert,1975).
During this work, an intact cedar slab box burial was identified at site 45-WH-67. Analysis of the box burial was conducted, which included radiocarbon dating of a sample of the wood burial box (Lundy, 1977). The ancestral remains were previously repatriated to the Lummi Nation, however, the burial box, carbon 14 samples, and an antler wedge found with the box are present in the WWU collections.
The associated funerary objects in this notice are connected to one or more identifiable earlier groups, tribes, peoples, or cultures. There is a relationship of shared group identity between the identifiable earlier groups, tribes, peoples, or cultures and one or more Indian Tribes or Native Hawaiian organizations. The following types of information were used to reasonably trace the relationship: anthropological information, archaeological information, geographical information, historical information, and oral tradition.
Based on the information available and the results of consultation, cultural affiliation is clearly identified by the information available about the associated funerary objects described in this notice.
The WWU has determined that:
• The three objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the associated funerary objects described in this notice and the Lummi Tribe of the Lummi Reservation and the Nooksack Indian Tribe.
Written requests for repatriation of the associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains and associated funerary objects described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the WWU must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The WWU is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the U.S. Army Corps of Engineers, Sacramento District intends to repatriate certain cultural items that meet the definition of unassociated funerary objects and that have a cultural affiliation with the Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the cultural items in this notice may occur on or after October 15, 2024.
Dr. Michelle Fitzgerald, Physical Anthropologist and Sacramento District NAGPRA Liaison, U.S. Army Corps of Engineers, Sacramento District, Planning Division, 1325 J. Street, Sacramento, CA 95814, telephone (916) 557-7114, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the U.S. Army Corps of Engineers, Sacramento District, and additional information on the determinations in this notice, including the results of consultation, can be found in the summary or related records. The National Park Service is not responsible for the determinations in this notice.
A total of 297 cultural items from 17 sites and unspecified locations located within the U.S. Army Corps of Engineers, Sacramento District Black Butte Dam and Lake operating project in Glenn and Tehama counties, California have been requested for repatriation. These cultural items are described below.
One hundred thirty-three cultural items have been requested for repatriation. The 133 unassociated funerary objects are: one faunal bone, one metal fragment, one metal nail, one drilled
Two cultural items have been requested for repatriation. The two unassociated funerary objects are one pestle fragment and one projectile point
Six cultural items have been requested for repatriation. The six unassociated funerary objects are column samples. The unassociated funerary objects were removed from site CA-GLE-25 at the Sacramento District operating project at Black Butte Dam and Lake in Glenn County, CA. The unassociated funerary objects were removed in 1983 during survey and excavation work done by archaeologists affiliated with California State University, Sacramento under contract with the Sacramento District. The unassociated funerary objects currently remain at California State University, Sacramento.
One cultural item has been requested for repatriation. The one unassociated funerary object is a projectile point. The unassociated funerary object was removed from site CA-GLE-22 or site CA-GLE-35 at the Sacramento District operating project at Black Butte Dam and Lake located in Glenn County, CA by Black Butte Dam and Lake staff, Sacramento District personnel, contractors, and/or park visitors on an unknown date. This unassociated funerary object was stored at the Black Butte Dam and Lake Project Office prior to being transferred to the Veterans Curation Program facility in San Mateo, CA in 2018. The unassociated funerary object currently remains at the Veterans Curation Program facility.
Ten cultural items have been requested for repatriation. The 10 unassociated funerary objects are: three pieces of debitage (one is
Five cultural items have been requested for repatriation. The five unassociated funerary objects are: one crescent, one piece of debitage (
One cultural item has been requested for repatriation. The unassociated funerary object is a historic-era bottle (
One cultural item has been requested for repatriation. The unassociated funerary object is one flaked stone/core (
Two cultural items have been requested for repatriation. The unassociated funerary objects are one projectile point (
Three cultural objects have been requested for repatriation. The unassociated funerary objects are three projectile points. The unassociated funerary objects were removed from unspecified locations within the Sacramento District operating project at Black Butte Dam and Lake in Glenn County, CA by Black Butte Dam Lake staff, Sacramento District personnel, contractors, and/or park visitors on unknown dates. The unassociated funerary objects were stored at the Black Butte Dam and Lake Project Office prior to being transferred to the Veterans Curation Program facility in San Mateo, CA in 2018. The unassociated funerary objects currently remain at the Veterans Curation Program facility.
One lot of cultural items have been requested for repatriation. The unassociated funerary items are one lot of faunal remains. The unassociated funerary objects were removed from site CA-TEH-10/TEH-Burris Creek at the Sacramento District operating project at Black Butte Dam and Lake in Tehama County, CA by Black Butte Dam and Lake staff, Sacramento District personnel, contractors, and/or park visitors on unknown dates. The unassociated funerary objects were stored at the Black Butte Dam and Lake Project Office prior to being transferred to the Veterans Curation Program facility in San Mateo, CA in 2018. The unassociated funerary objects currently remain at the Veterans Curation Program facility.
Forty-two cultural items have been requested for repatriation. The 42 unassociated funerary objects are 42 column samples. The unassociated funerary objects were removed from site CA-TEH-231 at the Sacramento District operating project at Black Butte Dam and Lake in Tehama County, CA. The unassociated funerary objects were removed in 1983 during survey and excavation work done by archaeologists affiliated with California State University, Sacramento under contract with the Sacramento District. The unassociated funerary objects currently remain at California State University, Sacramento.
Twenty-six cultural items have been requested for repatriation. The 26 unassociated funerary objects are: one chert flake, one handstone (
Three cultural items have been requested for repatriation. The three unassociated funerary objects are one glass sherd (
Three cultural items have been requested for repatriation. The three unassociated funerary items are column samples. The unassociated funerary objects were removed from site CA-TEH-1321 at the Sacramento District operating project at Black Butte Dam and Lake in Tehama County, CA. The unassociated funerary objects were removed in 1983 during survey and excavation work done by archaeologists affiliated with California State University, Sacramento under contract with the Sacramento District. The unassociated funerary objects currently remain at California State University, Sacramento.
One cultural item has been requested for repatriation. The one unassociated funerary object is an obsidian biface (
One cultural item has been requested for repatriation. The one unassociated funerary object is an obsidian projectile point (
One cultural item has been requested for repatriation. The one unassociated funerary object is a chert flake. The unassociated funerary object was removed from site CA-TEH-1326 at the Sacramento District operating project at Black Butte Dam and Lake in Tehama County, CA by Black Butte Dam and Lake staff, Sacramento District personnel, contractors, and/or park visitors on an unknown date. The unassociated funerary object was stored at the Black Butte Dam and Lake Project Office prior to being transferred to the Veterans Curation Program facility in San Mateo, CA in 2018. The unassociated funerary object currently remains at the Veterans Curation Program facility.
One cultural item has been requested for repatriation. The one unassociated funerary object is a piece of debitage (
Fifty-four cultural items have been requested for repatriation. The 54 unassociated funerary objects are: one chert flake, one projectile point, seven
No information is available that would indicate that any of the cultural items in this notice have been treated with potentially hazardous substances.
The U.S. Army Corps of Engineers, Sacramento District has determined that:
• The 297 unassociated funerary objects described in this notice are reasonably believed to have been placed intentionally with or near human remains, and are connected, either at the time of death or later as part of the death rite or ceremony of a Native American culture according to the Native American traditional knowledge of a lineal descendant, Indian Tribe, or Native Hawaiian organization. The unassociated funerary objects have been identified by a preponderance of the evidence as related to human remains, specific individuals, or families, or removed from a specific burial site or burial area of an individual or individuals with cultural affiliation to an Indian Tribe or Native Hawaiian organization.
• There is a reasonable connection between the cultural items described in this notice and the Paskenta Band of Nomlaki Indians of California.
Additional, written requests for repatriation of the cultural items in this notice must be sent to the authorized representative identified in this notice under
Repatriation of the cultural items in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the U.S. Army Corps of Engineers, Sacramento District must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the cultural items are considered a single request and not competing requests. The U.S. Army Corps of Engineers, Sacramento District is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice and to any other consulting parties.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the U.S. Department of the Interior, National Park Service, Fort Sumter and Fort Moultrie National Historical Park (FOSU) has completed an inventory of associated funerary objects and has determined that there is a cultural affiliation between the associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the associated funerary objects in this notice may occur on or after October 15, 2024.
J. Tracy Stakely, Superintendent, Fort Sumter and Fort Moultrie National Historical Park, 1214 Middle Street, Sullivan's Island, SC 29482, telephone (843) 732-5014, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the Superintendent, FOSU, and additional information on the determinations in this notice, including the results of consultation, can be found in the inventory or related records.
In 1968 associated funerary objects were removed from the grave of Seminole leader Osceola in Charleston County, SC during excavation by John W. Griffin of the National Park Service. This excavation was conducted in response to a self-reported 1966 case of vandalism, wherein an individual claimed to have excavated and stolen the remains of Osceola. The remains of Osceola were re-interred following the
Based on the information available and the results of consultation, cultural affiliation is clearly identified by the information available about the associated funerary objects described in this notice.
FOSU has determined that:
• The 35 objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the associated funerary objects described in this notice and the Seminole Tribe of Florida.
Written requests for repatriation of the associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or a culturally affiliated Indian Tribe or Native Hawaiian organization.
Repatriation of the associated funerary objects in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, FOSU must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the associated funerary objects are considered a single request and not competing requests. FOSU is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), Turtle Bay Exploration Park (TBEP) intends to repatriate certain cultural items that meet the definition of a sacred objects and that has a known lineal descendant.
Repatriation of the cultural items in this notice may occur on or after October 15, 2024.
Julia Cronin, Turtle Bay Exploration Park, 844 Sundial Bridge Drive, Redding, CA 96001, telephone (530) 242-3191, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of TBEP and additional information on the determinations in this notice, including the results of consultation, can be found in the summary or related records. The National Park Service is not responsible for the determinations in this notice.
A total of one cultural item has been requested for repatriation. The one sacred object is a Pomo bead drill. The drill was made by Kenneth Fred around 1978. The Redding Museum and Art Center, the predecessor of TBEP, purchased the item from the Fall 1978 Pacific West Traders catalog with funds from the Redding Museum of Art and History League, a fundraising body for the museum. Pacific West Traders was located in Folsom, CA and owned/operated by Herb Puffer. There is no record of treatment with potentially hazardous materials by TBEP or prior to acquisition.
Turtle Bay Exploration Park has determined that:
• The one sacred object described in this notice is a specific ceremonial object needed by a traditional Native American religious leader for present-day adherents to practice traditional Native American religion, according to the Native American traditional knowledge of a lineal descendant, Indian Tribe, or Native Hawaiian organization.
• Vincent Fred is connected to the cultural item described in this notice.
Additional, written requests for repatriation of the cultural item in this notice must be sent to the authorized representative identified in this notice under
Repatriation of the cultural item in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, Turtle Bay Exploration Park must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the cultural item are considered a single request and not competing requests. Turtle Bay Exploration Park is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice and to any other consulting parties.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), The University of Toledo has completed an inventory of human remains and associated funerary objects and has determined that there is a cultural affiliation between the human remains and associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains and associated funerary objects in this notice may occur on or after October 15, 2024.
Thomas Zych, The University of Toledo, 2801 W. Bancroft Street MS 956, Toledo, OH 43606, telephone (419) 530-4395, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of The University of Toledo, and additional information on the determinations in this notice, including the results of consultation, can be found in the inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Based on the information available, human remains representing, at least, 38 individuals have been reasonably identified. The 16 associated funerary objects are three lots of pottery fragments; one lot of flotation excess residue; one ceramic pipe fragment; one faunal bone; one lot of calcined faunal bone; one lot of burnt faunal bone fragments; four pottery fragments; two pieces of white clay; one quartzite stone; and one lot of rocks. The human remains and associated funerary objects were removed from the Reau Site (20-MR-166) by The University of Toledo between 1974 and 1977, under the direction of David Stothers, a professor at the university. On August 15, 1991, David Stothers loaned “all cultural material and skeletal remains” from the Reau Site to the Firelands Archaeological Research Center (FARC). In November 2021, FARC transferred individuals and associated funerary objects from the Reau Site to Ohio History Connection (OHC). In April 2023, the University of Toledo and OHC determined that the University of Toledo retained legal control of the individuals and associated funerary objects from the Reau Site. On May 10, 2023, OHC transferred physical custody of the individuals and associated funerary objects from the Reau Site to the University of Toledo. The University of Toledo has no record of any potentially hazardous substances being used to treat the human remains or associated funerary objects.
Based on the information available and the results of consultation, cultural affiliation is clearly identified by the information available about the human remains and associated funerary objects described in this notice.
The University of Toledo has determined that:
• The human remains described in this notice represent the physical remains of 38 individuals of Native American ancestry.
• The 16 objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a reasonable connection between the human remains and associated funerary objects described in this notice and the Absentee-Shawnee Tribe of Indians of Oklahoma; Bad River Band of the Lake Superior Tribe of Chippewa Indians of the Bad River Reservation, Wisconsin; Bay Mills Indian Community, Michigan; Chippewa Cree Indians of the Rocky Boy's Reservation, Montana; Citizen Potawatomi Nation, Oklahoma; Eastern Shawnee Tribe of Oklahoma; Forest County Potawatomi Community, Wisconsin; Grand Traverse Band of Ottawa and Chippewa Indians, Michigan; Hannahville Indian Community, Michigan; Keweenaw Bay Indian Community, Michigan; Lac Courte Oreilles Band of Lake Superior Chippewa Indians of Wisconsin; Lac du Flambeau Band of Lake Superior Chippewa Indians of the Lac du Flambeau Reservation of Wisconsin; Lac Vieux Desert Band of Lake Superior Chippewa Indians of Michigan; Little River Band of Ottawa Indians, Michigan; Little Shell Tribe of Chippewa Indians of Montana; Little Traverse Bay Bands of Odawa Indians, Michigan; Match-e-be-nash-she-wish Band of Pottawatomi Indians of Michigan; Miami Tribe of Oklahoma; Minnesota Chippewa Tribe, Minnesota (Six component reservations: Bois Forte Band (Nett Lake); Fond du Lac Band; Grand Portage Band; Leech Lake Band; Mille Lacs Band; White Earth Band); Nottawaseppi Huron Band of the Potawatomi, Michigan; Ottawa Tribe of Oklahoma; Pokagon Band of Potawatomi Indians, Michigan and Indiana; Prairie Band Potawatomi Nation; Red Cliff Band of Lake Superior Chippewa Indians of Wisconsin; Red Lake Band of Chippewa Indians, Minnesota; Sac & Fox Nation of Missouri in Kansas and Nebraska; Sac & Fox Nation, Oklahoma; Sac & Fox Tribe of the Mississippi in Iowa; Saginaw Chippewa Indian Tribe of Michigan; Sault Ste. Marie Tribe of Chippewa Indians, Michigan; Seneca Nation of Indians; Seneca-Cayuga Nation; Shawnee Tribe; Sokaogon Chippewa Community, Wisconsin; St. Croix Chippewa Indians of Wisconsin; Tonawanda Band of Seneca; Turtle Mountain Band of Chippewa Indians of North Dakota; and the Wyandotte Nation.
Written requests for repatriation of the human remains and associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or a culturally affiliated Indian Tribe or Native Hawaiian organization.
Repatriation of the human remains and associated funerary objects in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, The University of Toledo must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The University of Toledo is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and
Repatriation of the human remains and associated funerary objects in this notice may occur on or after October 15, 2024.
Tamara Serrao-Leiva, San Bernardino County Museum, 2024 Orange Tree Lane, Redlands, CA 92374, telephone (909) 798-8623, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the San Bernardino County Museum, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Human remains representing at least one individual have been identified. The 12 associated funerary objects include a pendant, projectile points, pipe stem fragments, pottery sherds, faunal fragments, flakes, shell fragments, ground stone, stone tools, projectile points, shell beads, and historic beads. San Bernadino County Museum site numbers SBCM-815 (also SBCM-5868) are considered the same site to the culturally affiliated tribes list below. This site was recorded by B. McCown on March 1944 and was excavated by McCown in 1948 through the Archaeological Survey Association (ASA) (McCown Site #7, Santa Margarita River) in Fallbrook, CA. In
Human remains representing at least one individual has been identified. The six associated funerary objects reflected in the record are ground stone, lithics, ceramics, faunal bone, worked shell (beads), and ecofacts. San Bernadino County Museum site number SBCM-5907 is in the Murrieta Creek region of Riverside County, about one mile south of Old Town, Temecula. In 1953 a note included in the Accession file connects this site to Vail Ranch by the “Temeku fork of River.” Vail Ranch was an 87,000-acre cattle ranch purchased by Walter Vail in 1905. His ranch headquarters was located along Temecula Creek in an area now bordered by Temecula Parkway. The site was first documented 3/30/1952 and later excavated by Benjamin McCown who donated the collection to the museum in 1956. No known hazardous substances were used to treat this collection.
Based on the information available and the results of consultation, cultural affiliation is reasonably identified by the geographical location or acquisition history of the human remains and associated funerary objects described in this notice.
The San Bernardino County Museum has determined that:
• The human remains described in this notice represent the physical remains of two individuals of Native American ancestry.
• The 18 objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the human remains and associated funerary objects described in this notice and the La Jolla Band of Luiseno Indians, California; Pala Band of Mission Indians; Pauma Band of Luiseno Mission Indians of the Pauma & Yuima Reservation, California; Pechanga Band of Indians (
Written requests for repatriation of the human remains and associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains and associated funerary objects described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the San Bernardino County Museum must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The San Bernardino County Museum is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the Cape Girardeau County Sheriff's Office has completed an inventory of human remains and has determined that there is a cultural affiliation between the human remains and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains in this notice may occur on or after October 15, 2024.
Dr. Jennifer Bengtson, NAGPRA consultant, Cape Girardeau County Sheriff's Office, 216 N Missouri Street, Jackson, MO 63755, telephone (573) 651-2354, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the Cape Girardeau County Sheriff's Office, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Human remains representing, at least, two individuals have been identified. No associated funerary objects are present. These remains were turned over on August 11, 2020, by a private citizen. The citizen stated that they did not know how old the remains were or where they came from, but that they had been removed from an unknown archaeological site at least 50 years ago and retained by now deceased persons.
Based on the information available and the results of consultation, cultural affiliation is reasonably identified by the geographical location or acquisition history of the human remains described in this notice.
The Cape Girardeau County Sheriff's Office has determined that:
• The human remains described in this notice represent the physical remains of two individuals of Native American ancestry.
• There is a connection between the human remains and associated funerary objects described in this notice and the Quapaw Nation and The Osage Nation.
Written requests for repatriation of the human remains in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the Cape Girardeau County Sheriff's Office must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains are considered a single request and not competing requests. The Cape Girardeau County Sheriff's Office is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the University of California, Berkeley intends to repatriate a certain cultural item that meet the definition of an object of cultural patrimony and that has a cultural affiliation with the Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the cultural item in this notice may occur on or after October 15, 2024.
Alexandra Lucas, Repatriation Coordinator, Government and Community Relations (Chancellor's Office), University of California, Berkeley. 200 California Hall, Berkeley, CA 94720, telephone (510) 570-0964, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the University of California, Berkeley, and additional information on the determinations in this notice, including the results of consultation, can be found in the summary or related records. The National Park Service is not responsible for the determinations in this notice.
A total of one cultural item has been requested for repatriation. The one object of cultural patrimony is a Kiowa calendar (winter counts) created by Chief Dohasan, chronicling events from winter 1832-33 to summer 1892 (catalog number 2-4933a-c). Hugh Lenox Scott obtained the calendar at Fort Sill on the Kiowa reservation prior to 1900. The calendar was sold to the Lowie Museum (Phoebe A Hearst Museum of Anthropology) as part of a large private collection from Hugh Lenox Scott in 1906. Documentation in the accession file and a museum publication on the calendar indicate the owner, `Dohasan, nephew of the well-known Kiowa chief, of the same name, said that the record had been kept in his family since his youth. The Chronicle was originally painted on hides which were renewed from time to time as they wore out from age and handling. The calendar given to Scott and included in the collections of the Lowie Museum since 1900, was on paper, executed with colored pencils by Dohasan, from the last hide record.'
Collections and collection spaces at the Phoebe A Hearst Museum of Anthropology were treated with substances for preservation and pest control, some potentially hazardous. No records have been found to date at the Museum to indicate whether or not chemicals or natural substances were used prior to 1960.
The University of California, Berkeley has determined that:
• The one object of cultural patrimony described in this notice has ongoing historical, traditional, or cultural importance central to the Native American group, including any constituent sub-group (such as a band, clan, lineage, ceremonial society, or other subdivision), according to the Native American traditional knowledge of an Indian Tribe or Native Hawaiian organization.
• There is a reasonable connection between the cultural item described in this notice and the Kiowa Indian Tribe of Oklahoma.
Additional, written requests for repatriation of the cultural item in this notice must be sent to the authorized representative identified in this notice under
Repatriation of the cultural item in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the University of California, Berkeley must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the cultural item are considered a single request and not competing requests. The University of California, Berkeley is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice and to any other consulting parties.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the Stoddard County Sheriff's Office has completed an inventory of human remains and associated funerary objects and has determined that there is a cultural affiliation between the human remains and associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains and associated funerary objects in this notice may occur on or after October 15, 2024.
Dr. Jennifer Bengtson, NAGPRA consultant, Stoddard County Sheriff's Office, 207 S Prairie Street, Bloomfield, MO 63825, telephone (573) 651-2354, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the Stoddard County Sheriff's Office, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Human remains representing, at least, one individual has been identified. The eight associated funerary objects are faunal remains. These remains were turned over by a private citizen, who removed them from an unknown archaeological site.
Based on the information available and the results of consultation, cultural affiliation is reasonably identified by the geographical location or acquisition history of the human remains and associated funerary objects described in this notice.
The Stoddard County Sheriff's Office has determined that:
• The human remains described in this notice represent the physical remains of one individual of Native American ancestry.
• The eight objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the human remains and associated funerary objects described in this notice and the Quapaw Nation and The Osage Nation.
Written requests for repatriation of the human remains and associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains and associated funerary objects described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the Stoddard County Sheriff's Office must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The Stoddard County Sheriff's Office is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the U.S. Army Corps of Engineers, Sacramento District, has completed an inventory of human remains and associated funerary objects and has determined that there is a cultural affiliation between the human remains and associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains and associated funerary objects in this notice may occur on or after October 15, 2024.
Dr. Michelle Fitzgerald, Physical Anthropologist and NAGPRA Liaison, U.S. Army Corps of Engineers, Sacramento District, 1325 J Street, Sacramento, CA 95814, telephone (916) 557-7114, email
This notice is published as part of the
Human remains representing, at least, 51 individuals have been identified from site CA-GLE-10/H, in Glenn County, CA. The 1,842 associated funerary objects are: 337 beads, 17 bear claws, one botanical, one bottle, five buckles, six buckles with leather, one bullet mold, 321 buttons, nine charmstones, one clock, two cloth/textile fragments, 67 coffin components, 41 coins, one comb, one cufflink, eight fastening caps, 13 faunal bones, one piece of glass, one harmonica, three lithic flakes, 10 lithic tools, 79 metal objects, one nail, 18 ornamental items, one pencil lead, three pestles, one pipe stem, three pocket knives, two pocket watches, 22 projectile points, five rings, one rosette, one rubber ball, one scissors, one Shaman's purse, 69 unmodified shells, 489 shell beads, 223 shell ornaments/pendants, 10 shoe fragments, seven unmodified stones, two modified stones, one telescope fragment, one thimble, one tube, 18 utensils, five violin fragments, one lot of trade and shell beads, one lot of bead and button fragments, six lots of beads, five lots of coffin components, one lot of metal objects, 14 lots of shell beads, one lot of burial soil, and one lot of violin fragments.
In 1961, a salvage excavation conducted by archaeologists affiliated with San Francisco State College, now San Francisco State University, took place in the Brownell Indian Cemetery (CA-GLE-10/H) which removed human remains from multiple unmarked burials, as well as the remains of Mr. James (Jim) Brown, identified later through written accounts of his funeral and funerary objects. The individuals and associated funerary objects from this investigation have been in the custody of San Francisco State University since their excavation. Black Butte Dam and Lake staff and a Sacramento District archaeologist collected additional human remains and associated funerary objects in 1989, after CA-GLE-10/H was accidently impacted by heavy machinery. These human remains and cultural items were housed at the Black Butte Dam and Lake Project Office and Sacramento District Office until they were transferred in 2018 by the Sacramento District to the Veterans Curation Program (VCP) in San Mateo, CA, where they remain.
Human remains representing, at least, one individual have been identified from site CA-GLE-11, in Glenn County, CA. The 37 associated funerary objects are: one charmstone, one clam shell disc bead, five faunal bones, one piece of glass, nine lithic tools, five manos, three pecking stones, five pestles, two petal stones, and five projectile points.
In 1960, San Francisco State College, under contract to the National Park Service, initiated archaeological excavations at site CA-GLE-11 as part of the salvage archaeology program for the proposed Black Butte Reservoir. The human remains and associated funerary objects have been in the custody of San Francisco State College, now San Francisco State University, since their excavation.
Human remains representing, at least, nine individuals have been identified from site CA-TEH-10, in Tehama County, CA. The 1,881 associated funerary objects are: three beads, 36 botanical items, 12 pieces of charcoal, two pieces of baked clay, 466 faunal bones, 117 fire-cracked rocks, two groundstone, one hammerstone, six lithic cores, 765 lithic flakes, 14 lithic tools, one mano, one piece of metal hardware, one metate, five mortars, 17 nails, three pestles, one piece of plastic, 32 projectile points/fragments, nine soil samples, three unmodified stones, one piece of wood, 23 lots of botanicals, 280 lots of charcoal, two lots of faunal bones, two lots of radiocarbon samples, 65 lots of soil, one lot of mixed soil and charcoal, and 10 lots of wood.
CA-TEH-10 was excavated in 1983 and 1986 by archaeologists affiliated with California State University, Sacramento under contract with the Sacramento District. The site was comprised of a large burial ground with two cemeteries, the human remains from which were thought to have been reburied in 1985 and 1990 at a private cemetery. However, some cultural materials recovered from the site were transferred to the California State University, Sacramento's Archaeological Study Center for curation as Accession #81-138. In 2021, the Sacramento District transferred these items to the VCP in San Mateo, CA. During review of the items, Sacramento District staff identified human remains. The human remains and associated funerary objects are currently housed at the VCP.
No information is available that would indicate that any of the human remains or cultural items in this notice have been treated with potentially hazardous substances.
Based on the information available and the results of consultation, cultural affiliation is clearly identified by the information available about the human remains and associated funerary objects described in this notice.
The U.S. Army Corps of Engineers, Sacramento District, has determined that:
• The human remains described in this notice represent the physical remains of 61 individuals of Native American ancestry.
• The 3,760 objects described in this notice are reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the human remains and associated funerary objects described in this notice and the Grindstone Indian Rancheria of Wintun-Wailaki Indians of California and the Paskenta Band of Nomlaki Indians of California.
Written requests for repatriation of the human remains and associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains and associated funerary objects described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the U.S. Army Corps of Engineers, Sacramento District, must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The U.S. Army Corps of Engineers, Sacramento District, is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the Perry County Coroner's Office has completed an inventory of human remains and has determined that there is a cultural affiliation between the human remains and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains in this notice may occur on or after October 15, 2024.
Dr. Jennifer Bengtson, NAGPRA consultant, Perry County Coroner's Office, 321 N Main Street, Perryville, MO 63775, telephone (573) 651-2354, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the Perry County Coroner's Office, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Human remains representing, at least, one individual has been identified. No associated funerary objects are present. The remains were left on the steps of the Perry County Courthouse in 2019. They are estimated to be about 1600 years old.
Based on the information available and the results of consultation, cultural affiliation is reasonably identified by the geographical location or acquisition history of the human remains and associated funerary objects described in this notice.
The Perry County Coroner's Office has determined that:
• The human remains described in this notice represent the physical remains of one individual of Native American ancestry.
• There is a connection between the human remains and associated funerary objects described in this notice and the Quapaw Nation and The Osage Nation.
Written requests for repatriation of the human remains in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the Perry County Coroner's Office must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains are considered a single request and not competing requests. The Perry County Coroner's Office is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
National Park Service, Interior.
Notice.
In accordance with the Native American Graves Protection and Repatriation Act (NAGPRA), the Madison County Coroner's Office has completed an inventory of human remains and associated funerary objects and has determined that there is a cultural affiliation between the human remains and associated funerary objects and Indian Tribes or Native Hawaiian organizations in this notice.
Repatriation of the human remains and associated funerary objects in this notice may occur on or after October 15, 2024.
Dr. Jennifer Bengtson, NAGPRA consultant, Madison County Coroner's Office, 700 Madison Plaza Drive, Fredericktown, MO 63645, telephone (573) 651-2354, email
This notice is published as part of the National Park Service's administrative responsibilities under NAGPRA. The determinations in this notice are the sole responsibility of the Madison County Coroner's Office, and additional information on the determinations in this notice, including the results of consultation, can be found in its inventory or related records. The National Park Service is not responsible for the determinations in this notice.
Human remains representing, at least, three individuals have been identified. The one associated funerary object is unmodified faunal bone fragment. The remains were removed from an unknown archaeological site at an unknown time by a private citizen and were discovered in a closet decades later.
Based on the information available and the results of consultation, cultural affiliation is reasonably identified by the geographical location or acquisition history of the human remains and associated funerary objects described in this notice.
The Madison County Coroner's Office has determined that:
• The human remains described in this notice represent the physical remains of three individuals of Native American ancestry.
• The one object described in this notice is reasonably believed to have been placed intentionally with or near individual human remains at the time of death or later as part of the death rite or ceremony.
• There is a connection between the human remains and associated funerary objects described in this notice and the Quapaw Nation and The Osage Nation.
Written requests for repatriation of the human remains and associated funerary objects in this notice must be sent to the authorized representative identified in this notice under
1. Any one or more of the Indian Tribes or Native Hawaiian organizations identified in this notice.
2. Any lineal descendant, Indian Tribe, or Native Hawaiian organization not identified in this notice who shows, by a preponderance of the evidence, that the requestor is a lineal descendant or an Indian Tribe or Native Hawaiian organization with cultural affiliation.
Repatriation of the human remains and associated funerary objects described in this notice to a requestor may occur on or after October 15, 2024. If competing requests for repatriation are received, the Madison County Coroner's Office must determine the most appropriate requestor prior to repatriation. Requests for joint repatriation of the human remains and associated funerary objects are considered a single request and not competing requests. The Madison County Coroner's Office is responsible for sending a copy of this notice to the Indian Tribes and Native Hawaiian organizations identified in this notice.
U.S. International Trade Commission.
Notice.
Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on August 8, 2024, under section 337 of the Tariff Act of 1930, as amended, on behalf of HydraFacial LLC f/k/a Edge Systems LLC of Long Beach, California. Supplements were filed on August 23 and 28, 2024. The complaint, as supplemented, alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain hydrodermabrasion systems and components thereof by reason of the infringement of certain claims of U.S. Patent No. 11,446,477 (“the '477 patent”). The complaint further alleges that an industry in the United States exists as required by the applicable Federal Statute. The complainant requests that the Commission institute an investigation and, after the investigation, issue a limited exclusion order and a cease and desist order.
The complaint, except for any confidential information contained therein, may be viewed on the Commission's electronic docket (EDIS) at
Susan Orndoff, The Office of Docket Services, U.S. International Trade Commission, telephone (202) 205-1802.
(1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain products identified in paragraph (2) by reason of infringement of one or more of claims 1-5 and 7-20 of the '477 patent, and whether an industry in the United States exists as required by subsection (a)(2) of section 337;
(2) Pursuant to section 210.10(b)(1) of the Commission's Rules of Practice and Procedure, 19 CFR 210.10(b)(1), the plain language description of the accused products or category of accused products, which defines the scope of the investigation, is “systems and subassemblies for skin treatment through mechanical and/or fluid-based abrasion or exfoliation”;
(3) For the purpose of the investigation so instituted, the following are hereby named as parties upon which this notice of investigation shall be served:
(a)
(b) The respondents are the following entities alleged to be in violation of section 337, and are the parties upon which the complaint is to be served:
(4) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission,
The Office of Unfair Import Investigations will not participate as a party in this investigation.
Responses to the complaint and the notice of investigation must be submitted by the named respondents in accordance with section 210.13 of the Commission's Rules of Practice and Procedure, 19 CFR 210.13. Pursuant to 19 CFR 201.16(e) and 210.13(a), as amended in 85 FR 15798 (March 19, 2020), such responses will be considered by the Commission if received not later than 20 days after the date of service by the complainant of the complaint and the notice of investigation. Extensions of time for submitting responses to the complaint and the notice of investigation will not be granted unless good cause therefor is shown.
Failure of a respondent to file a timely response to each allegation in the complaint and in this notice may be deemed to constitute a waiver of the right to appear and contest the allegations of the complaint and this notice, and to authorize the administrative law judge and the Commission, without further notice to the respondent, to find the facts to be as alleged in the complaint and this notice and to enter an initial determination and a final determination containing such findings, and may result in the issuance of an exclusion order or a cease and desist order or both directed against the respondent.
By order of the Commission.
Occupational Safety and Health Administration (OSHA), Labor.
Notice of FACOSH meeting.
The Federal Advisory Committee on Occupational Safety and Health (FACOSH) will meet October 17, 2024, by WebEx.
FACOSH will meet from 1 p.m.-4 p.m., ET, October 17, 2024, virtually via Webex.
However, any participation by the public will be in listen-only mode.
FACOSH is authorized to advise the Secretary of Labor (Secretary) on all matters relating to the occupational safety and health of Federal employees (Occupational Safety and Health Act of 1970 (29 U.S.C. 668), 5 U.S.C. 7902, Executive Orders 12196 and 14109). This includes providing advice on how to reduce and keep to a minimum the number of injuries and illnesses in the Federal workforce and how to encourage the establishment and maintenance of effective occupational safety and health programs in each Federal agency.
FACOSH will meet from 1 p.m. to 4 p.m., ET, Thursday, October 17, 2024. The meeting is open to the public.
In addition, meeting information will be posted to the Office of Federal Agency Programs' website at:
James S. Frederick, Deputy Assistant Secretary of Labor for Occupational Safety and Health, directed the preparation of this notice under the authority granted by section 19 of the Occupational Safety and Health Act of 1970 (29 U.S.C. 668), 5 U.S.C. 7902, the Federal Advisory Committee Act (5 U.S.C. 10), Executive Order 12196 and 14109, Secretary of Labor's Order 8-
Millennium Challenge Corporation.
Notice.
In accordance with the provisions of the Millennium Challenge Act of 2003, as amended, the Millennium Challenge Corporation (MCC) is publishing a summary of the Millennium Challenge Compact (Compact) between the United States of America and the State of Belize. Representatives of the United States of America and the State of Belize executed the Compact on September 4, 2024. The complete text of the Compact has been posted at:
MCC has signed a five-year, $125 million compact with the government of Belize aimed at reducing poverty through economic growth. The Compact seeks to assist Belize in addressing two binding constraints to economic growth—low quality of education and high cost of electricity. The Compact will address these constraints through two primary projects—the
Belize is a small, diverse, coastal nation with a population of 397,483 (2022). As a stable democracy located at the crossroads of the Caribbean and Central America, Belize maintains strong commercial and educational ties to the Caribbean and has increasingly strengthened ties with Central America.
While Belize's economy has historically relied on the export of forest products, sugar, and fruit, tourism began to expand rapidly in the 1990s, contributing to robust real per capita income (“PCI”) growth averaging 4.3% for the next decade. However, from 2004 to 2019 real PCI growth was near zero. In 2020, Belize experienced a sharp fall in tourism revenue and real PCI fell by 16%, which caused Belize to be classified as a lower middle-income country. The economy has since rebounded. As of 2018, 52% of the population had income below the Belizean general poverty line, with four socioeconomic groups disproportionately affected: Maya populations, rural households, women, and youth.
MCC's Board of Directors selected Belize as eligible to develop a compact in December 2021. In selecting Belize for a compact, MCC's Board made the decision to partner with a country that has demonstrated a clear commitment to democratic governance and tackling development challenges.In the year following its selection, Belize was reclassified by the World Bank as an upper middle-income country and exited MCC's candidate country pool. The Board has since repeatedly affirmed its support for Belize continuing to develop a compact with MCC, and the country has continued to demonstrate its commitment to the principles of democratic governance that underpin MCC's eligibility criteria and scorecard.
In April 2022, the Government of Belize selected two binding constraints to economic growth for further program development in the education and energy sectors.
The
In the
The Government of Belize has shown strong country ownership and commitment to the Compact through their engagement on the technical design of the projects, their repeated commitment and preliminary progress on policy reforms, and their commitment of counterpart funding for the implementation and long-term sustainability of the compact objectives. MCC successfully concluded compact negotiations with the Government of Belize in mid-April and secured approval for the $125 million investment from the MCC Board of Directors on June 26, 2024. The Government of Belize and MCC signed the Compact on September 4, 2024 in Belize City, Belize.
The projects and activities to be completed are:
The project focuses on inclusion and equity by intentionally creating opportunities across all three activities for members of groups that have been traditionally excluded in the Belizean
MCC and Belize jointly identified the following key policy reform areas to support the sustainability of the proposed compact, the timing and content of which was negotiated with Belize and is included in the compact.
Key policy reforms of the
Key policy reforms of the
Below is a summary describing the components of the Compact with Belize. The anticipated budget for the overall program is $165,650,000, with up to $125,000,000 under the Compact and $40,650,000 of contribution from Belize.
Millennium Challenge Corporation.
Notice.
In accordance with the requirements of the Federal Advisory Committee Act, the Millennium Challenge Corporation (MCC) Economic Advisory Council was established as a discretionary advisory committee on October 5, 2018. Its charter was most recently renewed on September 30, 2022, for two additional years. The MCC Economic Advisory Council serves MCC solely in an advisory capacity and provides advice and guidance to MCC economists, evaluators, leadership of the Department of Policy and Evaluation, and senior MCC leadership regarding relevant trends in development economics, applied economic and evaluation methods, poverty analytics, as well as modeling, measuring, and evaluating development interventions. In doing so, the MCC Economic Advisory Council helps sharpen MCC's analytical methods and capacity in support of the agency's economic development goals. It also serves as a sounding board and reference group for assessing and advising on strategic policy innovations and methodological directions in MCC.
Friday, September 27, 2024, from 10:00 a.m.-12:30 p.m. EDT.
The meeting will be held both in-person at 1099 14th Street NW, Suite 700, Washington, DC 20005 and virtually via WebEx.
Contact Mesbah Motamed, 202.521.3600,
Pension Benefit Guaranty Corporation.
Notice.
The Pension Benefit Guaranty Corporation (PBGC) is soliciting nominations for appointment to the Advisory Committee of the PBGC.
Nominations must be received on or before October 28, 2024. Please allow three weeks for regular mail delivery to PBGC.
Nominations must be submitted electronically to
The Pension Benefit Guaranty Corporation (PBGC or the Corporation) administers the pension plan termination insurance program under title IV of the Employee Retirement Income Security Act of 1974 (ERISA). Section 4002(h) of ERISA provides for the establishment of an Advisory Committee to the Corporation. The Advisory Committee consists of seven members appointed by the President from among individuals recommended by the PBGC Board of Directors, which consists of the Secretaries of Labor, Treasury, and Commerce. The Advisory Committee members are as follows:
• two representatives of employee organizations;
• two representatives of employers who maintain pension plans; and
• three representatives of the general public.
No more than four members of the Committee shall be members of the same political party. Anyone currently subject to federal registration requirements as a lobbyist is not eligible for appointment.
Advisory Committee members must have experience with employee organizations, employers who maintain defined benefit pension plans, the administration or advising of pension plans, or in related fields. Appointments are for 3-year terms. Reappointments are possible but are subject to the appointment process.
The Advisory Committee's prescribed duties include advising the Corporation as to its policies and procedures relating to investment of moneys, and other issues as the Corporation may request or as the Advisory Committee determines appropriate. The Advisory Committee meets at least six times each year. At least one meeting is a joint meeting with the PBGC Board of Directors.
By February 19, 2025, the terms of three of the Advisory Committee members, two representing employers who maintain pension plans and one representing the general public, will have expired. Therefore, PBGC is seeking nominations for three seats.
PBGC is committed to equal opportunity in the workplace and seeks a broad-based and diverse Advisory Committee.
If you or your organization wants to nominate one or more people for appointment to the Advisory Committee to represent employers who maintain pension plans or the general public, you may submit nominations to PBGC. Nominations may be in the form of a letter, resolution or petition, signed by the person making the nomination. PBGC encourages you to include additional supporting letters of nomination. PBGC will not consider self-nominees who have no supporting letters. Please do not include any information that you do not want publicly disclosed.
Nominations, including supporting letters, should:
• state the person's qualifications to serve on the Advisory Committee (including any specialized knowledge or experience relevant to the nominee's proposed Advisory Committee position to represent employers who maintain pension plans or the general public);
• state that the candidate will accept appointment to the Advisory Committee if offered;
• include the nominee's full name, work affiliation, mailing address, phone number, and email address;
• include the nominator's full name, mailing address, phone number, and email address; and
• include the nominator's signature, whether sent by email or otherwise.
PBGC will contact nominees for information on their political affiliation and their status as registered lobbyists. Nominees should be aware of the time commitment for attending meetings and actively participating in the work of the Advisory Committee. Historically, this has meant a commitment of at least 15 days per year. PBGC has a process for vetting nominees under consideration for appointment.
Issued in Washington, DC.
In accordance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 which provides opportunity for public comment on new or revised data collections, the Railroad Retirement Board (RRB) will publish periodic summaries of proposed data collections.
1.
Under Section 7(b) of the Railroad Retirement Act (RRA) (45 U.S.C. 231f), and Section 5(c) of the Railroad Unemployment Insurance Act (RUIA) (45 U.S.C. 355) any person aggrieved by a decision made by an office of the RRB on his or her application for an annuity or benefit under those Acts has the right to appeal to the RRB. This right is prescribed in 20 CFR 260 and 20 CFR 320. The notification letter, which is provided at the time of filing the original application, informs the applicant of such right. When an applicant protests a decision, the concerned RRB office reviews the entire file and any additional evidence submitted and sends the applicant a letter explaining the basis of the determination. The applicant is then notified that to protest further, they can appeal to the RRB's Bureau of Hearings and Appeals. The appeal process is prescribed in 20 CFR 260.5 and 260.9 and 20 CFR 320.12 and 320.38.
To file a request for an appeal the applicant must complete Form HA-1,
2.
Under Section 3(f)(2) of the Railroad Retirement Act (RRA) (45 U.S.C. 231b), the total monthly benefits payable to a railroad employee and his/her family are guaranteed to be no less than the amount which would be payable if the employee's railroad service had been covered by the Social Security Act. This is referred to as the Social Security Overall Minimum Guarantee, which is prescribed in 20 CFR 229. To administer this provision, the Railroad Retirement Board (RRB) requires information about a retired employee's spouse and child(ren) who would not be eligible for benefits under the RRA but would be eligible for benefits under the Social Security Act if the employee's railroad service had been covered by that Act. The RRB obtains the required information by the use of Forms G-319, Statement Regarding Family and Earnings for Special Guaranty Computation, and G-320, Student Questionnaire for Special Guaranty Computation. One response is required of each respondent. Completion is required to obtain or retain benefits. The RRB proposes minor changes to Form G-319:
• In Section 1, updated the year in example date format.
• In Section 2, changed first sentence to “Check the information entered by the Railroad Retirement Board (RRB) for accuracy.”
• In Receipt For Your Statement section (page 11), updated the office hours.
The RRB proposes no changes to Form G-320.
3.
Under Section 2 of the Railroad Retirement Act (RRA) (45 U.S.C. 231a), a railroad employee's retirement annuity or an annuity paid to the spouse of a railroad employee is subject to work deductions in the Tier II component of the annuity and any employee supplemental annuity for any month in which the annuitant works for a Last Pre-Retirement Non-Railroad Employer (LPE). The LPE is defined as the last person, company, or institution, other than a railroad employer, that employed an employee or spouse annuitant. In addition, the employee, spouse, or divorced spouse Tier I annuity benefit is subject to work deductions under Section 2(f)(1) (45 U.S.C. 231a) of the RRA for earnings from any non-railroad
The RRB utilizes Form RL-231-F, Request to Non-Railroad Employer for Information About Annuitant's Work and Earnings, to obtain the information needed to determine if a work deduction should be applied because an annuitant worked in non-railroad employment after the annuity beginning date. One response is requested of each respondent. Completion is voluntary. The RRB proposes no changes to Form RL-231-F.
4.
Under provisions of the Railroad Retirement Act (RRA), there are two types of benefit payments that are based on the status of a child being in full-time elementary or secondary school attendance at age 18-19: (1) A survivor child's annuity benefit under Section 2(d)(1)(iii) (45 U.S.C. 231a) and (2) an increase in the employee retirement annuity under the Special Guaranty computation as prescribed in Section 3(f)(2) (45 U.S.C. 231b) and 20 CFR 229.
The survivor student annuity is usually paid by direct deposit to a financial institution either into the student's checking or savings account or into a joint bank account with a parent. The requirements for eligibility as a student are prescribed in 20 CFR 216.74 and include students in independent study and home schooling.
To help determine if a child is entitled to student benefits, the RRB requires evidence of full-time school attendance. This evidence is acquired through the RRB's student monitoring program, which utilizes the following forms. Form G-315, Student Questionnaire, obtains certification of a student's full-time school attendance as well as information on the student's marital status, social security benefits, and employment, which are needed to determine entitlement or continued entitlement to benefits under the RRA. Form G-315A, Statement of School Official, is used to obtain, from a school, verification of a student's full-time attendance when the student fails to return a monitoring Form G-315. Form G-315A.1, School Official's Notice of Cessation of Full-Time School Attendance, is used by a school to notify the RRB that a student has ceased full-time school attendance. The RRB proposes no changes to Forms G-315, G-315A, or G-315A.1.
5.
In order to carry out the financial interchange provisions of Section 7(c)(2) of the Railroad Retirement Act (RRA) (45 U.S.C. 231f), the RRB obtains annually from railroad employer's the gross earnings for their employees on a one-percent basis,
The gross earnings information is essential in determining the tax amounts involved in the financial interchange with the Social Security Administration and Centers for Medicare & Medicaid Services. Besides being necessary for current financial interchange calculations, the gross earnings file tabulations are also an integral part of the data needed to estimate future tax income and corresponding financial interchange amounts. These estimates are made for internal use and to satisfy requests from other government agencies and interested groups. In addition, cash flow projections of the social security equivalent benefit account, railroad retirement account and cost estimates made for proposed amendments to laws administered by the RRB are dependent on input developed from the information collection.
The RRB utilizes Form BA-11 to obtain gross earnings information from railroad employers. Employers have the option of preparing and submitting BA-11 reports online via the RRB's Employer Reporting System or on paper (or in like format) by File Transfer Protocol (FTP) or secure Email. The online BA-11 includes the option to file a “negative report” (no employees, or no employees with the digits “30”). Completion is mandatory. One response is requested of each respondent. The RRB proposes no changes to Form BA-11.
6.
Section 6 of the Railroad Retirement Act (45 U.S.C. 231e) provides for a lump-sum payment to an employee or the employee's survivors equal to the Tier II taxes paid by the employee on a separation allowance or severance payment for which the employee did not receive credits toward retirement. The lump-sum is not payable until retirement benefits begin to accrue or the employee dies. Also, Section 4 (a-1) (iii) (45 U.S.C. 231c) of the Railroad Unemployment Insurance Act provides that a railroad employee who is paid a separation allowance is disqualified for unemployment and sickness benefits for the period of time the employee would have to work to earn the amount of the allowance. The reporting requirements are specified in 20 CFR 209.14.
In order to calculate and provide payments, the Railroad Retirement Board (RRB) must collect and maintain records of separation allowances and severance payments which were subject to Tier II taxation from railroad employers. The RRB uses Form BA-9, Report of Separation Allowance or Severance Pay, to obtain information from railroad employers concerning the separation allowances and severance payments made to railroad employees and/or the survivors of railroad employees. Employers currently have the option of submitting their reports on paper Form BA-9, (or in like format) on a CD-ROM, or by File Transfer Protocol (FTP), or Secure Email. Completion is mandatory. One response is requested of each respondent. The RRB proposes no changes to the manual, CD-ROM, secure email, or FTP Version of Form BA-9. The RRB proposes no changes from BA-9 (Internet).
7.
Under Section 2(e)(3) of the Railroad Retirement Act (RRA) (45 U.S.C. 231a), an annuity is not payable for any month in which a beneficiary works for a railroad. In addition, an annuity is reduced for any month in which the beneficiary works for an employer other than a railroad employer and earns more than a prescribed amount. Under the 1988 amendments to the RRA, the Tier II portion of the regular annuity and any supplemental annuity must be reduced by one dollar for each two dollars of Last Pre-Retirement Non-Railroad Employment (LPE) earnings for each month of such service. However, the reduction cannot exceed 50 percent of the Tier II and supplemental annuity amount for the month to which such deductions apply. The LPE generally refers to an annuitant's last employment with a non-railroad person, company, or institution prior to retirement, which was performed at the same time as railroad employment or after the annuitant stopped railroad employment. The collection obtains earnings information needed by the RRB to determine if possible reductions in annuities are in order due to LPE.
The RRB utilizes Form G-19L,
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Regulation A (17 CFR 230.251 through 230.263) provides an exemption from registration under the Securities Act of 1933 (15 U.S.C. 77a
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The public may view background documentation for this information collection at the following website:
Securities and Exchange Commission (“Commission” or “SEC”).
Notice.
Notice of an application under section 6(c) of the Investment Company Act of 1940 (the “Act”) for an exemption from sections 18(a)(2), 18(c) and 18(i) of the Act, under sections 6(c) and 23(c) of the Act for an exemption from rule 23c-3 under the Act, and for an order pursuant to section 17(d) of the Act and rule 17d-1 under the Act.
Applicants request an order to permit certain registered closed-end investment companies to issue multiple classes of shares and to impose asset-based distribution and/or service fees and early withdrawal charges.
MA Specialty Credit Income Fund and MA Asset Management, LLC.
The application was filed on July 17, 2024 and amended on August 27, 2024.
An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing on any application by emailing the SEC's Secretary at
The Commission:
Trace W. Rakestraw, Senior Special Counsel, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office).
For Applicants' representations, legal analysis, and conditions, please refer to Applicants' application, dated August 27, 2024, which may be obtained via the Commission's website by searching for the file number at the top of this document, or for an Applicant using the Company name search field on the SEC's EDGAR system. The SEC's EDGAR system may be searched at
For the Commission, by the Division of Investment Management, under delegated authority.
Securities and Exchange Commission (“Commission” or “SEC”).
Notice.
Notice of an application under section 6(c) of the Investment Company Act of 1940 (the “Act”) for an exemption from sections 18(a)(2), 18(c) and 18(i) of the Act, under sections 6(c) and 23(c) of the Act for an exemption from rule 23c-3 under the Act, and for an order pursuant to section 17(d) of the Act and rule 17d-1 under the Act.
Applicants request an order to permit certain registered closed-end investment companies to issue multiple classes of shares and to impose asset-based distribution and/or service fees and early withdrawal charges.
Wellington Global Multi-Strategy Fund and Wellington Management Company LLP.
The application was filed on August 13, 2024, and amended on August 16, 2024.
An order granting the requested relief will be issued unless the Commission orders a hearing. Interested persons may request a hearing on any application by emailing the SEC's Secretary at
The Commission:
Trace W. Rakestraw, Senior Special Counsel, at (202) 551-6825 (Division of Investment Management, Chief Counsel's Office).
For Applicants' representations, legal analysis, and conditions, please refer to Applicants' application, dated August 16, 2024, which may be obtained via the Commission's website by searching for the file number at the top of this document, or for an Applicant using the Company name search field on the SEC's EDGAR system. The SEC's EDGAR system may be searched at
For the Commission, by the Division of Investment Management, under delegated authority.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Form 8-K (17 CFR 249.308) is filed by issuers to satisfy their current reporting obligations pursuant to Sections 13 and 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m and 78o(d)) in connection with the occurrence of significant corporate events. The purpose of Form 8-K is to provide investors with prompt disclosure of material information so that investors will be able to make investment and voting decisions better informed and receive information more-timely. We estimate that Form 8-K takes 8.414583 hours per response and is filed by 70,560 responses annually. We estimate that 75% of the 8.414583 hours per response (6.31094 hours) is prepared by the issuer for a total annual reporting burden of 445,300 hours (6.31094 hours per response × 70,560 responses).
An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number.
The public may view background documentation for this information collection at the following website:
Small Business Administration.
Notice.
This is a notice of an Administrative declaration of a disaster for the State of New York dated 09/09/2024.
Issued on 09/09/2024.
Vanessa Morgan, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be submitted online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 205036 and for economic injury is 205040.
The States which received an EIDL Declaration are New York, Vermont.
U.S. Small Business Administration.
Amendment 2.
This is an amendment of the Presidential declaration of a major disaster for the State of Florida (FEMA-4806-DR), dated August 10, 2024.
Issued on August 28, 2024.
Visit the MySBA Loan Portal at
Vanessa Morgan, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
The notice of the President's major disaster declaration for the State of Florida, dated 08/10/2024, is hereby amended to include the following areas as adversely affected by the disaster:
All other information in the original declaration remains unchanged.
U.S. Small Business Administration.
Notice.
This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of California dated August 19, 2024.
Issued on August 19, 2024.
Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the Administrator's EIDL declaration, applications for disaster loans may be submitted online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for economic injury is 205460.
The States which received an EIDL Declaration are California.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative disaster declaration of a rural area for the State of Iowa dated August 26, 2024.
Issued on August 26, 2024.
Alan Escobar, Office of Disaster Recovery Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the Administrator's disaster declaration of a rural area, applications for disaster loans may be submitted online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 20566C and for economic injury is 205670.
The State which received an EIDL Declaration is Iowa.
U.S. Small Business Administration.
Notice.
This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of New Hampshire (FEMA-4812-DR), dated August 20, 2024.
Issued on August 20, 2024.
Visit the MySBA Loan Portal at
Vanessa Morgan, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the President's major disaster declaration on 08/20/2024, Private Non-Profit organizations that provide essential services of a governmental nature may file disaster loan applications online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 205626 and for economic injury is 205630.
U.S. Small Business Administration.
Notice.
This is a notice of an Economic Injury Disaster Loan (EIDL) declaration for the State of California dated September 6, 2024.
Issued on September 6, 2024.
Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the Administrator's EIDL declaration, applications for disaster loans may be submitted online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
Santa Barbara.
The Interest Rates are:
The number assigned to this disaster for economic injury is 206120.
The State which received an EIDL Declaration is California.
U.S. Small Business Administration.
Amendment 2.
This is an amendment of the Presidential declaration of a major disaster for the State of West Virginia (FEMA-4787-DR), dated July 3, 2024.
Issued on August 27, 2024.
Visit the MySBA Loan Portal at
Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
The notice of the President's major disaster declaration for the State of WEST VIRGINIA, dated July 3, 2024, is hereby amended to extend the deadline for filing applications for physical damages as a result of this disaster to November 2,2024.
All other information in the original declaration remains unchanged.
U.S. Small Business Administration.
Notice.
This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Florida (FEMA-4806-DR), dated August 28, 2024.
Issued on August 28, 2024.
Vanessa Morgan, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the President's major disaster declaration on 08/28/2024, Private Non-Profit organizations that provide essential services of a governmental nature may file disaster loan applications online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 205918 and for economic injury is 205920.
U.S. Small Business Administration.
Notice.
This is a notice of an Administrative disaster declaration of rural areas for the State of South Dakota dated August 26, 2024.
Issued on August 26, 2024.
Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
Notice is hereby given that as a result of the Administrator's disaster declaration of a rural area, applications for disaster loans may be submitted online using the MySBA Loan Portal
The following areas have been determined to be adversely affected by the disaster:
The Interest Rates are:
The number assigned to this disaster for physical damage is 205546 and for economic injury is 205550.
The State which received an EIDL Declaration is South Dakota.
U.S. Small Business Administration.
Amendment 1.
This is an amendment of the Administrative Rural declaration of disaster for the State of Texas dated August 7, 2024.
Issued on August 26, 2024.
Visit the MySBA Loan Portal at
Alan Escobar, Office of Disaster Recovery & Resilience, U.S. Small Business Administration, 409 3rd Street SW, Suite 6050, Washington, DC 20416, (202) 205-6734.
The notice of an Administrative declaration of a rural area for the State of Texas, dated August 7, 2024 is hereby amended to include the following areas as adversely affected by the disaster.
All other information in the original declaration remains unchanged.
Notice of request for public comment.
The Department of State is seeking Office of Management and Budget (OMB) approval for the information collection described below. In accordance with the Paperwork Reduction Act of 1995, we are requesting comments on this collection from all interested individuals and organizations. The purpose of this notice is to allow 60 days for public comment preceding submission of the collection to OMB.
The Department will accept comments from the public up to November 12, 2024.
You may submit comments by any of the following methods:
•
•
•
•
You must include the DS form number (if applicable), information collection title, and the OMB control number in any correspondence.
Direct requests for additional information regarding the collection listed in this notice, including requests for copies of the proposed collection instrument and supporting documents, to Gailyn McClung, Board of Examiners for the Foreign Service, Department of State SA-1, H-518. 2401 E Street NW, Washington, DC 20522, 202-320-0295.
•
•
•
•
•
•
•
•
•
•
•
•
We are soliciting public comments to permit the Department to:
• Evaluate whether the proposed information collection is necessary for the proper functions of the Department.
• Evaluate the accuracy of our estimate of the time and cost burden for this proposed collection, including the validity of the methodology and assumptions used.
• Enhance the quality, utility, and clarity of the information to be collected.
• Minimize the reporting burden on those who are to respond, including the use of automated collection techniques or other forms of information technology.
Please note that comments submitted in response to this Notice are public record. Before including any detailed personal information, you should be aware that your comments as submitted, including your personal information, will be available for public review.
Individuals registering for the Foreign Service Officer Test will complete a Registration Form, asking for their name, contact information, ethnicity, education and work history, and military experience. The information will be used to prepare and issue admission to the Foreign Service Officer Test, to provide data useful for improving future tests, and to conduct research studies based on the test results.
The registration process, which includes concurrent application submission and seat selection, opens approximately four (4) weeks prior to each testing window. To register, individuals go to
Georges Creek Division Railroad, LLC (GCDR), a noncarrier, has filed a verified notice of exemption under 49 CFR part 1150, subpart D, to lease and conduct common carrier operations over approximately 14.49 miles of rail line as follows: (a) 13.94 miles of railroad line consisting of a portion of the former CSXT Transportation, Inc. (CSXT) Georges Creek Subdivision between approximately milepost BAI 31.6 at Westernport, Md., and approximately milepost BAI 18.46 at the end of the line at Carlos/Shaft, Md.; and (b) 0.55 miles of railroad consisting of a portion of the former CSXT Thomas Subdivision from approximately milepost BAH 26.25 at Barton, Md., to the end of track at approximately milepost BAH 26.80 at Westernport (collectively, the Lines).
According to the verified notice, the Lines are owned by Eighteen Thirty Group, LLC (Eighteen Thirty). The verified notice states that GCDR and Eighteen Thirty are finalizing a Land and Rail Assets Lease Agreement (Lease), under which GCDR will assume the right and obligation to offer and provide railroad common carrier service over the Lines. Furthermore, the verified notice states that the Lease will permit GCDR to enter into a land and rail assets sublease agreement with Western Maryland Scenic Railroad Development Corporation (WMSR), the noncarrier that controls GCDR, to enable WMSR to operate intrastate excursion and railroad tourism over the Lines.
GCDR certifies that its projected annual revenue will not result in the creation of a Class I or Class II rail carrier and will not exceed $5 million. GCDR also certifies that the agreement does not include an interchange commitment. The transaction may be consummated on or after September 28, 2024, the effective date of the exemption (30 days after the verified notice was filed).
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than September 20, 2024 (at least seven days before the exemption becomes effective).
All pleadings, referring to Docket No. FD 36808, must be filed with the Surface Transportation Board either via e-filing on the Board's website or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, a copy of each pleading must be served on GCDR's representative, Robert A. Wimbish, Fletcher & Sippel LLC, 29 North Wacker Drive, Suite 800, Chicago, IL 60606-3208.
According to GCDR, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic preservation reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
By the Board, Scott M. Zimmerman, Acting Director, Office of Proceedings.
Iowa Northern Railway Company (IANR) has filed a verified notice of exemption under 49 CFR 1180.2(d)(4) for the further renewal of its lease of the railroad property of North Central Iowa Rail Corridor, LLC (NCIRC), between milepost 48.12 at Belmond, Iowa, and milepost 75.95 at Forest City, Iowa, and 600 feet of connecting track at Garner, Iowa (the Line).
According to the verified notice, in 2011, IANR leased the Line from NCIRC for an initial term of ten years, pursuant to a lease and purchase agreement.
IANR represents that the transaction involves a renewal of a lease that the Board previously authorized, and only an extension in time is involved. Therefore, the transaction is exempt from the prior approval requirements of 49 U.S.C. 11323. See 49 CFR 1180.2(d)(4).
This transaction may be consummated on or after September 29, 2024, the effective date of the exemption (30 days after the verified notice was filed).
Under 49 U.S.C. 10502(g), the Board may not use its exemption authority to relieve a rail carrier of its statutory obligation to protect the interests of its employees. However, 49 U.S.C. 11326(c) does not provide for labor protection for transactions under 49 U.S.C. 11324 and 11325 that involve only Class III rail carriers. Because this transaction involves Class III rail carriers only, the Board, under the statute, may not impose labor protective conditions for this transaction.
If the verified notice contains false or misleading information, the exemption is void ab initio. Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the effectiveness of the exemption. Petitions for stay must be filed no later than September 20, 2024.
All pleadings, referring to Docket No. FD 35508 (Sub-No. 2), must be filed with the Surface Transportation Board either via e-filing on the Board's website or in writing addressed to 395 E Street SW, Washington, DC 20423-0001. In addition, one copy of each pleading must be served on IANR's representative, Kevin M. Sheys, Law Offices of Kevin M. Sheys, 42 Brush Hill Rd., Sherborn, MA 01770.
According to IANR, this action is categorically excluded from environmental review under 49 CFR 1105.6(c) and from historic reporting requirements under 49 CFR 1105.8(b).
Board decisions and notices are available at
Decided.
By the Board, Scott M. Zimmerman, Acting Director, Office of Proceedings.
Federal Highway Administration (FHWA), DOT.
Notice and request for comments.
The FHWA has forwarded the information collection request described in this notice to the Office of Management and Budget (OMB) to approve a new information collection. We are required to publish this notice in the
Please submit comments by October 15, 2024.
You may submit comments identified by DOT Docket ID Number 0062 by any of the following methods:
Chip Millard, Reduction of Truck Emissions at Port Facilities Grant Program Manager, 202-366-4415, Office of Transportation Management (HOTM), Federal Highway Administration, Department of Transportation, 1200 New Jersey Avenue SE, Washington, DC 20590. Office hours are from 8:30 a.m. to 6 p.m. ET, Monday through Friday, except Federal holidays.
We published a
Federal Motor Carrier Safety Administration (FMCSA), Department of Transportation (DOT).
Notice and request for comments.
In accordance with the Paperwork Reduction Act of 1995, FMCSA announces its plan to submit the Information Collection Request (ICR) described below to the Office of Management and Budget (OMB) for its review and approval and invites public comment. FMCSA requests approval to renew the ICR titled “Road Test Requirement.” This ICR estimates the information burden incurred by motor carriers associated with the road test requirements in two circumstances. The first is when the motor carrier hires a new driver. The second is when the road test is required for individuals physically qualified under the Agency's alternative vision standard for the first time. In each circumstance, motor carriers are required to rate the performance of the driver during the test on a road test form provided by the motor carrier. If the road test is successfully completed, the motor carrier completes a certificate of driver's road test and provides a copy to the driver. The motor carrier retains the original signed road test form and the original, or a copy, of the signed certificate in the driver qualification file.
Comments on this notice must be received on or before November 12, 2024.
You may submit comments identified by Docket Number FMCSA-2024-0178 using any of the following methods:
•
•
•
•
To avoid duplication, please use only one of these four methods. See the “Public Participation and Request for Comments” portion of the
Ms. Pearlie Robinson, Driver and Carrier Operations Division, DOT, FMCSA, 1200 New Jersey Avenue SE, Washington, DC 20590-0001; 202-366-4225;
All submissions must include the Agency name and docket number. For detailed instructions on submitting comments, see the Public Participation heading below. Note that all comments received will be posted without change to
If you submit a comment, please include the docket number for this notice (FMCSA-2024-0178), indicate the specific section of this document to which the comment applies and provide a reason for suggestions or recommendations. You may submit your comments and material online or by fax, mail, or hand delivery, but please use only one of these means. FMCSA recommends that you include your name and a mailing address, an email address, or a phone number in the body of your document so the Agency can contact you if it has questions regarding your submission.
To submit your comment online, go to
If you submit your comments by mail or hand delivery, submit them in an unbound format, no larger than 8
Comments received after the comment closing date will be included in the docket and will be considered to the extent practicable.
In accordance with 5 U.S.C. 553(c), DOT solicits comments from the public to better inform its rulemaking process. DOT posts these comments, without edit, including any personal information the commenter provides, to
This ICR supports the DOT strategic goal of safety. Public interest in highway safety dictates that employers hire drivers who can safely operate CMVs amid the various physical and mental demands of truck and bus driving. Subject to some exceptions, § 391.31 requires a motor carrier to conduct a road test when the motor carrier hires a new driver. The motor carrier is required to rate the performance of the driver during the test on a road test form provided by the motor carrier. If the road test is successfully completed, the motor carrier completes a certificate of driver's road test and provides a copy to the driver. The motor carrier retains the original signed road test form and the original, or a copy, of the signed certificate in the driver qualification file. Motor carriers may maintain the required road test form and certificate electronically or via paper copy. The information collected by the motor carrier is needed to document the motor carrier conducted the road test as required and determined the driver can operate a CMV safely. The information also assists Federal and State safety investigators in determining that motor carriers fulfilled their regulatory requirements when deciding who may drive CMVs on their behalf and in assessing the qualifications of drivers.
The ICR estimates the information-collection burden incurred by motor carriers associated with the § 391.31 road test in two circumstances. The first is when the road test is required by § 391.31 (IC-1); the second is when the road test is required as part of the alternative vision standard in § 391.44 (IC-2). However, individuals are excepted from the road test requirement if they have 3 years of intrastate or specific excepted interstate CMV driving experience with the vision deficiency, hold a valid Federal vision exemption, or are medically certified under § 391.64(b). Most of the motor
The current burden estimate associated with this ICR, approved by OMB on March 28, 2022, is 273,888 hours. The expiration date of the current ICR is March 31, 2025. Through this ICR renewal, the Agency requests an increase in the burden hours from 273,888 hours to 584,408 hours. The increase is the result of an increase in the estimated driver population as well as an increase in the expected industry growth rate for drivers from 2022 to 2032.
Issued under the authority of 49 CFR 1.87.
Office of Foreign Assets Control, Treasury.
Notice.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) is publishing the names of persons that have been placed on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) based on OFAC's determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. In addition, OFAC is publishing the names of vessels that have been placed on OFAC's SDN List and identified as blocked property.
See
OFAC: Lisa M. Palluconi, Acting Director, tel.: 202-622-2490; Associate Director for Global Targeting, tel.: 202-622-2420; Assistant Director for Licensing, tel.: 202-622-2480; Assistant Director for Regulatory Affairs, tel.: 202-622-4855; or the Assistant Director for Sanctions Compliance & Evaluation, tel.: 202-622-2490.
The SDN List and additional information concerning OFAC sanctions programs are available on OFAC's website (
A. On June 12, 2024, OFAC determined that the property and interests in property subject to U.S. jurisdiction of the following persons are blocked under the relevant sanctions authorities listed below.
B. On June 12, 2024, OFAC also identified the following vessels as property in which a blocked person has an interest under the relevant sanctions authority listed below:
Office of Foreign Assets Control, Department of the Treasury.
Notice.
The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) is publishing the names of one or more persons that have been placed on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) based on OFAC's determination that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them.
This action takes effect on the date listed in
OFAC: Associate Director for Global Targeting, tel: 202-622-2420; Assistant Director for Licensing, tel.: 202-622-2480; Assistant Director for Regulatory Affairs, tel.: 202-622-4855; or Assistant Director for Compliance, tel.: 202-622-2490.
The SDN List and additional information concerning OFAC sanctions programs are available on OFAC's website (
On September 10, 2024, OFAC determined that the persons identified below meet one or more of the criteria for the imposition of sanctions set forth in section 1(a)-(c) of Executive Order 14059 of December 15, 2021, “Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” 86 FR 71549 (December 17, 2021) (E.O. 14059). OFAC has selected to impose blocking sanctions pursuant to section 2(a)(i) of E.O. 14059 on the persons identified below.
1. HERRERA MEDINA, Brandon Ernesto, Mexico; DOB 01 Aug 1993; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P. HEMB930801HVZRDR05 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of Executive Order 14059 of December 15, 2021, “Imposing Sanctions on Foreign Persons Involved in the Global Illicit Drug Trade,” 86 FR 71549 (December 17, 2021) (E.O. 14059) for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
2. CAZARIN MOLINA, Cesar (a.k.a. “DELGADO RENTERIA, Victor Hugo”; a.k.a. “TORNADO”), Mexico; DOB 06 Feb 1980; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P. CAMC800206HVZZLS07 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Cartel De Jalisco Nueva Generacion, a person sanctioned pursuant to E.O. 14059.
3. CAZARIN MOLINA, Ivan (a.k.a. “DELGADO RENTERIA, Victor Hugo”; a.k.a. “EL TANQUE”), Mexico; DOB 15 Oct 1984; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P. CAMI841015HVZZLV05 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Cartel De Jalisco Nueva Generacion, a person sanctioned pursuant to E.O. 14059.
4. MEDINA DIAZ, Domingo (a.k.a. “EL MINGO”), Mexico; DOB 19 Nov 1961; POB Guerrero, Mexico; nationality Mexico; Gender Male; C.U.R.P. MEDD611119HGRDZM01 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Cartel De Jalisco Nueva Generacion, a person sanctioned pursuant to E.O. 14059.
5. ALVARADO CASTILLO, Gerardo, Mexico; DOB 06 Jul 1988; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P. AACG880706HVZLSR00 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Cartel De Jalisco Nueva Generacion, a person sanctioned pursuant to E.O. 14059.
6. CAZARIN RAMOS, Jahir, Mexico; DOB 18 Mar 1998; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P.
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
7. RODRIGUEZ HERNANDEZ, Jose Saul, Mexico; DOB 05 Oct 1968; POB Oaxaca, Mexico; nationality Mexico; Gender Male; C.U.R.P. ROHS681005HOCDRL06 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
8. RIVERA GARCIA, Patricia, Mexico; DOB 13 Mar 1976; POB Veracruz, Mexico; nationality Mexico; Gender Female; C.U.R.P. RIGP760313MVZVRT00 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
9. ESTRADA MEDINA, Santos Aldair, Mexico; DOB 30 Apr 1994; POB Veracruz, Mexico; nationality Mexico; Gender Male; C.U.R.P. EAMS940430HVZSDN07 (Mexico) (individual) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
1. AHORROCOMBUSTIBLES DE VERACRUZ, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 31 May 2021; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021040072 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
2. BIOCOMBUSTIBLES EL JICARO, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 04 Sep 2019; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2020007868 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
3. CARBURANTES DOS OCEANOS, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 23 Jun 2020; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021005612 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
4. COMBUSTIBLES EVOLUTIVOS Y ALTERNATIVOS DOS OCEANOS, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 23 Jun 2020; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021005609 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
5. DOS OCEANOS COMBUSTIBLES Y CARBURANTES, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 23 Jun 2020; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021006218 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
6. DOS OCEANOS PASO DEL TORO, S.A. DE C.V., Medellin del Bravo, Veracruz, Mexico; Organization Established Date 20 Sep 2003; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. 62 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
7. ECONOCOMBUSTIBLES DE VERACRUZ, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 31 May 2021; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021040073 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
8. ETANOFUEL, S.A. DE C.V. (a.k.a. “G ENERGY”), Veracruz, Veracruz, Mexico; Organization Established Date 30 May 2015; Organization Type: Retail sale of automotive fuel in specialized stores; R.F.C. ETA150530HD4 (Mexico); Folio Mercantil No. 31222 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
9. MAGNOCOMBUSTIBLES DE VERACRUZ, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 31 May 2021; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021040063 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
10. MAQUINAS EDJA, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 21 Apr 2022; Organization Type: Construction of other civil engineering projects; Folio Mercantil No. N-2022028425 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
11. RAPICOMBUSTIBLES DE VERACRUZ, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 31 May 2021; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021040069 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
12. SUMINISTROS COMBUSTIBLES OCEANOS, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 23 Jul 2020; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2021006217 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
13. TRAVER PERMISIONARIOS, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 07 Aug 2019; Organization Type: Transportation and storage; Folio Mercantil No. N-2019067788 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Ivan Cazarin Molina, a person sanctioned pursuant to E.O. 14059.
14. 3D MODERN PRINTING PRESS, Veracruz, Veracruz, Mexico; Organization Established Date 15 Dec 2020; Organization Type: Service activities related to printing; Folio Mercantil No. N-2020081004 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
15. ACEITES Y LUBRICANTES MAYE, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 02 Mar 2016; Organization Type: Retail sale of automotive
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
16. ADITIVOS Y SUMINISTROS ETANOFUEL, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 14 May 2019; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2019045850 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
17. COMBUSTIBLES Y LUBRICANTES MAYE, S.A. DE C.V., Calle Ursulo Galvan Num. 360, Colonia Las Bajadas, Alvarado, Veracruz, Mexico; Organization Established Date 06 Apr 2015; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. 31142 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
18. COMERCIALIZADORA BAGUETTE KLIC, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 19 May 2016; Organization Type: Other food service activities; Folio Mercantil No. N-2016007450 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
19. COMERCIALIZADORA COFFE KLIC, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 19 May 2016; Organization Type: Beverage serving activities; Folio Mercantil No. N-2016007451 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
20. CONSTRUCTORA JJESA S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 09 Jul 1993; Organization Type: Construction of other civil engineering projects; Folio Mercantil No. 16996 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
21. ETANOPLUS, S.A. DE C.V., Calle ursulo galvan numero 360, Colonia Las Bajadas, Alvarado, Veracruz, Mexico; Organization Established Date 30 May 2015; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. 31223 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
22. MAXI-GASOIL SERVICIOS, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 07 Aug 2018; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. N-2018066203 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
23. MAYEGAS, S.A. DE C.V., Calle ursulo galvan numero 360, Colonia las Bajadas, Alvarado, Veracruz, Mexico; Organization Established Date 06 Apr 2015; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. 31143 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
24. MULTISERVICIOS EN COMBUSTIBLE MAYE DE VERACRUZ, S.A. DE C.V., Jamapa, Veracruz, Mexico; Organization Type: Retail sale of automotive fuel in specialized stores; Folio Mercantil No. 29059 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
25. SUPER TIENDAS KLIC, S.A. DE C.V., Veracruz, Veracruz, Mexico; Organization Established Date 19 May 2016; Organization Type: Other food service activities; Folio Mercantil No. N-2016007452 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
26. VERACRUZANA DE SERVICIOS HOTELEROS Y GASTRONOMICOS LOS ANGELES, S.A. DE C.V. (a.k.a. “HOTEL ANGELES”), Carr. Fed. Santa Fe—San Julian Km. 4, Col. Santa Fe, Veracruz, Veracruz 91690, Mexico; Organization Established Date 01 Aug 2012; Organization Type: Restaurants and mobile food service activities; RFC VSH1208019D1 (Mexico); Folio Mercantil No. 29001 (Mexico) [ILLICIT-DRUGS-EO14059].
Determined to meet the criteria for imposition of sanctions pursuant to section (1)(b)(iii) of E.O. 14059 for having acted or purported to act for or on behalf of, directly or indirectly, Jose Saul Rodriguez Hernandez, a person sanctioned pursuant to E.O. 14059.
Office of Financial Research, Department of the Treasury.
Notice of open meeting.
The Financial Research Advisory Committee for the Treasury's Office of Financial Research (OFR) is convening for its twenty-third meeting on Tuesday, October 1, 2024, via webcast, beginning at 10 a.m. eastern time. The meeting will be open to the public and advance registration is required.
The meeting will be held Tuesday, October 1, 2024, beginning at 10 a.m. eastern time.
The meeting will be held via webcast using Zoom. Participants are required to register ahead of time. Register in advance for the meeting using this Zoom attendee registration link:
After registering, you will receive a confirmation email with a unique link to join the meeting.
Patricia Driver, Designated Federal Officer, Office of Financial Research, Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220, (202) 213-4669 (this is not a toll-free number), or
Notice of this meeting is provided in accordance with the Federal Advisory Committee Act, 5 U.S.C. app. 2, 10(a)(2), through implementing regulations at 41 CFR 102-3.150,
•
•
The OFR will post statements on the Committee's website,
This is the twenty-third meeting of the Financial Research Advisory Committee. Topics to be discussed among all members are technology vulnerabilities, cybersecurity, artificial intelligence, central counterparties, a hedge fund monitor demonstration, and an update from the OFR Data Center. For more information on the OFR and the Committee, please visit the OFR's website at
Human Resources and Administration/Operations, Security, and Preparedness (HRA/OSP), Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995, this notice announces that the Human Resources and Administration/Operations, Security, and Preparedness (HRA/OSP), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden, and it includes the actual data collection instrument.
Comments and recommendations for the proposed information collection should be sent by October 10th, 2024.
To submit comments and recommendations for the proposed information collection, please type the following link into your browser:
VA PRA information: Maribel Aponte, 202-461-8900,
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
Veterans Benefits Administration, Department of Veterans Affairs.
Notice.
Veterans Benefits Administration, Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the
Comments must be received on or before November 12, 2024.
Comments must be submitted through
Under the PRA of 1995, Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is
With respect to the following collection of information, VBA invites comments on:
(1) whether the proposed collection of information is necessary for the proper performance of VBA's functions, including whether the information will have practical utility; (2) the accuracy of VBA's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
The requirements apply to all courses, not otherwise exempt, or waived, offered by all educational institutions, regardless of whether the institution is degree-granting, proprietary profit, proprietary nonprofit, eleemosynary, public and/or tax-supported. Schools are required to submit information necessary to determine if their programs of training are approved for the payment of VA educational assistance. This specified information is submitted either to VA or to the State Approving Agency (SAA) having jurisdiction over that school. This regulation includes a provision that permits an exemption from routine reporting of this data for schools that assert that the number of VA beneficiary students in all programs approved for GI Bill never exceeds 35% of the total enrollment at the educational institution. If approved, such schools must still monitor and collect the data, but are exempt from routinely reporting it to VA. The VA uses data from this information collection to determine that non-receipt of the routine reporting of 85/15 data is authorized by certain schools. Schools with an approved exemption are required to provide the complete 85/15 data during regular, periodic compliance survey reviews by VA to ensure no more than 85% of students in any approved program are students in receipt of financial support from the educational institution or by VA under title 38, U.S.C., or under title 10, U.S.C. Without this information, VA might pay benefits in error.
Internal Revenue Service (IRS), Treasury.
Notice of proposed rulemaking and notice of public hearing.
This notice of proposed rulemaking provides proposed regulations that would address the application of the corporate alternative minimum tax, which is imposed on the adjusted financial statement income of certain corporations based on their applicable financial statements for applicable taxable years beginning after 2022. The proposed regulations would affect taxpayers that are applicable corporations, certain taxpayers that own interests in applicable corporations, and certain entities in which applicable corporations hold interests. This document also provides notice of a public hearing on the proposed regulations.
Written or electronic comments on this proposed rule must be received by December 12, 2024. A public hearing on these proposed regulations is scheduled to be held on January 16, 2025, at 10 a.m. Eastern Time (ET). Requests to speak and outlines of topics to be discussed at the public hearing must be received by December 12, 2024. If no outlines are received by December 12, 2024, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5 p.m. ET on January 14, 2025.
Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at
Concerning proposed §§ 1.56A-1, 1.56A-9, and 1.56A-23, except for paragraphs (e) and (f), Madeline Padner at (202) 317-7006, concerning proposed §§ 1.56A-2 and 1.56A-3, Frank Dunham III at (202) 317-7009, concerning proposed §§ 1.56A-11, 1.56A-12, and 1.59-2, except for paragraphs (e), (f) and (h), John Aramburu at (202) 317-7006, concerning proposed § 1.56A-17, James Yu at (202) 317-4718, and concerning proposed §§ 1.56A-15 and 1.56A-16, except for issues related to partnerships, C. Dylan Durham at (202) 317-7005, each of the Office of Associate Chief Counsel (Income Tax and Accounting), and for issues related to partnerships, Yosef Koppel, Elizabeth Zanet, or Brian Barrett of the Office of Associate Chief Counsel (Passthroughs and Special Industries), at (202) 317-6850; concerning proposed § 1.56A-4, Daren J. Gottlieb at (202) 317-6938, concerning proposed § 1.56A-6, Dylan J. Steiner at (202) 317-6934, concerning proposed § 1.56A-7, Ryan Connery at (202) 317-6933, concerning proposed §§ 1.56A-8 and 1.59-4, John J. Lee at (202) 317-6936, concerning proposed § 1.56A-26(d), Michelle L. Ng at (202) 317-6939, concerning proposed § 1.56A-27, Joel Deuth at (202) 317-6938, and concerning proposed § 1.59-3, Karen Walny at (202) 317-6938, each of the Office of Associate Chief Counsel (International); concerning proposed §§ 1.56A-18, 1.56A-19, 1.56A-21, 1.56A-26, 1.1502-2, 1.1502-3, 1.1502-53, 1.1502-55, and 1.1502-56A, Jeremy Aron-Dine, William W. Burhop, or John Lovelace, concerning proposed §§ 1.56A-23(e) and (f) and 1.59-2(f) and (h), Jeremy Aron-Dine and William W. Burhop, each of the Office of Associate Chief Counsel (Corporate) at (202) 317-3181; concerning proposed § 1.56A-13, Diane Bloom at 202-317-6301, concerning proposed § 1.56A-14, Seth Groman at 202-317-5640, and concerning proposed § 1.59-2(e), Chris Dellana at 202-317-4726, each of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes); concerning proposed §§ 1.56A-5, 1.56A-10, and 1.56A-20, Yosef Koppel, Elizabeth Zanet, or Brian Barrett, each of the Office of Associate Chief Counsel (Passthroughs and Special Industries) at (202) 317-6850; concerning proposed § 1.56A-22, Ian Follansbee at (202) 317-6995, concerning proposed §§ 1.56A-24 and 1.56A-25, Vanessa Mekpong at (202) 317-6842, each of the Office of Associate Chief Counsel (Financial Institutions and Products); concerning submissions of comments or the public hearing, the Publications and Regulations Section, (202) 317-6901 (not toll-free numbers) or by email at
This document contains proposed additions and amendments to 26 CFR part 1 (Income Tax Regulations) addressing the application of the corporate alternative minimum tax (CAMT) imposed by section 55 of the Internal Revenue Code (Code), as amended by the enactment of section 10101 of Public Law 117-169, 136 Stat. 1818, 1818-1828 (August 16, 2022), commonly known as the Inflation Reduction Act of 2022 (IRA). The proposed additions and amendments are issued under section 56A, as added to the Code by the IRA, section 59 of the Code, as amended by the IRA, and section 1502 of the Code (proposed regulations), pursuant to the express delegations of authority provided under those sections. The express delegations relied upon are referenced in the parts of the Explanation of Provisions section of this preamble describing the individual sections of the proposed regulations. The proposed regulations are also issued under the express delegation of authority under section 7805 of the Code.
As amended by section 10101 of the IRA, section 55 imposes the CAMT based on the adjusted financial statement income, as determined under section 56A (AFSI), of an applicable corporation, as determined under section 59, for taxable years beginning after December 31, 2022. In general, under section 59(k), a corporation is an applicable corporation subject to the CAMT for a taxable year if it meets an average annual AFSI test for one or more taxable years that (i) are before that taxable year, and (ii) end after December 31, 2021.
Section 55(a) provides that, for the taxable year of an applicable corporation, the amount of CAMT equals the excess (if any) of (i) the tentative minimum tax for the taxable year, over (ii) the sum of the regular tax, as defined in section 55(c), for the taxable year plus the tax imposed under section 59A (commonly referred to as the base erosion and anti-abuse tax, or BEAT). Section 55(b)(2)(A) provides that, in the case of an applicable corporation, the tentative minimum tax
Section 56A(a) provides that, for purposes of sections 55 through 59 of the Code, the term “AFSI” means, with respect to any corporation for any taxable year, the net income or loss of the taxpayer set forth on the taxpayer's applicable financial statement (AFS) for that taxable year, adjusted as provided in section 56A. For purposes of section 56A, section 56A(b) provides that the term “AFS” means, with respect to any taxable year, an AFS, as defined in section 451(b)(3) of the Code or as specified by the Secretary in regulations or other guidance, that covers that taxable year.
Section 56A(c) provides general adjustments to be made to AFSI. Section 56A(c)(1) provides that appropriate adjustments are to be made to AFSI in any case in which an AFS covers a period other than the taxable year. Section 56A(c)(2) provides special rules for related entities. Section 56A(c)(2)(A) provides that, if the financial results of a taxpayer are reported on the AFS for a group of entities (financial statement group), rules similar to the rules of section 451(b)(5) apply. Section 451(b)(5) provides that, in such a situation, the consolidated financial statement of the financial statement group is treated as the AFS of the taxpayer. However, for purposes of section 451(b)(5), if the taxpayer's financial results are also reported on a separate financial statement that is of equal or higher priority to the consolidated financial statement, then the taxpayer's AFS is the separate financial statement.
Section 56A(c)(2)(B) provides a general rule that, if the taxpayer is part of an affiliated group of corporations that join in filing (or that are required to join in filing) a consolidated return for Federal income tax purposes (tax consolidated group) for any taxable year, AFSI for that group for that taxable year must take into account items on the group's AFS that are properly allocable to members of that group. However, section 56A(c)(2)(B) authorizes the Secretary to prescribe by regulation exceptions to that general rule.
Section 56A(c)(2)(C) provides that, in the case of any corporation that is not included on a consolidated return with the taxpayer, AFSI of the taxpayer with respect to that other corporation is determined by only taking into account dividends received from that other corporation (reduced to the extent provided by the Secretary in regulations or other guidance) and other amounts that are includible in gross income or deductible as a loss under chapter 1 of the Code (chapter 1), other than amounts required to be included under sections 951 and 951A of the Code or such other amounts as provided by the Secretary, with respect to that other corporation.
Section 56A(c)(2)(D)(i) provides that, except as provided by the Secretary, if the taxpayer is a partner in a partnership, the taxpayer's AFSI with respect to such partnership is adjusted to take into account only the taxpayer's distributive share of such partnership's AFSI. Section 56A(c)(2)(D)(ii) provides that, for purposes of sections 55 through 59, the AFSI of a partnership is the partnership's net income or loss set forth on that partnership's AFS (adjusted under rules similar to the rules set forth in section 56A).
Section 56A(c)(3)(A) provides an adjustment to the AFSI of a taxpayer for any taxable year in which the taxpayer is a United States shareholder (within the meaning of section 951(b) or, if applicable, section 953(c)(1)(A) of the Code (each shareholder, a “U.S. shareholder”)) of one or more controlled foreign corporations (each within the meaning of section 957 of the Code or, if applicable, section 953(c)(1)(B)) (CFC). Under this rule, the AFSI of the taxpayer with respect to the CFC (as determined under section 56A(c)(2)(C)) is adjusted to also take into account the taxpayer's pro rata share (determined under rules similar to the rules under section 951(a)(2)) of items taken into account in computing the net income or loss set forth on the AFS (as adjusted under rules similar to those that apply in determining AFSI) of each CFC with respect to which the taxpayer is a U.S. shareholder. Section 56A(c)(3)(B) provides that, if the adjustment determined under section 56A(c)(3)(A) would result in a negative adjustment for the taxable year, (i) no adjustment is made to the taxpayer's AFSI for that year, and (ii) the amount of the adjustment determined under section 56(c)(3)(A) for the succeeding taxable year is reduced by an amount equal to the negative amount from the prior taxable year.
Section 56A(c)(4) provides that, in determining the AFSI of a foreign corporation, the principles of section 882 of the Code (which subjects a foreign corporation to Federal income tax on its taxable income that is effectively connected with the conduct of a trade or business within the United States) apply.
Section 56A(c)(5) provides the general rule that AFSI is appropriately adjusted to disregard any Federal income taxes, or income, war profits, or excess profits taxes (within the meaning of section 901 of the Code) with respect to a foreign country or possession of the United States, which are taken into account on the taxpayer's AFS. To the extent provided by the Secretary, this general rule does not apply to such foreign taxes taken into account on the taxpayer's AFS if the taxpayer does not choose to claim a foreign tax credit (FTC) under section 27 of the Code (regular FTC). Section 56A(c)(5) also authorizes the Secretary to prescribe regulations or other guidance on the proper treatment of current and deferred taxes for purposes of section 56A(c)(5), including the time at which such taxes are properly taken into account.
Section 56A(c)(6) requires AFSI to be adjusted to take into account any AFSI of a disregarded entity owned by the taxpayer. Section 56A(c)(7) and (8) provide special rules for cooperatives and Alaska Native Corporations (within the meaning of section 3 of the Alaska Native Claims Settlement Act (ANCSA) (43 U.S.C. 1602(m))), respectively.
Section 56A(c)(9) requires AFSI to be appropriately adjusted to disregard any amount treated as a payment against the tax imposed by subtitle A of the Code (subtitle A) pursuant to an election under section 48D(d) or 6417 of the Code and included in the net income or loss set forth on the taxpayer's AFS. However, if such amount is otherwise disregarded under the adjustment rule in section 56A(c)(5) (concerning AFSI adjustments for certain taxes), the adjustment in section 56A(c)(9) does not apply.
Section 56A(c)(10)(A) requires AFSI to be adjusted so as not to include any item of income in connection with a mortgage servicing contract any earlier than when the income is included in gross income under any other provision of chapter 1. Section 56A(c)(10)(B)
Section 56A(c)(11)(A) provides that AFSI is (i) adjusted to disregard any amount of income, cost, or expense that otherwise would be included on the AFS in connection with any covered benefit plan, (ii) increased by any amount of income in connection with any such covered benefit plan that is included in the gross income of the corporation under chapter 1, and (iii) reduced by any deductions allowed under any other provision of chapter 1 with respect to any such covered benefit plan. Section 56A(c)(11)(B) defines the term “covered benefit plan” to mean: (i) a defined benefit plan (other than a multiemployer plan described in section 414(f) of the Code) if the trust that is part of such plan is an employees' trust described in section 401(a) of the Code that is exempt from tax under section 501(a) of the Code; (ii) any qualified foreign plan (as defined in section 404A(e) of the Code); or (iii) any other defined benefit plan that provides post-employment benefits other than pension benefits.
Section 56A(c)(12) requires AFSI to be appropriately adjusted, in the case of an organization subject to tax under section 511 of the Code, to take into account only AFSI (i) of an unrelated trade or business of such organization, as defined in section 513 of the Code, or (ii) derived from debt-financed property, as defined in section 514 of the Code, to the extent that income from such property is treated as unrelated business taxable income.
Section 56A(c)(13)(A) requires AFSI to be reduced by depreciation deductions allowed under section 167 of the Code with respect to property to which section 168 of the Code applies, to the extent of the amount allowed as deductions in computing taxable income for the taxable year. In addition, section 56A(c)(13)(B)(i) requires appropriate adjustments to AFSI to disregard any amount of depreciation expense that is taken into account on the taxpayer's AFS with respect to such property. Section 56A(c)(13)(B)(ii) further provides that AFSI is appropriately adjusted to take into account any other item specified by the Secretary in order to provide that such property is accounted for in the same manner as that property is accounted for under chapter 1.
Section 56A(c)(14)(A)(i) requires AFSI to be reduced by amortization deductions allowed under section 197 of the Code with respect to qualified wireless spectrum, to the extent of the amount allowed as deductions in computing taxable income for the taxable year. Section 56A(c)(14)(A)(ii)(I) requires appropriate adjustments to AFSI to disregard any amount of amortization expense that is taken into account on the taxpayer's AFS with respect to such qualified wireless spectrum. Section 56A(c)(14)(A)(ii)(II) further provides that AFSI is appropriately adjusted to take into account any other item specified by the Secretary in order to provide that such qualified wireless spectrum is accounted for in the same manner as that property is accounted for under chapter 1. Section 56A(c)(14)(B) defines the term “qualified wireless spectrum” as wireless spectrum that is used in the trade or business of a wireless telecommunications carrier and that was acquired after December 31, 2007, and before August 16, 2022.
Section 56A(c)(15) authorizes the Secretary to issue regulations or other guidance to provide for such adjustments to AFSI as the Secretary determines necessary to carry out the purposes of section 56A, including adjustments to AFSI (i) to prevent the omission or duplication of any item, and (ii) to carry out the principles of part II of subchapter C (relating to corporate liquidations), part III of subchapter C (relating to corporate organizations and reorganizations), and part II of subchapter K (relating to partnership contributions and distributions) of chapter 1.
Section 56A(d)(1) provides that AFSI (determined after the application of section 56A(c), but without regard to section 56A(d)) is reduced by an amount equal to the lesser of (i) the aggregate amount of financial statement net operating loss (FSNOL) carryovers to the taxable year, or (ii) 80 percent of AFSI (determined after the application of section 56A(c), but without regard to section 56A(d)). Section 56A(d)(2) provides that the amount of an FSNOL that can be carried forward to a taxable year is the FSNOL remaining (if any) after reducing AFSI in prior taxable years under section 56A(d)(1). An FSNOL is the net loss set forth on a taxpayer's AFS, adjusted as provided by section 56A(c), but without regard to section 56A(d), for taxable years ending after December 31, 2019.
Section 56A(e) authorizes the Secretary to provide such regulations and other guidance as necessary to carry out the purposes of section 56A, including regulations and other guidance relating to the effect of the rules of section 56A on partnerships with income taken into account by an applicable corporation.
Section 59(k)(1)(A) provides that, for purposes of sections 55 through 59, the term “applicable corporation” means, with respect to any taxable year, any corporation other than an S corporation (as defined in section 1361(a)(1) of the Code), a regulated investment company (as defined in section 851 of the Code) (RIC), or a real estate investment trust (as defined in section 856 of the Code) (REIT), that meets the average annual AFSI test under section 59(k)(1)(B) (AFSI Test) for one or more taxable years that (i) are prior to that taxable year, and (ii) end after December 31, 2021.
There are two versions of the AFSI Test under section 59(k)(1)(B): one version that applies to corporations that are members of a foreign-parented multinational group (FPMG); and another version that applies to all other corporations. Under section 59(k)(1)(B)(i), a corporation that is not a member of an FPMG meets the AFSI test for a taxable year if the average annual AFSI of that corporation (determined without regard to the adjustment under section 56A(d) for FSNOLs) for the three-taxable-year period ending with that taxable year exceeds $1,000,000,000 (general AFSI test). Under section 59(k)(1)(B)(ii), a corporation that is a member of an FPMG for any taxable year meets the AFSI test for that taxable year if (i) that corporation meets the general AFSI test (determined after applying the rule in section 59(k)(2)) (FPMG $1 billion test), and (ii) the average annual AFSI of that corporation (determined without regard to the rule in section 59(k)(2) and without regard to the adjustment described in section 56A(d) for FSNOLs) for the aforementioned three-taxable-year period is at least $100,000,000.
Solely for purposes of determining whether a corporation is an applicable corporation under section 59(k)(1), section 59(k)(1)(D) provides that all AFSI of persons treated as a single employer with the corporation under section 52(a) or (b) of the Code is treated as AFSI of that corporation.
Section 59(k)(1)(D) also provides that, solely for purposes of determining whether a corporation is an applicable corporation, the AFSI of such corporation must be determined without
Section 59(k)(1)(E) provides additional special rules for purposes of determining whether a corporation is an applicable corporation. With regard to a corporation with AFSI for any taxable year of less than 12 months, the AFSI of that corporation (including any predecessor) is annualized by multiplying the AFSI for the short period by 12 and dividing the result by the number of months composing the short period.
Section 59(k)(1)(E)(i) provides that, if a corporation has been in existence for less than three taxable years, the AFSI tests are applied to that corporation on the basis of the period during which that corporation was in existence. Section 59(k)(1)(E)(iii) provides that a reference in section 59(k)(1)(E) to a corporation includes a reference to any predecessor of such corporation. Accordingly, for purposes of determining whether a corporation was in existence for less than three taxable years and, if so, the period on the basis of which the AFSI Tests are applied to that corporation, the period(s) of existence of any predecessor(s) of such corporation are included.
Section 59(k)(1)(C) excludes a corporation from the definition of “applicable corporation” if the following requirements are satisfied. First, the corporation must have either (i) a change in ownership, or (ii) a specified number of consecutive taxable years (as determined by the Secretary, taking into account the taxpayer's facts and circumstances), including the most recent taxable year, in which the corporation does not meet an AFSI test.
For purposes of applying section 59(k)(2)(A), section 59(k)(2)(B) defines an FPMG, with respect to a taxable year, as two or more entities if (i) at least one entity is a domestic corporation and another entity is a foreign corporation, (ii) the entities are included in the same AFS for the year, and (iii) either the common parent of the entities is a foreign corporation or, if there is no common parent, the entities are treated as having a common parent that is a foreign corporation under rules provided by the Secretary under the authority granted by section 59(k)(2)(D) (the common parent or the entity treated as the common parent, the FPMG Common Parent). For purposes of applying section 59(k)(2), if a foreign corporation is engaged in a trade or business in the United States, that trade or business is treated as a separate domestic corporation that is wholly owned by the foreign corporation.
Section 59(k)(2)(D) authorizes the Secretary to provide regulations or other guidance applying the principles of section 59(k)(2), including rules to determine the entities treated as having an FPMG Common Parent, the entities included in an FPMG, and the FPMG Common Parent.
Section 59(k)(3) authorizes the Secretary to provide regulations or other guidance for purposes of applying section 59(k), including providing a simplified method for determining whether a corporation meets the requirements of section 59(k)(1), and addressing the application of section 59(k) to a corporation that experiences a change in ownership.
Section 59(l)(1) provides rules for determining the amount of the CAMT FTC for a taxable year if an applicable corporation chooses to claim the Regular FTC for the taxable year. The CAMT FTC of the applicable corporation for a taxable year is the sum of two amounts. The first amount (CFC Taxes) is equal to the lesser of: (i) the aggregate of the applicable corporation's pro rata share (as determined under section 56A(c)(3)) of the amount of income, war profits, and excess profits taxes (within the meaning of section 901) imposed by any foreign country or possession of the United States that are (A) taken into account on the AFS of each CFC with respect to which the applicable corporation is a U.S. shareholder, and (B) paid or accrued (for Federal income tax purposes) by each such CFC; or (ii) 15 percent of the applicable corporation's adjustment under section 56A(c)(3)(A) (CFC FTC Limitation).
Section 59(l)(2) provides that, for any taxable year for which an applicable corporation chooses to claim the Regular FTC, the amount of CFC Taxes for the taxable year in excess of the CFC FTC Limitation for the taxable year is carried forward for up to the five succeeding taxable years and increases the amount of CFC Taxes in any of those succeeding taxable years to the extent not taken into account in a prior taxable year.
Section 59(l)(3) authorizes the Secretary to provide regulations or other guidance as is necessary to carry out the purposes of the CAMT FTC rules in section 59(l).
Section 1502 authorizes the Secretary to prescribe regulations to clearly reflect the Federal income tax liability of a tax consolidated group and to prevent avoidance of such tax liability.
The Treasury Department and the IRS have issued seven notices with respect to the CAMT (CAMT notices).
On January 17, 2023, the Treasury Department and the IRS published
On March 6, 2023, the Treasury Department and the IRS published Notice 2023-20, 2023-10 I.R.B. 523, to provide interim guidance on the determination of an insurance company's AFSI as it relates to (i) variable contracts (and similar contracts), and (ii) funds withheld reinsurance and modified coinsurance agreements. Notice 2023-20 also provides interim guidance on the determination of AFSI as it relates to the basis of certain assets held by certain previously tax-exempt entities that received a “fresh start” basis adjustment.
On June 7, 2023, the Treasury Department and the IRS published Notice 2023-42, 2023-26 I.R.B. 1085, to provide relief from the addition to tax under section 6655 of the Code with respect to the tax imposed under section 55(a) (CAMT liability) for any taxable year that begins after December 31, 2022, and before January 1, 2024.
On October 2, 2023, the Treasury Department and the IRS published Notice 2023-64, 2023-40 I.R.B. 974, to provide additional interim guidance on determining a taxpayer's AFS and AFSI, including guidance applicable to tax consolidated groups and certain foreign corporations. Notice 2023-64 also describes guidance related to (i) AFSI adjustments with respect to depreciation of property to which section 168 applies, (ii) the amortization of qualified wireless spectrum, (iii) the treatment of certain taxes, (iv) the prevention of certain duplications and omissions, (v) the determination of applicable corporation status, (vi) the CAMT FTC, and (vii) FSNOLs.
On January 16, 2024, the Treasury Department and the IRS published Notice 2024-10, 2024-3 I.R.B., to provide additional interim guidance on determining the AFSI of a U.S. shareholder if a CFC pays a dividend. Notice 2024-10 also modifies and clarifies interim guidance provided in Notice 2023-64 regarding the AFS of a tax consolidated group.
On April 15, 2024, the Treasury Department and the IRS issued Notice 2024-33, 2024-18 I.R.B. 959, which provided a limited waiver of the addition to tax under section 6655 to the extent the amount of any underpayment is attributable to a portion of a corporation's CAMT liability. The relief provided in Notice 2024-33 applied only for the purpose of calculating the installment of estimated tax by a corporate taxpayer that was due on or before April 15, 2024, or May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024), with respect to a taxable year that began in 2024.
On June 13, 2024, the Treasury Department and the IRS issued Notice 2024-47, 2024-27 I.R.B. 1, extending the relief provided in Notice 2024-33. Under Notice 2024-47, the limited waiver of the addition to tax under section 6655 that is attributable to a corporation's CAMT liability was extended to include the calculation of any installment of estimated tax by a corporate taxpayer that was due on or before August 15, 2024, with respect to a taxable year that began in 2024.
Except as provided in the next paragraph, pursuant to section 15.02 of Notice 2023-64, a taxpayer may rely on the interim guidance provided in sections 3 through 7 of Notice 2023-7 (as modified and clarified by Notice 2023-64), sections 3 through 5 of Notice 2023-20, and sections 3 through 14 of Notice 2023-64, for taxable years ending on or before September 13, 2024.
Pursuant to section 5.01 of Notice 2024-10, taxpayers may rely on the interim guidance described in section 3 of Notice 2024-10 for Covered CFC Distributions (as defined therein) received on or before September 13, 2024. In addition, pursuant to section 5.02 of Notice 2024-10, taxpayers may rely on the interim guidance described in section 4.02(5)(b) and section 6.02 of Notice 2023-64 (as modified by Notice 2024-10) and section 4.04 of Notice 2024-10 for taxable years ending before September 13, 2024. A taxpayer may not rely on the unmodified text of sections 4.02(5)(b)(i) or 6.02 of Notice 2023-64 for any tax return filed on or after December 15, 2023.
The Treasury Department and the IRS have received feedback from taxpayers, tax professionals, and other stakeholders regarding the CAMT, including feedback received in response to the CAMT notices. Based on the feedback received, and based on further consideration of sections 55, 56A, 59 and 1502, and the CAMT notices, the Treasury Department and the IRS are proposing these regulations under sections 55, 56A, 59, 1502, and 7805 as described in the Authority section. Certain CAMT issues with respect to which stakeholders have provided feedback, as well as issues on which the Treasury Department and the IRS have further reflected after publication of the CAMT notices, are discussed in the following Explanation of Provisions.
Pursuant to the authority granted by section 56A(c)(2)(B), (c)(15), and (e), proposed § 1.56A-1 would provide definitions and general rules for determining the AFSI of a CAMT entity (that is, any entity identified in section 7701 of the Code and the regulations under section 7701 other than a disregarded entity) for purposes of sections 55 through 59 of the Code.
Proposed § 1.56A-1(a) would provide an overview of proposed § 1.56A-1 and clarify the scope of the section 56A regulations, which term is defined to mean proposed §§ 1.56A-1 through 1.56A-27 and § 1.1502-56A. Specifically, proposed § 1.56A-1(a)(2) would provide that the section 56A regulations apply to determine a CAMT entity's AFSI, as defined in proposed § 1.56A-1(b)(1), modified FSI, as defined in proposed § 1.56A-1(b)(32) (in the case of a partnership), or adjusted net income or loss, as defined in proposed § 1.56A-1(b)(2) (in the case of a CFC), for purposes of sections 55 through 59. Proposed § 1.56A-1(a)(2) would also provide that the section 56A regulations apply to any CAMT entity whose AFSI, modified FSI, or adjusted net income or loss, as applicable, is relevant for determining whether that CAMT entity, or any other CAMT entity, is an applicable corporation under section 59(k), or the tentative minimum tax amount under section 55(b)(2)(A) of
Proposed § 1.56A-1(b) would provide definitions that apply for purposes of the section 56A regulations. Proposed § 1.56A-1(b)(1) would provide that the term “adjusted financial statement income” (AFSI) means the CAMT entity's FSI for the taxable year, adjusted as provided in the section 56A regulations.
Proposed § 1.56A-1(b)(20) would provide that the term “financial statement income” (FSI) means the net income or loss of the CAMT entity set forth on the income statement included in the CAMT entity's applicable financial statement (AFS) for the taxable year. FSI includes all the CAMT entity's items of income, expense, gain, and loss reflected in the net income or loss set forth on the income statement for the taxable year, including nonrecurring items and net income or loss from discontinued operations, but does not include items reflected elsewhere in the CAMT entity's AFS, including equity accounts such as retained earnings and other comprehensive income (OCI). OCI is not included in the net income or loss reflected on financial statements prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).
Proposed § 1.56A-1(b)(4) would provide that the term “AFS consolidation entries” means the financial accounting journal entries that are made in preparing a consolidated financial statement for a financial statement group in order to present the financial results of that financial statement group as though all members of the financial statement group were a single economic entity. Proposed § 1.56A-1(b)(6) would provide that the term “applicable financial statement” (AFS) is defined in proposed § 1.56A-2(b). AFS means a CAMT entity's financial statement from which a CAMT entity's FSI and AFSI is determined. Proposed § 1.56A-1(b)(7) would provide that the term “CAMT basis” means the basis of an item for purposes of determining AFSI. Except as otherwise provided in the section 56A regulations, the CAMT basis of an item would be the AFS basis of the item, adjusted as provided in the section 56A regulations. Proposed § 1.56A-1(b)(22) would provide that the term “for regular tax purposes” means for the purposes of computing a CAMT entity's regular tax liability, as defined under section 26(b) of the Code, or, if the CAMT entity is a pass-through entity or a CFC, the regular tax liability of a direct or indirect owner of the CAMT entity, as applicable.
Proposed § 1.56A-1(c) would provide general rules for determining a CAMT entity's FSI, which is the starting point for determining the CAMT entity's AFSI. The rules in proposed § 1.56A-1(c) generally would be consistent with section 5 of Notice 2023-64 and section 4 of Notice 2024-10.
Proposed § 1.56A-1(c)(1) would provide that FSI includes all items of income, expense, gain, and loss reflected in the net income or loss reported in the CAMT entity's income statement, regardless of the treatment of these items for regular tax purposes. For example, FSI includes gain on a like-kind exchange that qualifies for non-recognition treatment under section 1031.
Proposed § 1.56A-1(c)(2) would set forth rules for determining the FSI of a tax consolidated group and CAMT entities that own disregarded entities. If the AFS of each member of the tax consolidated group is not the same consolidated financial statement (as determined under proposed § 1.56A-2(g)), the financial results of all CAMT entities reflected in the different AFSs of its members are combined to form a single consolidated financial statement that is treated as the AFS of the tax consolidated group. Adjustments are made to avoid duplication of financial results and to record any AFS consolidation entries that would have been made if such a consolidated financial statement actually had been prepared to the extent not already reflected in the financial results of any member. Proposed § 1.56A-1(c)(2)(i) would also provide that additional rules for determining the FSI of a tax consolidated group are under proposed § 1.1502-56A. Proposed § 1.56A-1(c)(2)(ii) would provide that special rules for determining the FSI of a CAMT entity that owns a disregarded entity or branch are under proposed § 1.56A-9.
Proposed § 1.56A-1(c)(3) and (4) would provide the rules for determining the entity-level FSI, AFS basis, and balance sheet account amounts for a CAMT entity whose financial results are included in a single consolidated financial statement. It is necessary for a CAMT entity to determine entity-level FSI, AFS basis, and balance sheet account amounts because section 56A and other CAMT provisions require certain AFSI computations or adjustments to be performed at the entity level. For example,
Proposed § 1.56A-1(c)(3) would set forth rules for determining a CAMT entity's FSI if the CAMT entity's AFS is a consolidated financial statement (consolidated AFS) that reflects FSI for the financial statement group (consolidated FSI). Under the proposed rules, consolidated FSI that is the CAMT entity's FSI must be (i) supported by the CAMT entity's separate books and records, including trial balances, used to create the consolidated AFS, and (ii) generally determined without regard to the financial results of the other financial statement group members. Accordingly, the loss of one member of the financial statement group may not generally offset the income of another member in determining the consolidated FSI that is the CAMT entity's FSI, even though the amounts are reflected in consolidated FSI on a net basis.
Additionally, under the proposed rules, the consolidated FSI that is the CAMT entity's FSI would be determined without regard to AFS consolidation entries that are made in preparing the consolidated AFS and that either: eliminate the effect of transactions between the CAMT entity and other CAMT entities that are members of the same financial statement group; or eliminate any income, loss, expense, asset, liability, or other item of the CAMT entity with respect to its investment in another CAMT entity that
To prevent amounts from being duplicated or omitted from a CAMT entity's FSI, proposed § 1.56A-1(c)(3)(iv) would provide that AFS consolidation entries, other than elimination entries, that relate to one or more CAMT entities that are members of the financial statement group but are not reflected in the separate books and records of the CAMT entities are appropriately allocated or pushed down (or both), as applicable, to each CAMT entity to which the AFS consolidation entries relate and taken into account in each CAMT entity's FSI.
To ensure all items on a consolidated financial statement are properly accounted for by each CAMT entity that is a member of the financial statement group, proposed § 1.56A-1(c)(3)(v) would require each CAMT entity to maintain books and records sufficient to demonstrate how the CAMT entity's FSI, determined under the rules in proposed § 1.56A-1(c)(3), reconciles to consolidated FSI of the financial statement group.
For reasons similar to those underlying proposed § 1.56A-1(c)(3), proposed § 1.56A-1(c)(4)(i) would provide that, if a CAMT entity's AFS is a consolidated financial statement, and if the CAMT entity's balance sheet accounts or AFS basis in an item is relevant for determining the CAMT entity's AFSI, then the CAMT entity uses the balance sheet accounts or AFS basis reflected in the CAMT entity's separate books and records used to create the CAMT entity's consolidated financial statement, determined under rules similar to the rules in proposed § 1.56A-1(c)(3)(iii) and (iv). Proposed § 1.56A-1(c)(4)(ii) would provide, in part, that any adjustments under purchase accounting (as defined in proposed § 1.56A-1(b)(35)) or push down accounting (as defined in proposed § 1.56A-1(b)(36)) reflected in a CAMT entity's AFS basis, balance sheet accounts, or FSI as a result of the application of proposed § 1.56A-1(c)(4)(i) may be disregarded for purposes of determining the CAMT entity's CAMT basis and AFSI under other sections of the section 56A regulations, for example, under proposed §§ 1.56A-4 and 1.56A-18.
Because it is necessary to determine a CAMT entity's FSI before determining its AFSI, proposed § 1.56A-1(c)(5) would provide that proposed § 1.56A-1(c) applies before proposed § 1.56A-1(d) and (e) and before all other sections of the section 56A regulations, other than proposed § 1.56A-2. Accordingly, references to AFS basis and FSI in proposed § 1.56A-1(d) and (e) and in proposed §§ 1.56A-3 through 1.56A-27 mean AFS basis and FSI as determined under the proposed § 1.56A-1(c) rules described previously.
Proposed § 1.56A-1(c)(6) would provide examples illustrating these rules.
Proposed § 1.56A-1(d) would provide general rules for determining a CAMT entity's AFSI under the section 56A regulations. The rules in proposed § 1.56A-1(d) for determining AFSI generally would be consistent with section 5 of Notice 2023-64. Accordingly, proposed § 1.56A-1(d)(1) would provide that AFSI includes all items of income, expense, gain, and loss reflected in a CAMT entity's FSI regardless of the treatment of these items for regular tax purposes, unless an exception is provided in another section of the section 56A regulations. For example, if a CAMT entity's FSI reflects gain or loss from a transaction that qualifies for nonrecognition treatment for regular tax purposes, then the gain or loss is included in AFSI except as otherwise provided in the section 56A regulations.
Proposed § 1.56A-1(d)(2) would limit the adjustments allowed in determining a CAMT entity's AFSI to those provided in the section 56A regulations or in IRB guidance (as defined in proposed § 1.56A-1(b)(31)). The section 56A regulations would encompass all statutory AFSI adjustments and any AFSI adjustments provided with the use of the regulatory authority of the Treasury Department and the IRS described in the Authority section. Certain AFSI adjustments are based on the authority granted in section 56A(c)(15), which authorizes “such adjustments to adjusted financial statement income as the Secretary determines necessary to carry out the purposes of this section . . . .” Examples of AFSI adjustments based on section 56A(c)(15) authority are those found in proposed § 1.56A-21 (regarding troubled companies) and proposed § 1.56A-12(b)(2) (regarding the proceeds of certain credit transfers).
Proposed § 1.56A-1(d)(3) generally would provide that the AFSI adjustments described in the section 56A regulations, including those adjustments that affect the CAMT basis of an item, are made for taxable years ending after December 31, 2019. However, a transition rule in proposed § 1.56A-1(d)(3)(ii) generally would provide that, except as otherwise provided in the section 56A regulations (for example, in § 1.56A-15(c)(6) and (e)(2)(ii)(A) for AFSI adjustments for section 168 property), AFSI adjustments that otherwise affect the computation of AFSI in taxable years ending after December 31, 2019, but that arise from a transaction or an event that occurred in a taxable year ending on or before December 31, 2019, are not made. The rules underlying proposed § 1.56A-1(d)(3) are derived from the statute. For example, under section 59(k)(1)(A) and (B), a corporation is an applicable corporation for a taxable year if the average annual adjusted financial statement income of the corporation for a 3-taxable-year period that is prior to such taxable year and that ends after December 31, 2021, exceeds certain thresholds. In addition, section 56A(d)(3) defines a FSNOL as the amount of the net loss on the corporation's AFS for taxable years ending after 2019. The statute generally contemplates that events that occur before 2020 but affect AFSI computations and adjustments in 2020
To prevent duplications and omissions, proposed § 1.56A-1(d)(4) generally would provide that, if a gain or loss is reflected in FSI with respect to an item that has a CAMT basis that is different than the item's AFS basis, and if the gain or loss is required to be recognized for AFSI purposes, then the gain or loss reflected in FSI is redetermined for AFSI purposes by reference to the CAMT basis of the item.
Proposed § 1.56A-1(e) would provide that a CAMT entity whose AFSI is not expressed in U.S. dollars must translate its AFSI, after having made all other applicable adjustments under the section 56A regulations except for those adjustments that already are expressed in U.S. dollars, to U.S. dollars using the weighted average exchange rate, as defined in § 1.989(b)-1, for the CAMT entity's taxable year. See part VI.C. of this Explanation of Provisions for a discussion of the separate rules under proposed § 1.56A-6(c)(1) that apply for translating a CFC's adjusted net income or loss to U.S. dollars.
Proposed § 1.56A-1(f) would provide that the classification of an entity for regular tax purposes applies for purposes of the section 56A regulations regardless of whether the entity or arrangement is classified differently for AFS purposes. The proposed regulations would follow regular tax principles for purposes of determining whether an organization or other arrangement is treated as an entity separate from its owners, and whether an unincorporated organization or contractual arrangement is treated as a partnership. Accordingly, regardless of the AFS treatment, a participant in a contractual arrangement that rises to the level of an entity classified as a partnership for Federal income tax purposes is treated as owning a partnership investment to which section 56A(c)(2)(D)(i) adjustments may apply. This interpretation is supported by references in section 56A to entity classifications that do not exist for AFS purposes, such as disregarded entities, and provides for administrative consistency in situations in which the financial accounting rules and the Federal income tax rules provide for disparate structural characterizations. For example, the Treasury and the IRS understand that in certain situations IFRS may treat a CAMT entity that is treated as a partner in a partnership for Federal income tax purposes as owning 100 percent of the partnership's equity, while treating another CAMT entity that is also treated as a partner in the partnership for Federal income tax purposes as a lender to that partnership. Although under IFRS a CAMT entity's partnership investment might be treated as that of a lender, the section 56A(c)(2)(D)(i) adjustment applies if the CAMT entity is treated as a partner in the partnership for Federal income tax purposes.
Proposed § 1.56A-1(g)(1) would require an applicable corporation to maintain books and records sufficient to demonstrate its compliance with the section 56A regulations, including the identification of the corporation's AFS, the determination of the corporation's FSI (including how FSI reconciles to consolidated FSI if determined under proposed § 1.56A-1(c)(3)), the substantiation of any adjustments required by the section 56A regulations, and the substantiation of AFS basis and CAMT basis. Proposed § 1.56A-1(h) would require an annual return on Form 4626,
Pursuant to the authority granted by section 56A(b), (c)(15), and (e), proposed § 1.56A-2 would provide rules under section 56A(b) regarding the meaning and identification of an “applicable financial statement” and under section 56A(c)(2)(A) regarding the priority of consolidated financial statements.
Section 56A(b) generally defines an “applicable financial statement” (AFS) for any taxable year as an applicable financial statement as defined in section 451(b)(3) or as specified by the Secretary in regulations or other guidance. Section 451(b)(3) and § 1.451-3(a)(5), which implements section 451(b)(3), generally provide that a taxpayer's AFS is the taxpayer's financial statement listed therein that has the highest priority. The financial statements listed in § 1.451-3(a)(5) are financial statements certified as being prepared in accordance with GAAP or IFRS, or financial statements filed with the Federal or a State government, an agency thereof, or a self-regulatory organization. Under § 1.451-3(a)(5), the financial statements that would take the highest priority are those prepared in accordance with GAAP, followed by those prepared in accordance with IFRS, followed by those filed with certain Federal, State, and foreign governments or agencies thereof.
Consistent with sections 56A(b) and 451(b)(3), proposed § 1.56A-2(b) generally would provide that the term “AFS” means a CAMT entity's financial statement listed in proposed § 1.56A-2(c) that has the highest priority. Proposed § 1.56A-2(c) generally would adopt the list of financial statements and their order of priority set forth in section 451(b)(3) and § 1.451-3(a)(5).
However, proposed § 1.56A-2(c)(3) would expand the list of financial statements to include certain certified financial statements prepared in accordance with accounting standards other than GAAP and IFRS but issued by an accounting standards board charged with developing accounting standards for one or more jurisdictions. Because these statements have been certified, they would take a higher priority than financial statements filed with governments or agencies thereof, which are not subject to a certification requirement. However, these statements would take a lower priority than financial statements certified as being prepared in accordance with GAAP or IFRS.
Additionally, proposed § 1.56A-2(c)(5) and (6) would add two additional categories of financial statements of lower priority: (i) financial statements that are unaudited (or audited but not certified) and that are prepared using accepted accounting standards for an external non-tax purpose; and (ii) the CAMT entity's Federal income tax return or information return. These categories would be added to ensure CAMT entities that do not prepare a financial statement described in any of the other categories can perform the necessary AFSI computations required under sections 56A and 59(k), including for purposes of determining whether a corporation is an applicable corporation under section 59(k) or determining the AFSI of an applicable corporation under section 56A.
As discussed previously, the list of financial statements in proposed § 1.56A-2(c) would include certain certified financial statements that are used for a substantial non-tax purpose. Proposed § 1.56A-2(h) would provide examples illustrating the presence or absence of a substantial non-tax purpose. Comments are requested on whether additional examples are necessary to illustrate other cases in
A stakeholder requested guidance on what it means for a financial statement to be “certified,” as section 451(b)(3) and § 1.451-3(a)(5) do not address this issue. Proposed § 1.56A-2(d) would provide that a financial statement is certified for purposes of proposed § 1.56A-2(c) if it is: (i) certified by an independent financial statement auditor to present fairly the financial position and results of operations of a CAMT entity or financial statement group in conformity with the relevant financial accounting standards (that is, an unqualified or unmodified “clean” opinion); (ii) subject to a qualified or modified opinion by an independent financial statement auditor that the financial statement presents fairly the financial position and results of operations of a CAMT entity or financial statement group in conformity with the relevant financial accounting standards, except for the effects of the matter to which the qualification or modification relates (that is, a qualified or modified “except for” opinion); or (iii) subject to an adverse opinion by an independent financial statement auditor, but only if the auditor discloses the amount of the disagreement with the statement. This definition of the term “certified” generally follows the Public Company Accounting Oversight Board's rules governing an audit opinion of an independent financial statement auditor and the definition of a “certified audited” financial statement in former § 1.56-1(c)(1)(ii) (
Consistent with § 1.451-3(a)(5)(iv), proposed § 1.56A-2(e) and (f) would provide additional rules for prioritizing a restated financial statement over an original financial statement if the restated financial statement is issued prior to the date the CAMT entity files its original Federal income tax return for that taxable year, and for prioritizing annual financial statements over periodic financial statements.
Section 56A(c)(2)(A) provides that, if a taxpayer's financial results are reported on the AFS for a group of entities (that is, a financial statement group), rules similar to the rules in section 451(b)(5) apply. Section 451(b)(5) provides that, in such a situation, the AFS for the financial statement group is treated as the AFS of the taxpayer. The rules in § 1.451-3(h) generally provide that the AFS for the group is treated as the AFS of the taxpayer, unless the taxpayer has a separate financial statement that is of equal or higher priority than the AFS for the financial statement group.
Proposed § 1.56A-2(g)(1) would provide general rules for determining a CAMT entity's AFS if the financial results of the CAMT entity are included in a consolidated financial statement (that is, a financial statement that consolidates the financial results of more than one CAMT entity to treat such CAMT entities as if they were a single economic unit). This section generally would provide that, if a CAMT entity's financial results are included in one or more consolidated financial statements described in proposed § 1.56A-2(c)(1) through (5) (that is, financial statements other than a tax return), the CAMT entity's AFS is the consolidated financial statement with the highest priority within those sections. However, if the CAMT entity's financial results are also reported on one or more separate financial statements that are of equal or higher priority to the highest priority consolidated financial statement (as determined under proposed § 1.56A-2(c)), then the CAMT entity's AFS is the separate financial statement with the highest priority under proposed § 1.56A-2(c).
Proposed § 1.56A-2(g)(2)(i) through (iv) would provide exceptions to the use of a separate financial statement if the CAMT entity is a member of a tax consolidated group.
Proposed § 1.56A-2(g)(2)(i) generally would require a CAMT entity that is a member of a tax consolidated group that has only one consolidated financial statement described in proposed § 1.56A-2(c)(1) through (5) that contains the financial results of all members of the tax consolidated group to use that consolidated financial statement as the CAMT entity's AFS, even if the CAMT entity's financial results also are reported on a separate financial statement (or a consolidated financial statement that has the financial results of some, but not all, members of the tax consolidated group) that is of equal or higher priority to that consolidated financial statement.
Proposed § 1.56A-2(g)(2)(ii) generally would provide that, if there is more than one consolidated financial statement described in proposed § 1.56A-2(c)(1) through (5) that contains the financial results of all members of a tax consolidated group, then a CAMT entity that is a member of the tax consolidated group uses the consolidated financial statement with the highest priority, even if the CAMT entity's financial results also are reported on a separate financial statement (or a consolidated financial statement that has the financial results of some, but not all, members of the tax consolidated group) that is of equal or higher priority to that consolidated financial statement. Proposed § 1.56A-2(g)(2)(iii) and (iv) would provide additional exceptions that apply if there are no consolidated financial statements that contain the financial results of all members of a tax consolidated group.
As noted previously, if the AFS of each member of a tax consolidated group is not the same consolidated financial statement after the application of proposed § 1.56A-2(g), proposed § 1.56A-1(c)(2) would provide rules for combining the different financial statements of the members of the tax consolidated group to form a single consolidated financial statement that is treated as the AFS of the tax consolidated group for purposes of determining FSI and AFSI of the tax consolidated group under the section 56A regulations.
The foregoing rules would be consistent with the treatment of the members of a tax consolidated group as a single corporation for purposes of the CAMT.
In order to minimize the inconsistent treatment of transactions between FPMG members computing AFSI based on different financial accounting standards, proposed § 1.56A-2(g)(2)(v) would provide an additional exception to the use of a separate financial statement for a CAMT entity that is a member of an FPMG. Proposed § 1.56A-2(g)(2)(v) would provide that, if the FPMG common parent (as defined in proposed § 1.56A-1(b)(25)) prepares a consolidated financial statement (FPMG consolidated AFS) that includes the CAMT entity, the CAMT entity uses the FPMG consolidated AFS as the CAMT entity's AFS, regardless of whether the CAMT entity's financial results also are reported on a separate financial statement that is of equal or higher priority to the FPMG consolidated AFS.
Proposed § 1.56A-9, discussed later, would provide rules for attributing
Proposed § 1.56A-2 generally would be consistent with the guidance described in section 4 of Notice 2023-64, as modified and clarified in section 4 of Notice 2024-10.
Pursuant to the authority granted by sections 56A(c)(1), (c)(15), and (e), proposed § 1.56A-3 would provide rules under section 56A(c)(1) regarding appropriate adjustments that are made to AFSI if an AFS covers a period other than the taxable year. If a CAMT entity's AFS is prepared on the basis of a financial accounting period that differs from the CAMT entity's taxable year, proposed § 1.56A-3(b) would require the CAMT entity to compute FSI and AFSI as if the financial reporting period were the same as the taxable year by conducting an interim closing of the books using the accounting standards the CAMT entity uses to prepare the AFS.
The Treasury Department and the IRS considered the methods in the 1990 Regulations and in § 1.451-3(h)(4), among other methods, in determining which adjustments are appropriate under section 56A(c)(1). Those methods included (i) performing an interim closing of the books, (ii) using pro rata amounts for each financial accounting year that includes any part of the taxable year, and (iii) in the case of an accounting year ending at least five months after the end of the taxable year, using the amount reported for the financial accounting year ending within the taxable year. The proposed regulations would provide for adjustments based on an interim closing of the books because this method carries out the purposes of the statute by producing an accurate measurement of AFSI for the taxable year.
Proposed § 1.56A-3(b)(2) would provide examples illustrating the application of an interim closing of the books to determine FSI and AFSI when a CAMT entity's AFS is prepared on the basis of a financial accounting period that differs from the taxable year.
Section 56A(c)(2)(C) provides that a taxpayer's AFSI with respect to a corporation that is not a member of the taxpayer's tax consolidated group generally only takes into account dividends (reduced to the extent provided by the Secretary in regulations or other guidance) and other amounts that are includible in gross income or deductible as a loss under chapter 1 (other than amounts required to be included under sections 951 and 951A or such other amounts as provided by the Secretary). Section 56A(c)(3)(A) provides that the AFSI of a taxpayer that is a U.S. shareholder of one or more CFCs is adjusted to also take into account the taxpayer's pro rata share of items taken into account in computing the net income or loss set forth on the AFS (as adjusted under rules similar to those that apply in determining AFSI) of each CFC with respect to which the taxpayer is a U.S. shareholder.
Section 56A(c)(15) authorizes the Secretary to issue regulations or other guidance to provide for such adjustments to AFSI as the Secretary determines necessary to carry out the purposes of section 56A, including: (i) adjustments to prevent the omission or duplication of any item; and (ii) adjustments to carry out the principles of part II of subchapter C of chapter 1 (relating to corporate liquidations) and part III of subchapter C of chapter 1 (relating to corporate organizations and reorganizations).
Pursuant to the authority granted by sections 56A(c)(2)(C), (c)(15), and (e), proposed § 1.56A-4 would provide rules concerning foreign corporations. More specifically, proposed § 1.56A-4 would provide rules under section 56A(c)(2)(C) for determining the amount of AFSI of a CAMT entity that results solely from the CAMT entity's ownership of stock of a foreign corporation. Additionally, proposed § 1.56A-4 would provide (i) rules under section 56A(c)(15)(B) for determining the AFSI and CAMT basis consequences of certain transactions involving foreign corporations (referred to as covered asset transactions); (ii) rules regarding the treatment of elections made under section 338(g) of the Code for acquisitions of stock of foreign corporations; (iii) rules regarding the treatment of purchase accounting and push down accounting with respect to acquisitions of stock of foreign corporations; (iv) rules for adjusting AFSI in certain circumstances when basis in foreign stock received is determined under section 358 of the Code; (v) rules for adjusting modified FSI of a partnership in certain circumstances when the partnership distributes stock of a foreign corporation; and (vi) examples illustrating application of the rules in proposed § 1.56A-4.
The interaction of section 56A(c)(2)(C) and (c)(3) raises unique double-counting issues with respect to distributions by CFCs and transfers of stock of CFCs. For example, absent guidance, distributions by CFCs could result in earnings of CFCs being included in the AFSI of a U.S. shareholder of the CFC more than once. Specifically, a duplication of items may result if the U.S. shareholder includes in AFSI, under section 56A(c)(2)(C), the amount of a dividend received from earnings associated with adjusted net income or loss that the U.S. shareholder also includes in AFSI under section 56A(c)(3). A duplication of items may also result if an upper-tier CFC includes in adjusted net income or loss the amount of a dividend received from a lower-tier CFC from earnings associated with adjusted net income or loss that the U.S. shareholder includes in AFSI under section 56A(c)(3) with respect to the lower-tier CFC. Section 56A grants the Secretary broad authority to address this issue.
The Treasury Department and the IRS considered various approaches to applying section 56A(c)(2)(C) to items that result solely from a CAMT entity's ownership of stock of a CFC. As indicated previously, the interaction of section 56A(c)(2)(C) and (c)(3) raises unique duplication concerns that are not present in the case of a CAMT entity's ownership of stock of a domestic corporation. In the regular tax context, similar duplication concerns relating to U.S. taxpayers owning the stock of CFCs have given rise to complex rules (
The Treasury Department and the IRS also are of the view that ownership of stock of all foreign corporations should be subject to the same rules under proposed § 1.56A-4 to avoid the need for, and complexity arising from, rules addressing foreign corporations' transition into and out of CFC status. Accordingly, proposed § 1.56A-4 would apply to the ownership of stock of any foreign corporation, regardless of whether the foreign corporation is a CFC. Compare the discussion in part XVIII of this Explanation of Provisions of the rules under section 56A(c)(2)(C) regarding investments in domestic corporations that are not members of the CAMT entity's tax consolidated group and the rules under section 56A regarding certain transactions involving domestic corporations.
Proposed § 1.56A-4(c)(1) would provide for adjustments to a CAMT entity's AFSI as a result of direct ownership of stock of a foreign corporation. Specifically, consistent with Notice 2024-10, proposed § 1.56A-4(c)(1)(i) would require a CAMT entity, in calculating AFSI, to disregard any items of income, expense, gain, and loss resulting from ownership of stock of the foreign corporation, including any such items that result from acquiring or transferring such stock, reflected in the CAMT entity's FSI. Proposed § 1.56A-4(c)(1)(ii) would generally require the CAMT entity to include in AFSI any items of income, deduction, gain, and loss for regular tax purposes resulting from ownership of stock of the foreign corporation, including any items that result from acquiring or transferring such stock (for example, transaction costs). Proposed § 1.56A-4(e) would provide that if a partnership directly owns stock of a foreign corporation, then in determining the AFSI of a CAMT entity that is a partner in the partnership (or an indirect partner, in the case of tiered partnerships), the partner takes into account the tax items described in proposed § 1.56A-4(c)(1)(ii) (described in the preceding sentence) that are allocated to the partner for regular tax purposes. However, proposed § 1.56A-4(c)(1)(i) (disregarding certain items reflected in FSI) would apply at the partnership level because the partnership, as the direct owner of the stock of the foreign corporation, may have reflected certain items resulting from the ownership of stock of the foreign corporation in its FSI.
As one illustration of proposed § 1.56A-4(c)(1), the AFSI of a CAMT entity that is a domestic corporation would not reflect any inclusion with respect to a dividend received from a foreign corporation if the CAMT entity is eligible for a dividends-received deduction under section 245A of the Code for the entire amount of the dividend, because the item of FSI with respect to the dividend would be disregarded, and the regular tax income item with respect to the dividend would be offset by an item of deduction resulting from the receipt of the dividend. As another example, the AFSI of a CAMT entity that is a domestic corporation would generally not reflect any inclusion with respect to a distribution of previously taxed earnings and profits (PTEP) (described in section 959 of the Code) by a foreign corporation to the CAMT entity because the item of FSI with respect to the distribution would be disregarded and section 959(a) excludes the regular tax amount of the distribution of PTEP from the CAMT entity's gross income.
Under proposed § 1.56A-4(c)(1)(ii), no adjustment to AFSI would be made for amounts included in a CAMT entity's gross income under sections 951 and 951A.
The items described in proposed § 1.56A-4(c)(1)(ii) are determined under regular tax rules, including subchapter C of chapter 1 (subchapter C), taking into account the CAMT entity's basis in the stock of the foreign corporation for regular tax purposes and the foreign corporation's earnings and profits for regular tax purposes. Accordingly, any AFSI consequences of a distribution in respect of, or transfer of, stock of a foreign corporation would be determined, as applicable, by reference to the earnings and profits of the foreign corporation for regular tax purposes or the basis in such stock for regular tax purposes.
While proposed § 1.56A-4(c)(1)(ii) would determine the AFSI consequences resulting from ownership of stock of a foreign corporation by reference to the basis in that stock for regular tax purposes and the foreign corporation's earnings and profits for regular tax purposes, the rules in proposed §§ 1.56A-18 and 1.56A-19 generally would determine the AFSI consequences resulting from ownership of stock of a domestic corporation by reference to the CAMT basis in that stock and the domestic corporation's CAMT retained earnings.
Pursuant to the authority granted by section 56A(c)(15)(B), proposed § 1.56A-4 would incorporate certain rules under subchapter C for determining the AFSI and CAMT basis consequences of certain transactions involving foreign corporations (referred to as covered asset transactions). However, the proposed rules would use the CAMT basis of transferred assets to determine the AFSI consequences of such transfers and that basis may be different than the basis for regular tax purposes, except in the case of foreign stock. Using CAMT basis for assets other than foreign stock is consistent with the general rule in proposed § 1.56A-1 and appropriate because the duplication concerns that exist for foreign stock are not present.
Proposed § 1.56A-4(b), which would provide definitions that apply for purposes of proposed § 1.56A-4, would define the term covered asset transaction. The definition of covered asset transaction uses the concept of a component transaction (within the meaning of proposed § 1.56A-18(b)(6)) to distinguish the fact patterns in which the rules of proposed § 1.56A-4 (which apply to ownership of foreign stock) apply versus the rules of proposed §§ 1.56A-18 and 1.56A-19 (which generally apply to ownership of domestic stock). The rules of proposed §§ 1.56A-18 and 1.56A-19 apply on a component transaction-by-component transaction basis. Covered asset transactions include two categories of transactions.
The first category of covered asset transactions involves a transfer of an asset to, or by, a foreign corporation. More specifically, this first category includes a component transaction in which one or more assets are: (i) transferred by a foreign corporation in a transfer to which section 311 of the Code applies; (ii) transferred by a foreign corporation in a transfer that is part of a complete liquidation to which sections 332 and 337 of the Code apply; (iii) transferred to a foreign corporation in a transfer to which section 351 or section 361 of the Code applies; (iv) transferred by a foreign corporation in a transfer to which section 361 applies; (v) stock, or stock and securities, of a domestic corporation described in section 355(a)(1)(A) of the Code and transferred by a foreign corporation in a transfer to which section 355 applies; or (vi) securities of a foreign corporation that is a party to a reorganization described in section 368(a)(1) and transferred in a transfer to which section 354 or 356 applies.
The second category of covered asset transactions involves a transfer of foreign stock to or by a domestic corporation. That is, this second category includes a component transaction in which one or more assets, at least one of which is stock of a foreign corporation, are: (i) transferred by a domestic corporation in a transfer to which section 311 applies; (ii) transferred by a domestic corporation in a transfer that is part of a complete liquidation to which sections 332 and 337 apply; (iii) transferred to a domestic corporation in a transfer to which section 351 or section 361applies; (iv) transferred by a domestic corporation in a transfer to which section 361 applies; (v) stock, or stock and securities, of a foreign corporation described in section 355(a)(1)(A) and transferred by a domestic corporation in a transfer to which section 355 applies; or (vi) securities of a domestic corporation that is a party to a reorganization described in section 368(a)(1) and transferred in a transfer to which section 354 or 356 applies, provided the securities are exchanged for stock or securities of a foreign corporation that is a party the reorganization.
Proposed § 1.56A-4(c)(2) would provide for adjustments to a CAMT entity's AFSI as a result of a transfer of an asset other than stock of a foreign corporation in a covered asset transaction. Specifically, proposed § 1.56A-4(c)(2)(i) would require a CAMT entity, in calculating AFSI, to disregard any items of income, expense, gain, and loss with respect to the transferred asset resulting from the covered asset transaction reflected in the CAMT entity's FSI. Proposed § 1.56A-4(c)(2)(ii) would require the CAMT entity to include any items of income, deduction, gain, and loss for regular tax purposes with respect to the transferred asset resulting from the covered asset transaction; however, for this purpose, the amount of each such item would be computed by substituting the CAMT entity's CAMT basis in the transferred asset for the CAMT entity's basis in the transferred asset for regular tax purposes.
Proposed § 1.56A-4(d)(1) would provide rules for determining the CAMT basis in an asset that is transferred in a covered asset transaction. The rules for determining CAMT basis would rely on the principles of the Code that apply to these transactions for determining basis for regular tax purposes, but use CAMT basis instead of regular tax basis as applicable. If the asset is transferred in a covered asset transaction described in section 311, the transferee's CAMT basis in the asset would be determined in the manner described in section 301(d) of the Code. If the asset is transferred in a covered asset transaction described in sections 332 and 337, the transferee's CAMT basis in the asset would be determined in the manner described in section 334(b) of the Code, substituting the transferor's CAMT basis in the asset for the transferor's basis in the asset for regular tax purposes. If the asset is transferred in a covered asset transaction described in section 351 or 361, the transferee's CAMT basis in the asset would be determined in the manner described in section 362 of the Code, substituting the transferor's CAMT basis in the asset for the transferor's basis in the asset for regular tax purposes and substituting the amount of gain included in the transferor's AFSI for the amount of gain recognized to the transferor for regular tax purposes. However, if the transferor is not a CAMT entity, the transferee's CAMT basis in the asset would be equal to the transferee's basis in the asset for regular tax purposes. Thus, if an individual transfers an asset to a foreign corporation in a transaction described in section 351, this rule would apply to the
If the asset transferred is stock or securities of a domestic corporation described in section 355(a)(1)(A) and the asset is transferred by a foreign corporation in a covered asset transaction to which section 355 applies, the transferee's CAMT basis in the transferred stock or securities of the domestic corporation would be equal to the transferee's basis in the stock or securities for regular tax purposes. If the asset transferred is stock or securities of a foreign corporation described in section 355(a)(1)(A) and the asset is transferred by a domestic corporation in a covered asset transaction to which section 355 applies, the transferee's CAMT basis in the stock or securities of the domestic corporation would be determined by applying section 358, substituting the transferee's CAMT basis in the stock or securities of the domestic corporation for the transferee's basis in the stock of the domestic corporation for regular tax purposes. If the asset transferred is securities of a foreign corporation that is a party to a reorganization described in section 368(a)(1) and the asset received in exchange for the securities is not stock of a foreign corporation that is a party to the reorganization, the transferee's CAMT basis in the asset received would be determined by applying section 358, substituting the transferee's CAMT basis in the securities of the foreign corporation for the transferee's basis in such securities for regular tax purposes. If the asset transferred is securities of a domestic corporation that is a party to a reorganization described in section 368(a)(1) and the asset received in exchange for the securities is not stock of a foreign corporation that is a party to the reorganization, the transferee's CAMT basis in the asset received would be determined by applying section 358, substituting the transferee's CAMT basis in the securities of the domestic corporation for the transferee's basis in such securities for regular tax purposes.
Proposed § 1.56A-4(c)(3) would provide adjustments to the AFSI of a foreign corporation the stock of which is purchased in a transaction where the purchaser makes an election under section 338(g) (a section 338(g) transaction), consistent with the general principles underlying the rules in proposed § 1.56A-4 to follow regular tax rules for foreign stock and transactions involving foreign corporations. Specifically, proposed § 1.56A-4(c)(3) would require such a foreign corporation, when calculating AFSI, to include any net gain or loss that results for regular tax purposes with respect to all assets the foreign corporation is treated as selling by reason of the section 338(g) transaction; however, for this purpose, the amount of gain or loss with respect to each asset that the foreign corporation is deemed to have sold by reason of the section 338(g) transaction is computed by substituting the foreign corporation's CAMT basis in the asset for the foreign corporation's basis in the asset for regular tax purposes. Proposed § 1.56A-4(d)(2) would provide a parallel rule that if stock of a foreign corporation is acquired in a section 338(g) transaction, immediately after the section 338(g) transaction, the foreign corporation's CAMT basis in the assets it is deemed to have purchased by reason of the section 388(g) transaction is equal to the foreign corporation's basis in those assets for regular tax purposes.
Proposed § 1.56A-1(c)(4)(ii) would provide that, except as otherwise provided, any purchase accounting and push down accounting adjustments, as applicable, are required to be reflected in the CAMT entity's AFS basis, balance sheet accounts, and FSI. Proposed § 1.56A-4(c)(4) would provide an exception to this general rule such that any purchase accounting or push down accounting adjustments, as applicable, with respect to an acquisition of the stock of a foreign corporation by a CAMT entity would be disregarded for purposes of determining the CAMT entity's AFSI. Proposed § 1.56A-4(d)(4) would provide a parallel rule that any purchase accounting or push down accounting adjustments, as applicable, with respect to an acquisition of the stock of a foreign corporation by a CAMT entity would be disregarded for purposes of determining the CAMT basis in the foreign corporation's assets.
CAMT basis in stock of a foreign corporation is equal to the basis in the stock for regular tax purposes.
Proposed § 1.56A-4(f) would provide rules that apply to certain cases in which a CAMT entity receives stock of a foreign corporation in a covered asset transaction and the CAMT entity's basis in the stock of the foreign corporation for regular tax purposes is determined under section 358. These rules compare the CAMT basis in the stock of the foreign corporation (which equals its basis for regular tax purposes) with what the CAMT basis would have been had it been determined under section 358, substituting the CAMT basis for the basis for regular tax purposes in the property by reference to which the basis of the foreign stock for regular tax purposes is determined in whole or in part (such amount, the hypothetical CAMT basis). To the extent a CAMT entity's basis in the stock of the foreign corporation received for regular tax purposes exceeds its hypothetical CAMT basis in that stock (referred to as basis disparity in this part IV of this Explanation of Provisions), the CAMT entity increases its AFSI for the taxable year in which the foreign stock is received if either of two requirements is satisfied.
The first requirement is satisfied if a principal purpose of the covered asset transaction is to avoid treatment of the CAMT entity or another CAMT entity as an applicable corporation or to reduce or otherwise avoid a liability under
To illustrate the principal purpose rule, consider the following fact pattern. USP, a domestic corporation, owns all the stock of a controlled foreign corporation (CFC1), which has a functional currency of the U.S. dollar. CFC1 owns Asset A, with a basis for regular tax purposes of $10x, a CAMT basis of $4x, and fair market value of $20x. The intent is for CFC1 to sell Asset A. For CAMT purposes, if CFC1 were to sell Asset A, CFC1 would include $16x in adjusted net income or loss under proposed § 1.56A-6 (fair market value of $20x, less CAMT basis of $4x) and USP's pro rata share of CFC1's adjusted net income or loss would take into account the $16x. With a principal purpose of reducing CFC1's adjusted net income or loss and USP's pro rata share, Asset A is contributed to a newly formed foreign corporation (CFC2) in exchange solely for stock of CFC2 in a transaction that qualifies under section 351(a) for regular tax purposes and therefore is a covered asset acquisition (asset transfer). CFC1's CAMT basis in the stock of CFC2 received is equal to $10x (the amount of CFC1's basis in the stock of CFC2 for regular tax purposes), and CFC1's hypothetical CAMT basis in the stock of CFC2 is $4x. In a transaction purported to be separate from the asset transfer for purposes of qualifying the asset transfer under section 351, CFC1 then subsequently sells the stock of CFC2 to a third party in exchange for cash, and the CAMT basis for purposes of determining the amount included in CFC1's adjusted net income or loss is $10x. Under the principal purpose rule, CFC1's adjusted net income or loss is increased by the $6x basis disparity (the excess of the basis in the stock of CFC2 for regular tax purposes and CAMT purposes ($10x) over the hypothetical CAMT basis ($4x)) for the taxable year in which the asset transfer occurs.
The Treasury Department and the IRS considered alternatives to addressing the basis disparity concern. One alternative is to adjust (increase or decrease) the recipient CAMT entity's AFSI in all cases in which there is a basis disparity, including if the basis disparity arises when a CAMT entity's basis in stock of the foreign corporation received for regular tax purposes is less than the hypothetical CAMT basis. However, in this case, if the CAMT entity and the foreign corporation whose stock is received are related, the decrease in AFSI would be allowed only when the recipient CAMT entity and the foreign corporation are no longer related. Another alternative is to implement an account system whereby the basis disparity would be tracked and taken into account as an increase or decrease to AFSI, as applicable, as the basis in the stock of the foreign corporation received is taken into account, for example, upon a taxable sale or a return of basis distribution under section 301. A concern with an account tracking system is that it would introduce complexity, including the need to track the account reflecting stock of each foreign corporation for a potentially significant period and address subsequent transactions that duplicate basis in the foreign stock (transactions in which basis in another asset is determined by reference to the basis in the foreign stock, including section 351 transfers of the foreign stock). The Treasury Department and the IRS welcome comments on the proposed rule and whether alternatives should be further considered.
Proposed § 1.56A-4(g) would provide rules for distributions of certain stock of a foreign corporation by a partnership to a related CAMT entity. If a partnership distributes stock of a foreign corporation and the distributee partner increases its basis in the stock pursuant to section 732(b) of the Code for regular tax purposes, section 734(b)(2)(B) of the Code generally requires the partnership to reduce the basis of its remaining property for regular tax purposes if either the partnership has an election under section 754 of the Code in effect or the distribution results in a substantial basis reduction as defined in section 734(d). There is no similar mechanism under CAMT, however, for the partnership to reduce its basis in remaining property, other than its basis in any remaining foreign stock to the extent the basis in such stock is reduced for regular tax purposes. As a result, if the distributee partner were to subsequently dispose of the foreign stock, there would be an omission from AFSI in the amount of the basis increase under section 732(b) that did not result in a corresponding basis decrease under section 734(b)(2)(B) to any remaining foreign stock held by the partnership.
The Treasury Department and the IRS are concerned that related parties might abuse the rules relating to the CAMT basis of foreign stock distributed by a partnership to create omissions from AFSI. Accordingly, proposed § 1.56A-4(g)(1) would provide that if a partnership distributes stock of a foreign corporation to a partner that is a related CAMT entity, and the basis for regular tax purposes in the foreign stock to the related CAMT entity distributee is increased pursuant to section 732(b) (distributee step-up amount), and the distributee step-up amount is greater than the amount, if any, that the distributing partnership is required to decrease its basis for regular tax purposes in any remaining foreign stock pursuant to section 734(b)(2)(B) (partnership basis decrease amount), the distributing partnership must increase its modified FSI for the taxable year of the distribution by any excess of the distributee step-up amount over the partnership basis decrease amount. For purposes of this rule, a partner would be a related CAMT entity if immediately before the distribution, the partner is related to the distributing partnership or any partner in the distributing partnership within the meaning of sections 267(b) or 707(b)(1) of the Code, without regard to section 267(c)(3).
The proposed rule would be limited to related party partnerships and basis increases in order to address potentially abusive transactions. The Treasury Department and the IRS request comments on proposed § 1.56A-4(g), including whether it is appropriate to limit the rule to related party partnerships and whether rules are needed to prevent duplications to AFSI for distributions of foreign stock by a partnership where the distributee partner decreases the basis for regular tax purposes of the distributed foreign stock pursuant to section 732(a)(2) or (b).
Pursuant to the authority granted by section 56A(c)(2)(D)(i), (c)(15), and (e), proposed § 1.56A-5 would provide rules under section 56A(c)(2)(D) regarding a partner's distributive share of partnership AFSI. Section 56A(c)(2)(D)(i) provides that, except as provided by the Secretary, if the taxpayer is a partner in a partnership, AFSI of the taxpayer with respect to such partnership is adjusted to only take into account the taxpayer's distributive share of AFSI of such partnership. Section 56A(c)(2)(D)(ii) provides that, for the purposes of the CAMT, the AFSI of a partnership is the partnership's net income or loss set forth on the partnership's AFS adjusted under rules similar to the rules of section 56A.
Stakeholders have suggested various approaches to determining a CAMT entity's distributive share of AFSI from a partnership investment (that is, a CAMT entity's interest in a partnership). One suggested approach is a “top-down” method that would start with the FSI amount reported by the CAMT entity on its AFS and adjustments to this amount under section 56A. Under a top-down method, a CAMT entity's distributive share of AFSI from a partnership investment generally would be based on the CAMT entity's method used to account for the investment for AFS purposes.
Another suggested approach is a “bottom-up” method. Under this method, a partnership would calculate its AFSI and allocate each partner a “distributive share” of the partnership's AFSI. Stakeholders have suggested that a partner's “distributive share” of a partnership's AFSI could be based on tax principles (for example, section 704(b) or (c) of the Code) or financial accounting principles (for example, the equity method (as described in proposed § 1.56A-1(b)(15))). Other suggested approaches included allowing CAMT entities to use their regular tax income amounts from a partnership investment as their distributive share amount of AFSI from such investment.
A bottom-up approach is consistent with the statute and is more conducive to taking into account section 56A adjustments. A bottom-up approach supports the framework of section 56A(c)(2)(D)(ii), which suggests that a partnership calculates its AFSI prior to determining the partners' distributive shares of such AFSI. Additionally, a bottom-up approach allows for a consistent methodology to be used to calculate a CAMT entity's distributive share of partnership AFSI regardless of the method used by a CAMT entity to account for its partnership investment for AFS purposes. For example, if a CAMT entity accounts for a partnership investment by using the fair value method for AFS purposes (as described in proposed § 1.56A-1(b)(17)), a top-down approach would require the CAMT entity to report a mark-to-market amount with respect to that partnership investment for purposes of its FSI, although making applicable adjustments to that amount under section 56A in a precise manner might not be possible. As a result, under a top-down approach, multiple methodologies might be required to calculate the applicable adjustments under section 56A, depending on the CAMT entity's method to account for its partnership investment for AFS purposes. Under a bottom-up approach, all CAMT entities would calculate their distributive share amounts of AFSI from a partnership investment using a consistent methodology, which is referred to in proposed § 1.56A-5(c) as the “applicable method.”
Additionally, under a bottom-up approach, a CAMT entity's distributive share of AFSI generally should be based on the income it reports for AFS purposes with respect to its partnership investment rather than the amount of its taxable income with respect to the partnership investment. Accordingly, under proposed § 1.56A-5, a CAMT entity's distributive share of AFSI from a partnership investment generally would be based on the share of the partnership's FSI that the CAMT entity reports on its AFS with respect to such investment, rather than on the CAMT entity's allocations of partnership items for regular tax purposes. This rule comports with the structure of the CAMT, which generally imposes a tax that is based on book income with certain adjustments. Proposed § 1.56A-5 would provide certain exceptions that would be consistent with the statute's adjustments to FSI.
Proposed § 1.56A-5 would provide rules for the applicable method (that is, a bottom-up approach) to determine a CAMT entity's distributive share of AFSI with respect to its partnership investment. In a tiered partnership structure, each partnership would be a CAMT entity with respect to the partnership in which it is a partner and would be required to compute its distributive share of AFSI with respect to its interest in the lower-tier partnership.
Proposed § 1.56A-5(b) generally would provide that, if a CAMT entity is a partner in a partnership, its AFSI with respect to its partnership investment is adjusted as required under the applicable method in proposed § 1.56A-5(c) and the rules in proposed § 1.56A-20 (concerning AFSI adjustments to apply certain principles of subchapter K of chapter 1 (subchapter K)) to take into account its distributive share of the partnership's AFSI. A CAMT entity must use the applicable method described in proposed § 1.56A-5(c) to determine its AFSI adjustment regardless of the CAMT entity's method used to account for its partnership investment for AFS purposes.
Under the applicable method in proposed § 1.56A-5(c), a CAMT entity would compute its distributive share of AFSI with respect to its partnership investment by first disregarding any amount the CAMT entity reflects in its FSI with respect to that investment for the taxable year (for example, under the fair value method or the equity method), except as provided in proposed § 1.56A-5(d).
The statutory directive in section 56A(c)(2)(D) to take into account only the taxpayer's distributive share of a partnership's AFSI does not mean that a CAMT entity may disregard all amounts with respect to a partnership investment that are outside the scope of the “distributive share amount,” as computed under proposed § 1.56A-5(e), in determining its FSI with respect to that investment. Section 56A(c)(2)(D) and the applicable method implementing this statutory provision address only a CAMT entity's AFSI amount based on a partnership's AFSI. FSI amounts resulting from transactions such as a transfer, sale or exchange, or deconsolidation of a partnership investment are not covered by section 56A(c)(2)(D). Accordingly, proposed § 1.56A-5(d) would clarify the amounts of FSI with respect to the CAMT entity's partnership investment that may not be disregarded in applying the applicable method under proposed § 1.56A-5(c). Under proposed § 1.56A-5(d), a CAMT entity may not disregard any FSI amounts attributable to a transfer, sale or exchange, contribution, distribution,
The rules for computing the distributive share amount included in a CAMT entity's AFSI with respect to its partnership investment under proposed § 1.56A-5(c)(2) are contained in proposed § 1.56A-5(e). Proposed § 1.56A-5(e)(1) would provide that a CAMT entity's distributive share amount is computed for each taxable year based on the following four steps: (i) the CAMT entity determining its distributive share percentage; (ii) the partnership determining its modified FSI; (iii) the CAMT entity multiplying its distributive share percentage by the modified FSI of the partnership (as reported by the partnership); and (iv) the CAMT entity adjusting the product of the amount determined in (iii) for certain separately stated section 56A adjustments.
Proposed § 1.56A-5(e)(2) would provide rules for how a CAMT entity determines its distributive share percentage. As described previously in this part V of the Explanation of Provisions, determining a CAMT entity's distributive share percentage based on the amount of FSI it reports on its AFS with respect to its partnership investment, and not on its economic interest for regular tax purposes, is appropriate because the CAMT is a tax based on income reported by a CAMT entity for AFS purposes.
Accordingly, proposed § 1.56A-5(e)(2) would provide that a CAMT entity's distributive share percentage is a fraction, the numerator of which is the FSI amount that is disregarded under the applicable method (but redetermined based on the partnership's taxable year if the taxable year of the partnership and the CAMT entity are different), and the denominator of which depends on the method of accounting the CAMT entity uses for AFS purposes, but in each case, as determined by the CAMT entity for AFS purposes.
In the case of a CAMT entity and a partnership that are members of the same financial statement group, or in the case of a CAMT entity that uses the equity method to account for its partnership investment (including the hypothetical liquidation at book value method under the equity method), the denominator would be 100 percent of the partnership's FSI for the partnership's taxable year.
It is possible for the distributive share percentage to be a negative number. This situation may arise if a partner is using the equity method to account for its partnership investment and the partnership's FSI is positive but the CAMT entity is reporting a negative FSI amount. In such cases, the negative distributive share percentage is multiplied by the partnership's modified FSI. If the distributive share percentage is negative and the partnership's modified FSI is positive, the result for the CAMT entity's share of modified FSI will be a negative amount. Similarly, if the distributive share percentage is negative and the partnership's modified FSI is negative, the result for the CAMT entity's share of modified FSI will be a positive amount. Examples under proposed § 1.56A-5 would include illustrations on computing the distributive share percentage.
The second step in the distributive share amount computation is for the partnership to determine its modified FSI. To facilitate this computation, proposed § 1.56A-5(e)(3) would provide that a partnership starts with its FSI for its taxable year (as determined under proposed § 1.56A-1(c)) and makes all AFSI adjustments provided for in the section 56A regulations that are applicable to partnerships, with certain enumerated exceptions.
The third step in the distributive share amount computation is for the CAMT entity to multiply its distributive share percentage by the partnership's modified FSI, as reported by the partnership to the CAMT entity.
The fourth and final step in the distributive share amount computation is for the CAMT entity to adjust the amount determined in the previous sentence (that is, in the third step) by certain AFSI items that are separately stated to the CAMT entity and not taken into account by the partnership in determining its modified FSI.
Separately stated AFSI items that adjust a CAMT entity's distributive share amount would also include certain amounts resulting from a disposition of section 168 property or qualified wireless spectrum by a partnership to which the CAMT entity had a basis adjustment under section 743(b) or § 1.1017-1(g)(2) in place, as provided under proposed §§ 1.56A-15(e)(3)(iii) and (iv) and 1.56A-16(e)(3)(iii) and (iv).
Lastly, separately stated AFSI items that adjust a CAMT entity's distributive share amount would include the CAMT entity's distributive share of deferred distribution gain or loss described in proposed § 1.56A-20(d)(1)(ii), which would be equal to the CAMT entity's allocable share of the items as provided in proposed § 1.56A-20(d)(2)(i), taking into account any acceleration event under proposed § 1.56A-20(d)(1)(iii) and (d)(2)(ii).
Under proposed § 1.56A-5(e)(4)(iii), certain AFSI items would be separately stated by the partnership but would not be taken into account as adjustments to a CAMT entity's distributive share amount. Instead, these AFSI items would be taken into account by a CAMT entity in determining its AFSI. These AFSI items include items described in proposed § 1.56A-4(c)(1)(ii) with respect to stock of foreign corporations owned by the partnership, as provided under proposed § 1.56A-4(e); items described in proposed § 1.56A-6(c)(2)(iii) with respect to stock of foreign corporations owned by the partnership, as provided under proposed § 1.56A-6(c)(2)(iv); items described in proposed § 1.56A-8(c) with respect to creditable foreign tax expenditures of a partnership, as provided under proposed § 1.56A-8(c); and the item described in proposed § 1.56A-21(e)(2)(iii) with respect to discharge of indebtedness income reflected in the partnership's FSI, as provided under proposed § 1.56A-21(e)(2)(ii). Although proposed § 1.56A-5(e)(4)(iii) refers to the items described in § 1.56A-6(c)(2)(iii) as “AFSI items,” these items represent adjustments to the adjusted net income or loss of a CFC.
The adjustment to AFSI described in proposed § 1.56A-6(b) is not included as a separately stated item because, under proposed § 1.56A-6(b)(1) (which incorporates the principles of section 951(a)(2)), a partnership is not treated as owning stock of a CFC for purposes of proposed § 1.56A-6(b)(1), and therefore proposed § 1.56A-6(b) does not result in an adjustment to modified FSI of a partnership. Rather, in the case of a partnership that owns stock of a CFC, a partner that is a U.S. shareholder with respect to the CFC determines its own pro rata share of the adjusted net income or loss of the CFC and makes an appropriate adjustment to its AFSI directly under proposed § 1.56A-6(b)(1).
Proposed § 1.56A-5(e)(5) would provide rules coordinating the effect of equity method basis adjustments for AFS purposes with a CAMT entity's adjustments to a partnership's modified FSI under the applicable method. If a CAMT entity includes in its FSI amortization of an equity method basis adjustment with respect to a partnership investment that is attributable to section 168 property or qualified wireless spectrum held by the partnership, and if the CAMT entity has a basis adjustment under section 743(b) with respect to the same property that affects the CAMT entity's distributive share amount, then the CAMT entity adjusts its AFSI to disregard any such FSI amortization. The rule in proposed § 1.56A-5(e)(5) is intended to remove the potential for a duplicative reduction to AFSI for an equity method basis adjustment and section 743(b) basis adjustment that relates to the same property.
Proposed § 1.56A-5(e)(6)(i) would provide rules for determining a CAMT entity's distributive share amount if the partnership treats as its AFS its Federal income tax return pursuant to proposed § 1.56A-2(c)(6). In such case, a CAMT entity's distributive share amount with respect to its partnership investment would be equal to the amount of FSI disregarded under proposed § 1.56A-5(c)(1) of the applicable method further adjusted to disregard any items described in proposed §§ 1.56A-4(b)(1) and 1.56A-8(b) that are reflected in such amount. Additionally, the AFSI items described in proposed § 1.56A-5(e)(4)(iii)(A) through (C) would still apply to determine the CAMT entity partner's AFSI, but not the AFSI item described in proposed § 1.56A-5(e)(4)(iii)(D) since the AFSI item in proposed § 1.56A-5(e)(4)(iii)(D) is dependent on the partnership's FSI and, pursuant to § 1.56A-5(e)(6)(i), the partnership effectively does not have an FSI amount if it treats as its AFS its Federal income tax return.
Proposed § 1.56A-5(f) would provide that, in the case of a tiered entity structure, if a CAMT entity is a partner in a partnership (UTP) that directly or indirectly owns an investment in a lower-tier partnership (LTP), each partnership, starting with the lowest-tier partnership and continuing in order up the chain of ownership, must use the applicable method to determine the distributive share amounts of each CAMT entity partner in the tiered-partnership chain. Because each UTP determines its own distributive share amount, amounts separately stated under proposed § 1.56A-5(e)(4)(ii) to an UTP are included in determining the UTP's modified FSI under the applicable method in proposed § 1.56A-5(c). Under proposed § 1.56A-5(g), the distributive share amount required to be included in a CAMT entity's AFSI for a taxable year with respect to a partnership investment under proposed § 1.56A-5(c)(2) is based on the modified FSI of the partnership for any taxable year of the partnership ending within or with the taxable year of the CAMT entity.
Proposed § 1.56A-5(h) would provide rules on the reporting and filing requirements for a CAMT entity that is a partner in a partnership. The Treasury Department and the IRS are aware that, in order to compute its distributive share of a partnership's AFSI, a CAMT entity may require information from the partnership. To facilitate information reporting by partnerships, the proposed regulations would require a partnership to provide the information to the CAMT entity if the CAMT entity cannot determine its distributive share of the partnership's AFSI without the
Under proposed § 1.56A-5(h)(1), if a CAMT entity cannot determine its distributive share of a partnership's AFSI without receiving certain information from the partnership, the CAMT entity would be required to request the information from the partnership by the 30th day after the close of the partnership's taxable year to which the information request relates. The information, and the requests made for the information, would be required to be maintained by the CAMT entity in its books and records. The partnership would be required to continue to provide the information to the CAMT entity for each subsequent taxable year unless the partnership receives written notification from the CAMT entity that the information is not required.
The Treasury Department and the IRS are aware that a CAMT entity might not timely receive the requested information from the partnership. Under proposed § 1.56A-5(h)(2)(i), a CAMT entity that does not timely receive the requested information from the partnership would be required to make a good-faith estimate of its distributive share of the partnership's AFSI. Except as provided in proposed § 1.56A-5(h)(2)(iii)(B), once the CAMT entity receives the information from the partnership, the CAMT entity (if not also an applicable corporation) should report the information to its partners, including any UTP (which would then report the information to its partners), until the information is received by an applicable corporation.
In the case of a partnership subject to the centralized partnership audit regime in subchapter C of chapter 63 of the Code (BBA partnership), if making the required estimate requires the CAMT entity to treat a partnership-related item (PRI) in a manner that is inconsistent with the BBA partnership's treatment of the PRI, the CAMT entity must follow the procedures for filing a notice of inconsistent treatment with respect to the PRI.
Proposed § 1.56A-5(i) would provide rules for a partnership that receives a request from a CAMT entity for information to determine the CAMT entity's distributive share amount, including information necessary to determine the denominator for the distributive share percentage as described in proposed § 1.56A-5(e)(2), the partnership's modified FSI as described in proposed § 1.56A-5(e)(3), and for the CAMT entity to make the AFSI adjustments as described in proposed § 1.56A-5(e)(4). The partnership would be required to file the information with the IRS in forthcoming forms, instructions, or other guidance, as described in proposed § 1.56A-5(i)(1).
Proposed § 1.56A-5(i)(2) would provide special rules for tiered partnership structures. These rules would require an UTP that has a reporting and filing requirement under proposed § 1.56A-5(i) to request the information from an LTP, which then must file the requested information with the IRS and furnish it to the UTP as described in proposed § 1.56A-5(i)(1). The information would be required to be requested by the UTP by the later of the 30th day after the close of the taxable year to which the information request relates or 14 days after the date the UTP receives an information request from another UTP.
Under proposed § 1.56A-5(i)(3), the partnership would be required to provide the requested information by the date prescribed under section 6031(b) of the Code. However, under proposed § 1.56A-5(i)(3)(iii) a partnership would not be required to furnish information to a CAMT entity until it has received a notice of request. A partnership would be considered to have received a notice of request when it receives the request either electronically or in the manner agreed to by the parties, or the partnership has an obligation to continue providing information to a CAMT entity due to the CAMT entity's request in a prior taxable year.
Under proposed § 1.56A-5(i)(4), the information would be requested electronically or in the manner agreed to by the parties. Under proposed § 1.56A-5(i)(5), the partnership would be required to retain in its books and records a copy of the information request and the date it was received. Under proposed § 1.56A-5(i)(6), a partnership that fails to furnish the requested information would be subject to penalties under section 6722 of the Code.
The Treasury Department and the IRS request comments on whether exceptions to the reporting requirements should apply for partnerships that meet certain criteria. For example, such criteria may include the fair market value of the partnership's assets or whether the partnership is controlled (either directly or indirectly) by an applicable corporation. If a partnership is exempt from some or all of the reporting requirements outlined in proposed § 1.56A-5(i), the Treasury Department and the IRS request comments on how a partner in the partnership would determine its distributive share of AFSI with respect to its partnership investment. The Treasury Department and the IRS also request comments regarding the application of the requirement in proposed § 1.56A-5(i)(3) that a partnership provide information requested by a partner by the date prescribed under section 6031(b) of the Code for filing its partnership return when the partnership to which the request is made is a UTP or LTP in a tiered partnership structure.
Proposed § 1.56A-5(j)(1) would provide a rule limiting the amount of a CAMT entity's negative distributive share amount from a partnership investment for a taxable year that can be included in the CAMT entity's AFSI for such taxable year in a manner similar to the rule in section 704(d) that applies for regular tax purposes. This rule would provide that, if a CAMT entity's distributive share amount with respect to a partnership investment for a taxable year, as determined under proposed § 1.56A-5(e), is negative, such distributive share amount for the taxable year would include only the negative distributive share amount that does not exceed the CAMT entity's CAMT basis in its partnership investment as of the end of the partnership's taxable year. Ordering rules similar to the rules in § 1.704-1(d)(2) apply in computing a CAMT entity's CAMT basis in its partnership investment for purposes of applying the loss limitation rule for negative distributive share amounts. The Treasury Department and the IRS request comments regarding the application of the ordering rule in § 1.704-1(d)(2) and whether more specific ordering rules are needed for purposes of applying the loss limitation rule for negative distributive share amounts.
Proposed § 1.56A-5(j)(2) would provide that any excess negative distributive amount that is disallowed for a taxable year under proposed § 1.56A-5(j)(1) is carried forward and may be used by the CAMT entity in a subsequent taxable year to the extent such negative amount does not exceed a CAMT entity's CAMT basis in its partnership investment in the subsequent taxable year.
Proposed § 1.56A-5(j)(3) would provide rules for determining a CAMT entity's CAMT basis in a partnership investment. These rules would be similar to the rules in section 705 of the Code that apply for regular tax purposes.
A CAMT entity's CAMT basis in a partnership investment would start with the basis of the investment for AFS purposes as of the first day of the partnership's first taxable year ending after December 31, 2019 in which the CAMT entity held its interest in the partnership and would reflect certain adjustments for each taxable year of the partnership ending after December 31, 2019 (but not adjustments that would make the CAMT basis less than zero).
Pursuant to the authority granted by section 56A(c)(5), (c)(15), and (e), proposed § 1.56A-6 would provide rules under section 56A(c)(3) regarding an adjustment to the AFSI of a CAMT entity for any taxable year in which the CAMT entity is a U.S. shareholder of one or more CFCs. Under proposed § 1.56A-6(b)(1), if a CAMT entity is a U.S. shareholder of a CFC, the CAMT entity's AFSI is generally adjusted for its pro rata share of the CFC's adjusted net income or loss, which generally means the CFC's FSI for the CFC's taxable year, adjusted for all AFSI adjustments provided under the section 56A regulations (except as provided under proposed § 1.56A-6(c)(2) through (5), which are described later in this Explanation of Provisions). More specifically, proposed § 1.56A-6(b)(1) would provide that, except as provided in proposed § 1.56A-6(b)(3) (concerning an aggregate negative adjustment), for any taxable year, a CAMT entity that is a U.S. shareholder of one or more CFCs makes a single adjustment to the CAMT entity's AFSI that is equal to the sum of the CAMT entity's pro rata shares of the adjusted net income or loss of each such CFC, with such aggregate amount reduced as provided in proposed § 1.56A-6(b)(2) (reduction for taxes if an applicable corporation does not claim foreign tax credits) and (4) (reduction for utilization of a CFC adjustment carryover, as defined in proposed § 1.56A-6(b)(6)). The CAMT entity's pro rata share of the adjusted net income or loss of a CFC is determined for the taxable year of the CFC that ends with or within the taxable year of the CAMT entity and is determined under the principles of section 951(a)(2). These principles include, for example, rules similar to those described in section 951(a)(2)(A) and (B) and the aggregation rules in § 1.958-1(d).
A single adjustment under section 56A(c)(3) is consistent with the statutory language.
For purposes of determining inclusions of subpart F income and global intangible low-taxed income under sections 951 and 951A, a domestic partnership is not treated as owning stock of a foreign corporation within the meaning of section 958(a) of the Code and therefore has no inclusions under section 951 or 951A with respect to any stock of a CFC it owns.
Solely for purposes of determining AFSI under section 56A (and not under section 59(k)), proposed § 1.56A-6(b)(2) would require an applicable corporation that is not claiming foreign tax credits for the taxable year to reduce the amount of the adjustment determined under proposed § 1.56A-6(b)(1) by its share of eligible current year taxes of CFCs for the taxable year (calculated under proposed § 1.59-4(d)(3) as if the applicable corporation had claimed foreign tax credits for the taxable year). For this purpose, the applicable corporation's share of eligible current year taxes of CFCs is reduced to reflect the suspensions and disallowances described in proposed § 1.59-4(b)(1) that apply at the level of the U.S. shareholder for purposes of determining foreign income taxes eligible for the CAMT FTC. Finally, the proposed regulations would not permit a reduction to the amount of the adjustment under proposed § 1.56A-6(b)(1) for taxes deemed paid by the applicable corporation on distributions of PTEP under section 960(b) (PTEP taxes).
Proposed § 1.56A-6(b)(3) would provide that, if the amount of the adjustment determined under proposed § 1.56A-6(b)(1) with respect to a taxable year of a U.S. shareholder would be negative (after taking into account the tax reduction provided under proposed § 1.56A-6(b)(2) but before taking the CFC adjustment carryovers under proposed § 1.56A-6(b)(4) into account), then there is no adjustment under proposed § 1.56A-6(b)(1) for the taxable year. This would-be negative adjustment amount would give rise to a CFC adjustment carryover generated in the taxable year. Proposed § 1.56A-6(b)(4) would provide that if the adjustment determined under proposed § 1.56A-6(b)(1) with respect to a taxable year of a U.S. shareholder would be positive (after taking into account the tax reduction provided under proposed § 1.56A-6(b)(2) but before taking
Proposed § 1.56A-6(b)(7) would provide that members of a tax consolidated group are treated as a single entity for purposes of proposed § 1.56A-6(b).
Proposed § 1.56A-6(c)(1) generally would define the term adjusted net income or loss with respect to any CFC, for any taxable year of the CFC, as the FSI of the CFC, adjusted for all AFSI adjustments provided under the section 56A regulations, except as provided in proposed § 1.56A-6(c)(2) through (5). Adjusted net income or loss of a CFC must be expressed in U.S. dollars. Accordingly, items not expressed in U.S. dollars that are taken into account in determining the CFC's adjusted net income or loss must be translated to U.S. dollars. This translation may be required where the reporting currency used for a CFC's AFS is not the U.S. dollar, because in that case the CFC's FSI (the starting point in determining the CFC's adjusted net income or loss) will not be expressed in U.S. dollars. It may also be required where an adjustment made in determining the CFC's adjusted net income or loss references an amount as determined for regular tax purposes, because that regular tax amount may be denominated in the CFC's functional currency for regular tax purposes, which may not be the U.S. dollar (and may also be different from the reporting currency used for the CFC's AFS). In any case in which currency translation is required under proposed § 1.56A-6(c)(1), it is undertaken using the weighted average exchange rate, as defined in § 1.989(b)-1, for the CFC's taxable year. For purposes of translating a CFC's adjusted net income or loss to U.S. dollars, the rules described in proposed § 1.56A-6(c)(1) apply in lieu of the rules described in proposed § 1.56A-1(e)(1).
The adjustments in proposed § 1.56A-6(c)(2) are intended to address certain potential duplications of items and would be generally consistent with, but expand upon, the guidance provided in Notice 2024-10.
Because a CFC's adjusted net income or loss reflects all AFSI adjustments provided under the section 56A regulations, except as provided in proposed § 1.56A-6(c)(2) through (5), if a CFC is a partner in any partnership or the owner of any disregarded entity, the items taken into account in computing the CFC's adjusted net income or loss generally include the CFC's distributive share amount of modified FSI from any such partnership (
Section 56A(c)(3)(A) provides that the AFSI of a CAMT entity that is a U.S. shareholder of a CFC should be adjusted to take into account a pro rata share of CFC items under rules similar to the rules under section 951(a)(2). Reading section 56A(c)(3) as limited only to the pro rata share of CFC items that would be taken into account in computing AFSI under section 56A(c)(4) and proposed § 1.56A-7 (that is, items of income that are effectively connected with the conduct of a trade or business within the United States and deductions connected with such income) would be underinclusive. Thus, proposed § 1.56A-6(c)(3) would provide that a CFC's adjusted net income or loss is not limited to amounts taken into account in determining AFSI under proposed § 1.56A-7, which would generally limit the AFSI of a foreign corporation to taxable income that is effectively connected with the conduct of a trade or business within the United States.
Moreover, where an amount is subject to CAMT under section 56A(c)(4) and proposed § 1.56A-7 because a CFC is itself an applicable corporation, such amount should be excluded from a U.S. shareholder's adjustment under 56A(c)(3) to prevent double counting of the same income of the CFC. Thus, proposed § 1.56A-6(c)(3) would provide that, if a CFC is an applicable corporation, the CFC's adjusted net income or loss is reduced by the amount of AFSI of the CFC (with such AFSI determined by taking proposed § 1.56A-7 into account). The rule in proposed § 1.56A-6(c)(3) would be consistent with the guidance provided in section 7.02(5) of Notice 2023-64.
Proposed § 1.56A-6(c)(4) would provide that the AFSI adjustment provided under proposed § 1.56A-8(c) does not apply in computing a CFC's adjusted net income or loss. Proposed § 1.56A-8(c) generally would provide a reduction in the AFSI of an applicable corporation by the amount of foreign income taxes deducted by the applicable corporation, if the applicable corporation does not choose to claim foreign tax credits for the taxable year.
Proposed § 1.56A-6(c)(5) would provide that the AFSI adjustment provided under proposed § 1.56A-23(c) (providing a reduction to AFSI for FSNOL carryovers) does not apply in computing a CFC's adjusted net income or loss. Allowing a CFC to make the adjustment for FSNOL carryovers provided by proposed § 1.56A-23(c) when determining the CFC's adjusted
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-7 would provide rules under section 56A(c)(4) for applying the principles of section 882 to determine a foreign corporation's AFSI. As amended by section 10101 of the IRA, section 882(a)(1) provides, in part, that a foreign corporation engaged in a trade or business within the United States during the taxable year is taxable under the CAMT on its taxable income which is effectively connected with the conduct of a trade or business within the United States.
In determining taxable income for purposes of section 882(a)(1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States (ECI).
Section 7.02(5) of Notice 2023-64 provides guidance under which, for purposes of applying section 56A(c)(4), in the case of a foreign corporation that qualifies for and claims the benefits of the business profits provisions of an applicable income tax treaty, the principles of those provisions would apply in determining the foreign corporation's AFSI. This guidance was intended to clarify that a foreign corporation entitled to benefits under an income tax treaty may apply the treaty to determine its AFSI. After further consideration, the Treasury Department and the IRS are of the view that it is not necessary to make this clarification in the proposed regulations, because section 894(a) of the Code already provides that the Code is applied with due regard to any income tax treaty obligation of the United States that applies to a taxpayer, and nothing in the IRA changes the normal operation of U.S. income tax treaties in this context.
Section 56A(c)(5) provides that AFSI is appropriately adjusted to disregard any Federal income taxes or income, war profits, or excess profits taxes (within the meaning of section 901) with respect to a foreign country or possession of the United States which are taken into account in the taxpayer's AFS. Further, the statute provides a grant of authority to the Secretary to provide an exception to this rule for a taxpayer that does not choose to claim foreign tax credits for a taxable year. Finally, section 56A(c)(5) authorizes the Secretary to prescribe such regulations or other guidance as may be necessary or appropriate to provide for the proper treatment of current and deferred taxes for purposes of section 56A(c)(5), including the time at which the taxes are properly taken into account.
Pursuant to the authority granted by section 56A(c)(5), (c)(15), and (e), proposed § 1.56A-8(b)(1) would adjust AFSI to disregard any applicable income taxes, as defined in proposed § 1.56A-8(b)(2), that are taken into account in a CAMT entity's AFS. The proposed regulations would define applicable income taxes as Federal income taxes and foreign income taxes that are taken into account in a CAMT entity's AFS as current tax expense (or benefit), as deferred tax expense (or benefit), or through increases or decreases to other AFS accounts of the CAMT entity (for example, AFS accounts used to account for FSI from investments in other CAMT entities, AFS accounts used to account for section 168 property, or AFS accounts used to account for other items of income and expense).
AFSI is relevant in determining both whether a corporation is an applicable corporation and the amount of an applicable corporation's CAMT liability under section 55(a). For purposes of determining whether a corporation is an applicable corporation, the Treasury Department and the IRS are of the view that AFSI should be determined on a pre-tax basis for all taxpayers, regardless of whether the taxpayer chooses to claim foreign tax credits for the taxable year. This ensures that all taxpayers determine whether a corporation is an applicable corporation using the same metric (pre-tax AFSI) and ensures that the choice of whether to claim foreign tax credits has no effect on the determination of whether a corporation is an applicable corporation.
For purposes of determining the amount of an applicable corporation's CAMT liability under section 55(a), however, the Treasury Department and the IRS are of the view that it is an appropriate exercise of the regulatory authority granted under section 56A(c)(5) to allow a reduction to AFSI (similar to the deduction for regular tax purposes under section 164 of the Code) for foreign income taxes if an applicable corporation does not choose to claim foreign tax credits for the taxable year and thus is not eligible to claim a CAMT FTC under section 59(l).
Accordingly, proposed § 1.56A-8(c) would provide that an applicable corporation that does not choose to claim a foreign tax credit for the taxable year would reduce its AFSI by the amount of foreign income taxes which the applicable corporation deducts for regular tax purposes under section 164 (taking into account all other relevant provisions) for the taxable year, including foreign income taxes of a disregarded entity of which the applicable corporation is the owner for regular tax purposes and any creditable foreign tax expenditures (within the meaning of § 1.704-1(b)(4)(viii)) allocated to the applicable corporation as a partner or indirect partner in a tiered partnership or other type of pass-through entity. This adjustment is disregarded in applying the average annual AFSI tests described in § 1.59-2(c) to determine whether a corporation is an applicable corporation.
An applicable corporation that chooses to claim a foreign tax credit for the taxable year, however, would not reduce its AFSI by the amount of foreign income taxes that the applicable corporation deducts in the taxable year (for example, foreign income taxes paid to specified foreign countries under section 901(j)).
Proposed § 1.56A-6(b)(2) provides a rule similar to proposed § 1.56A-8(c) that would reduce the pro rata share adjustment provided under proposed § 1.56A-6(b)(1) for certain foreign income taxes of CFCs if an applicable corporation does not choose to claim foreign tax credits for the taxable year.
Proposed § 1.56A-8(d) would provide that, for purposes of proposed §§ 1.56A-8(b) and 1.59-4, applicable income taxes are considered taken into account in an AFS of a CAMT entity if any journal entry has been recorded in the books and records used to determine an amount in the AFS of the CAMT entity for any year, or in another AFS that includes the CAMT entity, to reflect such taxes. Applicable income taxes are considered taken into account in an AFS of a CAMT entity even if the taxes do not increase or decrease the CAMT entity's FSI at the time of the journal entry. Further, if applicable income taxes are taken into account in a partnership's AFS, they also are considered taken into account in any AFS of the partnership's partners.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-9 would provide rules under section 56A(c)(6) and (15) for determining the AFSI of a CAMT entity that owns a disregarded entity or branch. Section 56A(c)(6) provides that AFSI is adjusted to take into account any AFSI of a disregarded entity owned by the taxpayer.
Proposed § 1.56A-9(b)(1) would provide that, for purposes of the section 56A regulations, a disregarded entity or branch and the CAMT entity that owns the disregarded entity or branch, including through other disregarded entities or branches, (CAMT entity owner) are treated as a single CAMT entity. As a result, the CAMT entity owner would be treated as directly owning the assets of, being directly liable for the liabilities of, and directly earning or incurring any income, expense, gain, loss, or other similar item of the disregarded entity or branch. Further, proposed § 1.56A-9(b)(2) would provide that transactions between the disregarded entity or branch and the CAMT entity owner (or between disregarded entities or branches owned by the same CAMT entity) and any balance sheet account or income statement account that reflects the CAMT entity owner's investment in the disregarded entity or branch (or a disregarded entity's investment in another disregarded entity or branch that is ultimately owned by the same CAMT entity owner) would be disregarded. Proposed § 1.56A-9(b)(3) would provide that if a disregarded entity or branch is required to determine its own AFS under § 1.56A-2(h), the CAMT entity owner of the disregarded entity or branch treats such separate AFS of the disregarded entity or branch as part of the CAMT entity owner's own AFS.
Financial accounting does not have the concept of a disregarded entity. For financial accounting purposes, a single member limited liability corporation, for instance, may have a financial statement (or be a separate member of a financial statement group) and, thus, is treated the same as any other corporation. Section 56A(c)(6) affirms the application of regular tax principles to the treatment of disregarded entities. Accordingly, these proposed rules would apply regular tax principles for the treatment of disregarded entities and branches, rather than treating disregarded entities and branches as independently calculating AFSI and then adding that AFSI to the AFS of the owner.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-10 would provide rules under section 56A(c)(7) regarding the determination of AFSI for a cooperative. Proposed § 1.56A-10(b) would provide that, in the case of a cooperative to which section 1381 of the Code applies, AFSI of the cooperative is reduced by the amounts referred to in section 1382(b) of the Code and the regulations under section 1382(b) (relating to patronage dividends and per-unit retain allocations), but only to the extent such amounts were not otherwise taken into account in determining the AFSI of the cooperative.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-11 would provide rules under section 56A(c)(8) regarding Alaska Native Corporations. Section 56A(c)(8) provides for two adjustments to the AFSI of Alaska Native Corporations. First, section 56A(c)(8)(A) provides that cost recovery and depletion attributable to certain property that is allowed for regular tax purposes is allowed in calculating AFSI. Section 21(c) of the ANCSA (43 U.S.C. 1620(c)) describes land and interests in land that Alaska Native Corporations receive pursuant to certain provisions of the ANCSA. Such property interests have a basis equal to their fair market value either at the time the corporation receives the property or at the time the corporation first commercially develops the property. Proposed § 1.56A-11(c) would provide that the AFSI of an Alaska Native Corporation (i) is reduced for cost recovery and depletion attributable to such property to the extent of the amount recovered for regular tax purposes, and (ii) is adjusted to disregard any cost recovery or depletion attributable to such property that is reflected in the corporation's FSI. In other words, proposed § 1.56A-11(c) allows an Alaska Native Corporation to use the basis of such property for regular tax purposes in lieu of the AFS basis of such property for all depletion and cost recovery computations (including gain or loss computations) with respect to such property that apply in determining AFSI.
Second, section 56A(c)(8)(B) provides that deductions for certain amounts payable under the ANCSA are allowed in calculating AFSI only at the time the deductions are allowed for regular tax purposes. Section 7(i) and (j) of the ANCSA (43 U.S.C. 1606(i) and (j)) requires the Regional Corporations (within the meaning of 43 U.S.C. 1606) to divide a portion of their revenues among all Regional Corporations, and to distribute at least a minimum percentage of their revenues to shareholders. Proposed § 1.56A-11(d) would provide that the AFSI of an Alaska Native Corporation (i) is reduced by regular tax deductions for payments under section 7(i) and 7(j) of the ANCSA at the time they are deducted for regular tax purposes, and (ii) is adjusted to disregard expenses for specified payments reflected in the corporation's FSI.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-12 would provide rules under section 56A(c)(9) and (c)(15) regarding AFSI adjustments for certain credits. Proposed § 1.56A-12(b)(1) would provide that AFSI is adjusted to disregard any amount treated as a payment against the tax imposed by subtitle A pursuant to an election under section 48D(d) or 6417, provided that this amount is not otherwise disregarded under proposed § 1.56A-8 (concerning taxes). This provision would permit the exclusion of certain credit amounts from AFSI, which would
For regular tax purposes, an eligible taxpayer that elects to transfer an eligible credit, as those terms are defined in section 6418(f) of the Code, excludes from gross income amounts received from the transfer of the credit. Section 6418(b)(2). Pursuant to the Secretary's authority under section 56A(c)(15), and consistent with the treatment of similar credits for which an election under section 6417 (a companion provision to section 6418) is made, proposed § 1.56A-12(b)(2) would provide that AFSI is adjusted to disregard any amount received from the transfer of an eligible credit that is not included in the gross income of the CAMT entity under section 6418(b) or that is treated as tax exempt income under section 6418(c)(1)(A), provided that the amounts are not otherwise disregarded under proposed § 1.56A-8. In addition, proposed § 1.56A-12(b)(3) would provide that AFSI is adjusted to disregard amounts received pursuant to a direct pay election under section 48D(d)(2) or 6417(c) that is treated as tax exempt income for regular tax purposes, provided that the amounts are not otherwise disregarded under proposed § 1.56A-8. The rules in proposed § 1.56A-12(b)(1) through (3) would be consistent with section 6 of Notice 2023-7.
Pursuant to the Secretary's authority under section 56A(c)(15), proposed § 1.56A-12(c) would provide rules for the treatment of purchasers (transferees) of an eligible credit for purposes of determining their AFSI. For regular tax purposes, under section 6418(a) and § 1.6418-2(f)(2), a transferee does not have gross income as a result of utilizing a purchased credit with a value in excess of the amount paid for the purchased credit. Consistent with this regular tax treatment, proposed § 1.56A-12(c)(2) would provide that, to the extent FSI of a transferee reflects income from the utilization of a purchased credit, AFSI is adjusted to disregard the income if it is not otherwise disregarded under proposed § 1.56A-8.
For regular tax purposes, section 6418(b)(3) provides that the transferee cannot deduct the cash payment it makes to purchase the credit. Consistent with that regular tax treatment, proposed § 1.56A-12(c)(1) would provide that, for a transferee taxpayer that is a CAMT entity, AFSI is adjusted to disregard the cash payment the transferee taxpayer made to purchase the credit, if the expense is not otherwise disregarded under proposed § 1.56A-8.
Both the direct pay election provisions and the credit transfer provisions of the Code reference the basis reduction and credit recapture provisions in section 50 of the Code.
Pursuant to the authority granted by section 56A(c)(11)(A), (c)(15), and (e), proposed § 1.56A-13 would provide rules under section 56A(c)(11) regarding adjustments to AFSI with respect to covered benefit plans. As defined in proposed § 1.56A-13(c), the term “covered benefit plan” would include: (i) a qualified defined benefit pension plan that is a defined benefit plan described in section 401(a) with a trust that is exempt from tax under section 501(a), and that is not a multiemployer plan described in section 414(f); (ii) a qualified foreign plan described in section 404A(e); or (iii) another plan if, under the accounting standards that apply to the AFS, the plan is treated as a defined benefit plan that provides post-employment benefits other than pension benefits.
The definition of the third type of covered benefit plan in proposed § 1.56A-13(c)(4) would be consistent with a recommendation from stakeholders that a welfare plan providing post-retirement benefits should be treated as a covered benefit plan if it is accounted for on a defined benefit basis. For example, if the accounting standards that apply to the AFS are GAAP, then a plan that provides post-employment benefits other than pension benefits and that is accounted for under the rules of Accounting Standards Codification (ASC) 715-60 would be treated as a covered benefit plan.
A defined benefit pension plan with a trust created or organized in Puerto Rico is a qualified defined benefit pension plan described in proposed § 1.56A-13(c)(2)(i) only if an election described in section 1022(i)(2)(A) of the Employee Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat. 829, and § 1.401(a)-50(a) has been made with respect to the plan for its trust to be treated as created or organized in the United States for purposes of section 401(a) of the Code. A defined benefit pension plan with a trust created or organized in any other possession specified in section 937(a)(1) of the Code is not a qualified defined benefit pension plan under proposed § 1.56A-13(c)(2)(i).
Proposed § 1.56A-13(b) would provide that AFSI: (i) is adjusted to disregard any amount of income, cost, expense, gain, or loss that otherwise would be included on a CAMT entity's AFS in connection with any covered benefit plan; (ii) is increased by any amount of income in connection with any covered benefit plan that is included in gross income for the taxable year under any provision of chapter 1; and (iii) is reduced by deductions allowed for the taxable year under any provision of chapter 1 with respect to any covered benefit plan.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-14 would provide rules under section 56A(c)(12) regarding tax-exempt entities. Section 56A(c)(12) states that, in the case of an organization subject to tax under section 511 (generally, a tax-exempt entity), AFSI must be appropriately adjusted to only take into account any AFSI (i) of an unrelated trade or business (as defined in section 513) of such organization, or (ii) derived from debt-financed property (as defined in section 514) to the extent that income from such property is treated as unrelated business taxable income.
For most organizations described in section 501(c), unrelated business taxable income (UBTI) is defined in section 512(a)(1) of the Code as the gross income derived by any exempt organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by chapter 1 that are directly connected with the carrying on of such trade or business, both computed with the modifications provided in section 512(b).
The modifications in section 512(b) generally exclude from UBTI income from passive sources, such as dividends, interest, annuities, and certain other items (section 512(b)(1)), royalties (section 512(b)(2)), certain rents (section 512(b)(3)), and certain capital gains (section 512(b)(5)). However, notwithstanding section 512(b)(1), (2), (3), and (5), section 512(b)(4) includes as an item of gross income derived from an
Stakeholders have requested clarification that the modifications in section 512(b) apply for purposes of section 56A(c)(12). One stakeholder stated that section 56A(c)(12)(B), which specifically includes income from debt-financed property, would be unnecessary if section 56A(c)(12)(A) already included such income (as would be the case if section 512(b) did not apply).
For the reason mentioned by the stakeholder, the modifications in section 512(b) should apply for purposes of section 56A(c)(12). Therefore, proposed § 1.56A-14(b) would provide that, in the case of an organization subject to tax under section 511, AFSI is adjusted to take into account any AFSI of an unrelated trade or business of such organization, subject to the applicable modifications to UBTI found in section 512(b), including AFSI derived from debt-financed property to the extent that income from such property is treated as UBTI.
Pursuant to the authority granted by section 56A(c)(13)(B)(ii), (c)(15), and (e), proposed § 1.56A-15 would provide rules under section 56A(c)(13) for determining the AFSI adjustments for property to which section 168 applies (section 168 property). To implement section 56A(c)(13), the proposed regulations would mimic the regular tax treatment of all section 168 property to the extent of the timing and amount of regular tax basis recovery with respect to the section 168 property, regardless of when the section 168 property is placed in service, whether and how the costs with respect to section 168 property are recognized in FSI, and whether gain or loss with respect to section 168 property is recognized in FSI. As a result, proposed § 1.56A-15 applies the principle that the application of section 56A(c)(13) should not provide the CAMT entity with a better result with respect to section 168 property for AFSI purposes than for regular tax purposes.
Proposed § 1.56A-15(b) would provide definitions that generally follow the definitions in sections 2 and 4 of Notice 2023-7, as modified and clarified by sections 5 and 9.02 of Notice 2023-64. A new defined term, covered book inventoriable depreciation, would be added to explain a simplified method for a CAMT entity to determine depreciation in ending inventory for purposes of determining the tax COGS depreciation and covered book COGS depreciation adjustments, as discussed in part XV.B of this Explanation of Provisions. In addition, new defined terms, tax capitalization method change and tax capitalization method change AFSI adjustment, would be added for changes in methods of accounting for regular tax purposes involving a change from capitalizing and depreciating costs as section 168 property to deducting the costs (or vice versa), as discussed in part XV.B of this Explanation of Provisions. Further, the definition of the term tax depreciation section 481(a) adjustment would be expanded to include an adjustment (or portion thereof) required under section 481(a) for any other change in method of accounting (other than a tax capitalization method change) that impacts the timing of taking into account depreciation of section 168 property in computing taxable income (for example, a change in method of accounting involving a change from deducting depreciation of section 168 property to capitalizing such depreciation under section 263A or another capitalization provision, or vice versa). These additional or expanded definitions for changes in methods of accounting would prevent depreciation of section 168 property from being duplicated in, or omitted from, AFSI.
Proposed § 1.56A-15(c)(1) generally would define section 168 property to mean: (i) MACRS property, as defined in § 1.168(b)-1(a)(2), that is depreciable under section 168; (ii) computer software that is qualified property, as defined in § 1.168(k)-1(b)(1) or 1.168(k)-2(b)(1), and is depreciable under section 168; and (iii) certain other intangible property that is depreciable under section 168, is qualified property as defined in § 1.168(k)-2(b)(1), and is described in § 1.168(k)-2(b)(2)(i)(E), (F), or (G). Property described in § 1.168(k)-2(b)(2)(i)(E), (F), or (G) includes: (i) a qualified film or television production, or a qualified live theatrical production, for which a deduction otherwise would be allowable under section 181 of the Code and which was initially released, broadcast, or staged live, respectively, after September 27, 2017; or (ii) a specified plant for which the taxpayer has properly made an election to apply section 168(k)(5) and that is planted, or grafted to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer's farming business, as defined in section 263A(e)(4) of the Code.
As explained previously, section 168 property includes computer software and certain other intangible property that is “qualified property”. The term “qualified property” is defined in § 1.168(k)-1(b)(1) or 1.168(k)-2(b)(1) as depreciable property that meets the following four requirements: (i) the depreciable property is of a specified type; (ii) the original use of the depreciable property commences with the taxpayer, or used depreciable property meets the acquisition requirements of section 168(k)(2)(E)(ii); (iii) the depreciable property is placed in service by the taxpayer within a specified time period or is planted or grafted by the taxpayer before a specified date; and (iv) the depreciable property is acquired by the taxpayer after September 27, 2017.
The definition of “Section 168 Property” in section 4.04 of Notice 2023-7 includes only property “depreciated” under section 168. The Treasury Department and the IRS have further considered the interim guidance in Notice 2023-7 in response to stakeholder feedback. Accordingly, the proposed regulations would interpret the adjustment under section 56A(c)(13) to include property “depreciable” under section 168 even if the property is not ultimately depreciated under section 168, but only to the extent of the depreciation allowed under section 167. Accordingly, proposed § 1.56A-15(c)(1) would expand the definition of “Section 168 Property” to include property “depreciable” under section 168. As a result, section 168 property would include property that has not yet been placed in service but that would be property “depreciable” under section 168 once placed in service. Additionally, section 168 property would include property eligible for the additional first year depreciation deduction, even if the taxpayer makes the election out under section 168(k)(7).
Proposed § 1.56A-15(c)(3) would provide that the adjustments under section 56A(c)(13) do not apply to
Proposed § 1.56A-15(c)(6) would provide that section 56A(c)(13) applies to property placed in service in any taxable year, including taxable years beginning before January 1, 2023 (that is, the effective date of the CAMT). This rule is based on section 56A(c)(13), which does not limit the depreciation adjustments to property placed in service in certain years or under certain conditions. In contrast,
Proposed § 1.56A-15(d)(1) would provide the AFSI adjustments for depreciation that are required under section 56A(c)(13). Proposed § 1.56A-15(d)(2) would provide special rules for section 168 property held by a partnership, and proposed § 1.56A-15(d)(3) would provide special rules for determining the adjustments under proposed § 1.56A-15(d)(1) if depreciation is an inventoriable cost for AFS or regular tax purposes. Finally, proposed § 1.56A-15(d)(4) would provide adjustment periods for tax capitalization method change AFSI adjustments.
More specifically, under proposed § 1.56A-15(d)(1), AFSI of a CAMT entity would be reduced by: (i) tax cost of goods sold (tax COGS) depreciation (that is, tax depreciation capitalized under section 263A to inventory or to the basis of property described in section 1221(a)(1) that is not inventory), but only to the extent of the amount recovered as part of cost of goods sold in computing gross income for the taxable year or as part of the computation of gain or loss from the sale or exchange of non-inventory property described in section 1221(a)(1) of the Code that is included or deducted in computing taxable income for the taxable year; (ii) deductible tax depreciation (that is, depreciation deductions allowed under section 167, or another provision of the Code, with respect to section 168 property), but only to the extent of the amount that is allowed as a deduction in computing taxable income for the taxable year; and (iii) any tax depreciation section 481(a) adjustment (that is, an adjustment for regular tax purposes under section 481(a) of the Code with respect to a change in method of accounting for depreciation for section 168 property or any other change in method of accounting (other than a tax capitalization method change) that impacts the timing of taking into account depreciation with respect to section 168 property in computing taxable income) that is negative, but only to the extent of the amount of such adjustment that is taken into account in computing taxable income for the taxable year.
AFSI of a CAMT entity also would be adjusted to disregard covered book cost of goods sold (book COGS) depreciation, covered book depreciation expense, covered book expense, and any AFS basis recovery with respect to section 168 property that is reflected in FSI following the date such property is disposed of for regular tax purposes. Covered book COGS depreciation includes depreciation expense, other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of section 168 property occurs for regular tax purposes, or impairment loss reversal that is taken into account as cost of goods sold (or as part of the computation of gain or loss from the sale or exchange of property held for sale) in FSI with respect to section 168 property. Covered book depreciation expense includes depreciation expense, other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of section 168 property occurs for regular tax purposes, or impairment loss reversal that is taken into account in FSI with respect to section 168 property and is not included in covered book COGS depreciation. Covered book expense includes an amount other than covered book COGS depreciation and covered book depreciation expense that reduces FSI and is reflected in the unadjusted depreciable basis, as defined in § 1.168(b)-1(a)(3), of section 168 property for regular tax purposes.
AFSI of a CAMT entity (i) would be increased by any tax depreciation section 481(a) adjustment that is positive, but only to the extent of the amount of such adjustment that is taken into account in computing taxable income for the taxable year, and (ii) would be increased or decreased, as appropriate, by any tax capitalization method change AFSI adjustment. The tax capitalization method change AFSI adjustment is determined as of the beginning of the tax year of change and equals the difference between (i) the cumulative amount of adjustments made to AFSI with respect to the cost(s) subject to the tax capitalization method change and (ii) the cumulative amount of adjustments to AFSI that would have been made if the new method of accounting had been applied for those taxable years. As provided in the definition in proposed § 1.56A-15(b)(11), the tax capitalization method change AFSI adjustments include only amounts with respect to taxable years beginning after December 31, 2019, because generally AFSI adjustments are not made for earlier periods.
These proposed regulations generally would follow the adjustments described in section 4.03 of Notice 2023-7, as modified by section 9.02(5) and (6) of Notice 2023-64, with certain modifications.
The proposed regulations also would include special rules for section 168 property held by partnerships under proposed § 1.56A-15(d)(2). If section 168 property is held by a partnership, the adjustments provided in proposed § 1.56A-15(d)(1) (excluding the covered book adjustments in proposed § 1.56A-
However, if section 168 property is held by a partnership, the adjustments provided in proposed § 1.56A-15(d)(1) would not include amounts resulting from any basis adjustment under section 743(b) of the Code. Additionally, the adjustments provided in proposed § 1.56A-15(d)(1) would not include any decreases in tax depreciation or income amounts for regular tax purposes resulting from any basis adjustment under § 1.1017-1(g)(2) attributable to section 168 property held by a partnership (as calculated under § 1.743-1(j)(4)(ii)). Instead, the adjustments provided in proposed § 1.56A-15(d)(2)(ii) and (iv) for amounts resulting from basis adjustments under section 743(b) and § 1.1017-1(g)(2) that would have been included in the adjustments provided in § 1.56A-15(d)(1) would be separately stated to the partnership's CAMT entity partners for inclusion in their distributive amounts.
Stakeholders also requested an adjustment to reduce AFSI for amounts of depreciation that are capitalized under section 263A during the taxable year, regardless of the period in which the capitalized amount is recovered, similar to the methodology under § 1.163(j)-1(b)(1)(iii). This approach is inconsistent with section 56A(c)(13)'s directive to mimic the regular tax treatment of all section 168 property to the extent of the timing and amount of regular tax basis recovery with respect to the section 168 property, and therefore the application of section 56A(c)(13) should not provide the taxpayer with a better result for AFSI than for regular tax purposes. However, the Treasury Department and the IRS continue to study the viability of this and other simplifying safe harbors. In addition, the proposed regulations would include special rules to determine tax COGS depreciation and covered book COGS depreciation adjustments, as well as simplifying methods for FIFO and LIFO method taxpayers to determine depreciation in ending inventory for purposes of computing the tax COGS depreciation and covered COGS depreciation adjustments to AFSI.
In addition, stakeholders requested guidance on potential adjustments to AFSI to account for a change in method of accounting made for regular tax purposes from deducting a cost as an expense to capitalizing and depreciating that cost under sections 167 and 168, and vice versa (proposed § 1.56A-15(b)(10) would define this type of change in method of accounting as a tax capitalization method change). As a result of a tax capitalization method change, the cost at issue would be reclassified to or from section 168 property beginning with the taxable year the tax capitalization method change is effective (depending on the particular tax capitalization method change), and therefore the CAMT entity would be required to begin or cease making adjustments under section 56A(c)(13) beginning in that year of change. Accordingly, proposed § 1.56A-15(d)(1)(vi) would require adjustments to AFSI to prevent any omission or duplication that would otherwise result from the CAMT entity being required to begin or cease making adjustments under section 56A(c)(13) as a result of a tax capitalization method change (proposed § 1.56A-15(b)(11) would define these adjustments as the “tax capitalization method change AFSI adjustment”). For example, if a CAMT entity changes its method of accounting for regular tax purposes from capitalizing and depreciating a cost under sections 167 and 168 to deducting that cost as a repair under section 162, adjustments under section 56A(c)(13) would no longer be required beginning in the year of change as the cost would no longer constitute section 168 property and a tax capitalization method change AFSI adjustment would be made to adjust the cumulative amount of AFSI as of the beginning of the year of change to reflect the cumulative amount of adjustments to AFSI that would have been made in prior years under the new method of accounting. Proposed § 1.56A-15(d)(4) would provide that, in general, a negative tax capitalization method change AFSI adjustment reduces AFSI in the tax year of change by the full amount of the adjustment, and a positive tax capitalization method change AFSI adjustment increases AFSI ratably over four taxable years beginning with the tax year of change. For purposes of proposed § 1.56A-15(d)(4), a short taxable year would be treated as if it were a full 12-month taxable year. If, in any taxable year, a CAMT entity ceases to engage in the trade or business to which the tax capitalization method change AFSI adjustment relates, proposed § 1.56A-15(d)(4) would require the CAMT entity to include in its AFSI for such taxable year any portion of the adjustment not included in AFSI for a previous taxable year.
Examples in proposed § 1.56A-15(d)(5) would illustrate the adjustments to AFSI that would be required by proposed § 1.56A-15(d).
To prevent duplications or omissions of AFSI, proposed § 1.56A-15(e)(1) generally would provide that, if a CAMT entity disposes of section 168 property for regular tax purposes, the CAMT entity must adjust AFSI for the year of the disposition to redetermine the gain or loss taken into account in the CAMT entity's FSI on the disposition by reference to the CAMT basis in the property (in lieu of the AFS basis). For this purpose, the CAMT basis in the property would be determined by adjusting the AFS basis in the property on the disposition date by the amounts described in proposed § 1.56A-15(e)(2). Proposed § 1.56A-15(e)(1) would clarify that, to the extent the CAMT basis of section 168 property is negative (for example, if regular tax basis exceeds AFS basis), such negative amount is recognized as AFSI gain upon disposition of the section 168 property. Proposed § 1.56A-15(e)(7) would provide that, in the case of a disposition for regular tax purposes in an intercompany transaction defined in § 1.1502-13(b)(1)(i), the timing of taking into account the AFSI adjustment under proposed § 1.56A-15(e)(1) is deferred until the taxable year in which the FSI of the tax consolidated group includes the selling member's FSI gain or loss. The calculation of FSI of a tax consolidated group is further discussed in part XXXI.C of this Explanation of Provisions, and the treatment of tax items relating to intercompany transactions is further discussed in part XXXI.G of this Explanation of Provisions.
Proposed § 1.56A-15(e)(2)(i) would provide that the CAMT basis of the section 168 property as of the disposition date is the AFS basis of the section 168 property as of that date: (i) decreased by the full amount of the tax depreciation with respect to such property (regardless of whether any amount of the tax depreciation was capitalized for regular tax purposes and
These proposed regulations generally would follow the adjustments described in section 4.07 of Notice 2023-7, as modified by section 9.02(5) and (7) of Notice 2023-64, with certain modifications for Federal tax credits that reduce the basis of section 168 property for regular tax purposes. Proposed § 1.56A-15(e)(2)(i)(E) would provide for an adjustment to decrease CAMT basis upon disposition by any amount allowed as a Federal tax credit to the extent of the amount that reduces the basis of section 168 property for regular tax purposes. Because Federal tax credits can offset an applicable corporation's CAMT liability under section 55(a), this adjustment would provide parity with the regular tax rules that generally apply a “no excess benefit” principle such that the adjusted basis of property is reduced, in whole or in part, if a Federal tax credit is determined with respect to such property. Accordingly, this adjustment would prevent an applicable corporation from obtaining an excess benefit for CAMT purposes upon disposition through a recovery of additional CAMT basis equal to the amount of the credit. This adjustment is also consistent with the implementation of section 56A(c)(13) in these proposed regulations by mimicking the regular tax treatment of all section 168 property to the extent of the timing and amount of regular tax basis recovery.
Proposed § 1.56A-15(e)(2)(ii) and (e)(3) would provide special rules regarding adjustments to the AFS basis of section 168 property. Proposed § 1.56A-15(e)(2)(ii)(A) would provide that, for section 168 property placed in service prior to the effective date of CAMT (that is, January 1, 2023), the adjustments in proposed § 1.56A-15(e)(2)(i) include amounts attributable to all taxable years beginning before January 1, 2023. This would be consistent with the implementation of section 56A(c)(13) in these proposed regulations by mimicking the regular tax treatment of all section 168 property to the extent of the timing and amount of regular tax basis recovery such that unrecovered pre-effective date AFS basis is not recovered upon disposition when regular tax basis recovery already occurred. In the case of section 168 property acquired in a transaction that is a covered recognition transaction, as defined in proposed § 1.56A-18, with respect to at least one party to the transaction, or in a partnership transaction described in proposed § 1.56A-20, proposed § 1.56A-15(e)(2)(ii)(B) would provide that the adjustments in proposed § 1.56A-15(e)(2)(i) include only amounts attributable to the period following the transaction. The adjustments in proposed § 1.56A-15(e)(2)(i) are not required for the period prior to a covered recognition transaction or a partnership transaction described in proposed § 1.56A-20 because gain or loss was included in AFSI at the time of the transaction (using CAMT basis in lieu of AFS basis). Accordingly, for a subsequent disposition of section 168 property after a covered recognition transaction or a partnership transaction described in proposed § 1.56A-20, the adjustments in proposed § 1.56A-15(e)(2)(i) that pre-date the transaction are not needed to determine the CAMT basis and redetermine gain or loss for purposes of adjusting AFSI for the subsequent disposition.
Proposed § 1.56A-15(e)(2)(ii)(C), which contains a special rule for coordination with section 56A(c)(5), would provide that the adjustment for tax credits described in proposed § 1.56A-15(e)(2)(i)(E) applies regardless of the treatment of the tax credit for AFS purposes. In addition, proposed § 1.56A-15(e)(2)(ii)(D) would provide a rule for determining CAMT basis of section 168 property following a change in method for depreciation or a tax capitalization method change. Under the rule, adjustments under § 1.56A-15(e)(2)(i) would be determined as though the CAMT entity used the method of accounting to which it changed under the corresponding method change when making the adjustments under § 1.56A-15(d)(1) in all taxable years prior to the taxable year in which the disposition of the section 168 property occurs. This special rule would be needed to prevent income or deductions from being duplicated or omitted because of the accounting method change.
Proposed § 1.56A-15(e)(2)(ii)(E) would provide that the adjustments described in proposed § 1.56A-15(e)(2)(i)(B) (covered book expense) and (C) (covered book COGS depreciation and covered book depreciation expense) would include only the covered book expense, covered book COGS depreciation, and covered book depreciation expense amounts that were actually disregarded by the CAMT entity under proposed § 1.56A-15(d)(1)(iii) in computing its AFSI, modified FSI, or adjusted net income or loss for the relevant taxable years. However, for a taxable year ending on or before December 31, 2019, or for a taxable year in which the CAMT entity satisfies the simplified method under proposed § 1.59-2(g) (including a taxable year included in the relevant three-taxable-year period), the CAMT entity is deemed to have disregarded the appropriate amounts under proposed § 1.56A-(d)(1)(iii). This rule prevents a CAMT entity that did not disregard the appropriate amounts in prior years from receiving a double benefit on disposition given that the rules in proposed § 1.56A-15(e)(2) otherwise would include these amounts in the CAMT basis of the section 168 property disposed of.
Proposed § 1.56A-15(e)(3) would provide special rules for section 168 property disposed of by a partnership. If a partnership disposes of section 168 property, the partnership must adjust its modified FSI (described in proposed § 1.56A-5(e)(3)) for the taxable year in which the disposition occurs to redetermine any gain or loss taken into account in the partnership's FSI by reference to the CAMT basis (in lieu of the AFS basis) of the section 168
Adjustments to a partnership's AFS basis of section 168 property disposed of by a partnership do not include any tax depreciation (including any reduction in tax depreciation) or adjustments to the partnership's AFS basis in the section 168 property with respect to a basis adjustment under § 1.1017-1(g)(2). However, if a partner in the partnership is subject to the attribute reduction rules under proposed § 1.56A-21(c)(4) and (5) for discharge of indebtedness income realized through the partnership, the partner must increase its distributive share amount (under proposed § 1.56A-5(e)(4)(ii)(A)) for the taxable year of the disposition of the section 168 property by the amount of any remaining basis adjustment under § 1.1017-1(g)(2) with respect to the section 168 property that has not yet been taken into account for regular tax purposes.
Adjustments to a partnership's AFS basis of section 168 property disposed of by a partnership also do not include any tax depreciation (including any reduction in tax depreciation) or adjustments to the partnership's AFS basis in the section 168 property with respect to a basis adjustment under section 743(b). However, if a partner in the partnership has a section 743(b) adjustment with respect to section 168 property held by the partnership that is disposed of by the partnership for regular tax purposes, the partner must increase its distributive share amount (under proposed § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the section 168 property by an amount equal to the total amount of any tax depreciation or tax depreciation section 481(a) adjustments (including negative amounts) with respect to a section 743(b) basis adjustment that decreased the partner's distributive share amount under proposed § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition. Likewise, the partner must decrease its distributive share amount (under proposed § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the section 168 property by an amount equal to the total amount of any tax depreciation or tax depreciation section 481(a) adjustments with respect to a section 743(b) basis adjustment that increased the partner's distributive share amount under proposed § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition. Thus, tax depreciation or tax depreciation section 481(a) adjustments relating to a section 743(b) basis adjustment that adjusted a partner's distributive share amount would be required in all cases to be recaptured by the partner upon a disposition of the section 168 property by the partnership.
Section 56A(a) provides that the term “AFSI” means, for any corporation for any taxable year, the net income or loss of the taxpayer set forth on its AFS for the taxable year, adjusted as provided in section 56A. Section 56A(c)(13) does not expressly include an adjustment to AFSI to apply nonrecognition or gain deferral provisions that apply to certain dispositions of section 168 property for regular tax purposes. However, under the authority granted by section 56A(c)(15), the Secretary may provide for such an adjustment in certain situations (for example,
Accordingly, proposed § 1.56A-15(e)(4) would provide that except as otherwise provided in other sections of the section 56A regulations, the nonrecognition and gain deferral rules of the Code would not apply when a CAMT entity recognizes gain or loss from the disposition of section 168 property in its FSI, regardless of whether or when any gain or loss on the disposition is taken into account for regular tax purposes. These rules would be consistent with sections 9.02 and 9.03 of Notice 2023-64 and with section 56A(c)(13)'s directive to mimic the regular tax treatment of all section 168 property to the extent of the timing and amount of regular tax basis recovery, which does not extend to the timing and amount of disposition proceeds received upon the disposition of section 168 property that are taken into account in determining gain or loss in FSI (unless otherwise provided in other sections of the section 56A regulations).
Proposed § 1.56A-15(e)(6) also follows the principle applied in interpreting section 56A(c)(13) by providing a special rule that, if section 168 property is disposed of for regular tax purposes before it is treated as disposed of for AFS purposes, the CAMT entity continues to make AFSI adjustments under proposed § 1.56A-15(d)(1)(iii) to disregard any AFS basis recovery that is reflected in FSI following the disposition of the section 168 property for regular tax purposes. Finally, proposed § 1.56A-15(e)(5) would provide that the unit of property determination under § 1.263(a)-3(e) does not apply for purposes of determining the appropriate asset to ascertain whether section 168 property has been disposed of. Instead, CAMT entities would be required to follow section 168 and the regulations under section 168.
Proposed § 1.56A-15(e)(7) would provide examples to illustrate these rules.
Pursuant to the authority granted by section 56A(c)(14)(A)(ii)(II), (c)(15), and (e), proposed § 1.56A-16 would provide rules under section 56A(c)(14) regarding qualified wireless spectrum. The principles of interpretation and rules applied would be consistent with the principles and rules for section 168 property discussed in part XV of this Explanation of Provisions, except for certain rules that are not applicable to qualified wireless spectrum (for example, the definition of section 168 property and the rules for tax depreciation that is capitalized under section 263A to inventory or to the basis of property under section 1221(a)(1) that is not inventory). Therefore, section 56A(c)(14) would be interpreted to mimic the regular tax treatment of all qualified wireless spectrum to the extent of the timing and amount of regular tax basis recovery with respect to the qualified wireless spectrum, regardless of when placed in service and regardless of whether gain or loss with respect to qualified wireless spectrum is recognized in FSI.
The definitions, rules for adjusting AFSI for amortization and other amounts with respect to qualified wireless spectrum, and rules upon disposition of qualified wireless spectrum are therefore not discussed. Instead, only rules or definitions within proposed § 1.56A-16 that differ or are unique from the section 168 property rules (that is, the definition of qualified wireless spectrum) are discussed in this section. Proposed § 1.56A-16(c)(1) would define “qualified wireless spectrum” as wireless spectrum that: (i) is used in the trade or business of a
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-17 would provide rules under section 56A(c)(15) to prevent certain duplications and omissions.
Section 56A(c)(15)(A) authorizes the Secretary to issue regulations or other guidance to provide for adjustments to AFSI that the Secretary determines necessary to carry out the purposes of section 56A, including adjustments to prevent the duplication or omission of any item. Consistent with Notice 2023-64 and proposed § 1.56A-1(d)(2), proposed § 1.56A-17(b) would provide that, to prevent duplications or omissions of items of income, expense, gain or loss, AFSI is adjusted for those items identified in proposed § 1.56A-17(c) through (e) and any other items identified in the section 56A regulations. Accordingly, CAMT entities would not be allowed to self-identify items they believe to be duplications or omissions and make AFSI adjustments for such items. The Treasury Department and the IRS request comments on whether additional adjustments are necessary to prevent duplications or omissions of items under section 56A.
New accounting standards commonly are implemented retrospectively through an adjustment to the beginning balance of a CAMT entity's retained earnings in the AFS for the year in which the new standards are implemented, which may result in a duplication of AFSI or an omission from AFSI. For example, a duplication would arise if a new accounting standard were to recognize income or expense in a later year than the prior standard (as that amount would be taken into account in FSI under both the prior standard and the new standard, thus necessitating an offsetting adjustment to retained earnings). Conversely, an omission would arise if the new standard were to recognize income or expense in a prior year whereas the old standard would have recognized such amount in a future year (as that amount would not be taken into account in FSI under either standard, thus necessitating an adjustment to retained earnings to account for the economic effect of that amount in the financial statements).
To prevent these duplications or omissions, and consistent with Notice 2023-64, proposed § 1.56A-17(c)(1) generally would require a CAMT entity to adjust its AFSI by the “accounting principle change amount,” as described in proposed § 1.56A-17(c)(2)(i), if the CAMT entity implements a change in accounting principle in its AFS. Under proposed § 1.56A-17(c)(2)(i), the accounting principle change amount would be equal to the net cumulative adjustment to the CAMT entity's beginning retained earnings resulting from the change in accounting principle. The accounting principle change amount would also be subject to further adjustment if any portion of the amount relates to any FSI items to which other AFSI adjustments apply, such as taxes under section 56A(c)(5) and proposed § 1.56A-8, and to disregard any portion of the cumulative adjustment attributable to taxable years beginning on or before December 31, 2019.
Proposed § 1.56A-17(c)(2)(ii) also provides rules for determining the accounting principle change amount when a CAMT entity is treated as having a change in accounting principle under proposed § 1.56A-1(c)(5) because the priority of the CAMT entity's AFS for the taxable year (as determined under proposed § 1.56A-2(c)) is different from the priority of the CAMT entity's AFS for the immediately preceding taxable year. In such a case, the accounting principle change amount would be equal to the difference between the CAMT entity's beginning retained earnings reflected on the current AFS as of the beginning of the taxable year and the ending retained earnings reflected on the former AFS as of the end of the immediately preceding taxable year. The accounting principle change amount would also be subject to further adjustment if any portion of the amount relates to any FSI items to which other AFSI adjustments apply, such as taxes under section 56A(c)(5) and proposed § 1.56A-8, and to disregard any portion of the cumulative adjustment attributable to taxable years beginning on or before December 31, 2019.
Proposed § 1.56-17(c)(3) would provide rules consistent with Notice 2023-64 for spreading accounting principle change amounts across multiple taxable years. Different spread period rules would apply depending on whether a net adjustment to AFSI prevents the duplication or prevents the omission of an amount. Because the same accounting principle change amount could prevent a duplication of an item and prevent the omission of another item, proposed § 1.56-17(c)(3) would require a CAMT entity to determine the appropriate spread period rules based on whether the accounting principle change amount prevents a net duplication or a net omission due to the accounting principle change.
Proposed § 1.56A-17(c)(3)(i)(A) generally would provide that, if an accounting principle change adjustment prevents a net duplication for AFSI purposes, the adjustment must be taken into account in the CAMT entity's AFSI ratably over four taxable years, beginning with the taxable year the change in accounting principle is implemented in the CAMT entity's AFS. However, stakeholders have observed that duplicated items could be taken into account in FSI over a shorter or longer period of time. Moreover, a distortion could occur if the duplicated items were significant and taken into account in FSI over a different period than the corresponding AFSI adjustment. A spread period other than four years may be appropriate to prevent such distortions but have abuse and administrability concerns associated with allowing excessively long spread periods. Accordingly, proposed § 1.56A-17(c)(3)(i)(B) would provide that the spread period is capped at 15 years, which should be sufficient to prevent undue distortions. If a CAMT entity can demonstrate that a net duplication is reasonably anticipated to be taken into account in FSI over a period other than 4 years, proposed § 1.56A-17(c)(3)(i)(B) would allow such CAMT entity to take the AFSI adjustment into account ratably over a spread period, not to exceed 15 years, that matches the period that the net duplication is taken into account in the AFS under the new accounting principle (regardless of whether the duplicated amount is taken into account ratably over that period). The Treasury Department and the IRS request comments about whether a spread period greater than 15 years is necessary for an accounting principle change amount that prevents duplication.
In contrast, if an adjustment prevents a net omission for AFSI purposes, proposed § 1.56A-17(c)(3)(ii) would require (i) adjustments that result in an increase to AFSI to be taken into account in AFSI ratably over four taxable years, beginning with the
Proposed § 1.56A-17(c)(4) would provide, consistent with Notice 2023-64, that any portion of an accounting principle change amount not included in AFSI for a previous taxable year must be taken into account in AFSI in the taxable year the CAMT entity ceases to engage in the trade or business that is the subject of the change in accounting principle. The Treasury Department and the IRS request comments on proposed § 1.56A-17(c)(4) and whether and to what extent the rules and concepts provided in Rev. Proc. 2015-13, 2015-5 I.R.B. 419, that accelerate the recognition of a section 481(a) adjustment in certain circumstances should apply to accelerate the recognition of an accounting principle change amount (without suggesting that an accounting principle change is inherently also a tax accounting method change).
Proposed § 1.56A-2(e) would provide rules for the restatement of FSI for a taxable year on a CAMT entity's restated AFS (restatement) issued prior to the date that the CAMT entity files its original Federal income tax return for such taxable year. Proposed § 1.56A-17(d) would provide rules for a restated AFS issued on or after the date that the CAMT entity files its original Federal income tax return. Consistent with Notice 2023-64, proposed § 1.56A-17(d)(1) generally would require the CAMT entity to adjust its AFSI to account for the restatement (AFSI restatement adjustment). Unlike Notice 2023-64, which required the adjustment to be taken into account in the first taxable year for which the CAMT entity had not filed an original return as of the restatement date, proposed § 1.56A-17(d)(1)(i) would require that the adjustment be made for the taxable year during which the restated AFS is issued. This change was made because of a concern that the rule in Notice 2023-64 might not provide CAMT entities with enough time to take into account the restatement if it were issued shortly before the next due date for filing an original return. Providing an adjustment for the taxable year during which the restated AFS is issued is intended to minimize the instances in which a CAMT entity would file an amended return or an administrative adjustment request (AAR) under section 6227 of the Code as a result of a restatement. However, proposed § 1.56A-17(d)(2) would require a CAMT entity that has a restatement, and that files an amended return or AAR to adjust taxable income as a result of the restatement, to use the restated AFS to determine AFSI on the amended return or AAR instead of making the AFSI restatement adjustment.
The AFSI restatement adjustment would be equal to the cumulative effect of the restatement on the CAMT entity's FSI for the restatement year, including any restatement of the CAMT entity's beginning retained earnings. The AFSI restatement adjustment would also be subject to further adjustment if any portion of the amount relates to any FSI items to which other AFSI adjustments apply, such as taxes under section 56A(c)(5) and proposed § 1.56A-8, and to disregard any portion of the cumulative adjustment attributable to taxable years beginning on or before December 31, 2019. A spread period for the adjustment, as in the case of an adjustment for a change in accounting principle, was not considered appropriate in the case of restatements, which are corrections in the application of such principles.
Proposed § 1.56A-17(d)(3) would provide that a CAMT entity is treated as if it restated its AFS for the preceding taxable year, and subject to the AFSI restatement adjustment rules discussed previously, if (i) a CAMT entity adjusts the beginning balance of retained earnings on its AFS for the current taxable year to be different from the ending balance of retained earnings on its AFS for the preceding taxable year without restating the AFS (for example, as the result of a prior period adjustment), (ii) the difference is attributable to items that otherwise would be reflected in the CAMT entity's FSI under the relevant accounting standards used to prepare the CAMT entity's AFS, and (iii) the CAMT entity is not otherwise subject to § 1.56A-17(c), (d)(1) or (2).
Auditors' opinions that are described in proposed § 1.56A-2(d)(2) (a qualified or modified “except for” opinion) or (d)(3) (an adverse opinion in which the auditor discloses the amount of the disagreement) identify situations in which a CAMT entity's accounting treatment of an item diverges from the relevant accounting standard. Consistent with Notice 2023-64, proposed § 1.56A-17(e) would require AFSI to be adjusted to take into account amounts disclosed in such a qualified or adverse auditor's opinion if those amounts would have increased the CAMT entity's FSI had the amounts been reported in the CAMT entity's AFS. However, no AFS adjustment would be required if the disclosed amount were already included in FSI for a prior year. If FSI for a subsequent year includes amounts included in AFSI due to an adjustment under proposed § 1.56A-17(e), AFSI for the subsequent year is adjusted to prevent any duplication of income. These proposed rules would follow the rules for such adjustments in the 1990 Regulations.
Stakeholders requested an adjustment to prevent perceived distortions caused by timing differences, particularly in situations in which items are included in FSI before the effective date of the CAMT but included in taxable income thereafter, or vice versa. These timing differences do not create a duplication or omission of AFSI within the meaning of section 56A(c)(15) of the Code and are precisely the types of financial accounting and taxable income differences that the CAMT was intended to capture. Although proposed § 1.56A-17(b) prevents such adjustments, for the avoidance of doubt and consistent with Notice 2023-64, proposed § 1.56A-17(f) would not permit any adjustment to account for differences between the period an item is taken into account in FSI and the period it is taken into account for regular tax purposes. This proposed regulation would adopt the approach taken in the 1990 Regulations, which was upheld in
Pursuant to authority granted by section 56A(c)(2)(C), (c)(15), and (e), proposed § 1.56A-18 would provide rules regarding investments in domestic corporations that are not members of the CAMT entity's tax consolidated group. Pursuant to authority granted by sections 56A(c)(15) and 56A(e), proposed §§ 1.56A-18 and 1.56A-19 also would provide rules under section 56A regarding transactions involving domestic corporations. The rules in proposed §§ 1.56A-18 and 1.56A-19 would not apply to investments in stock in foreign corporations and transactions involving foreign corporations described in proposed § 1.56A-4.
Section 56A(c)(2)(C) provides, in part, that a taxpayer's AFSI with respect to a corporation that is not a member of the taxpayer's tax consolidated group only takes into account dividends received from that corporation (reduced to the extent provided by the Secretary) and other amounts that are includible in gross income or deductible as a loss under chapter 1 (other than amounts provided by the Secretary) with respect to that corporation.
The financial accounting consequences of an investment in a domestic corporation differ considerably from the Federal income tax consequences of such an investment. Under the Code, a shareholder generally has income or deductions upon the occurrence of a realization event with respect to the shareholder's stock (typically, a distribution from the corporation or an exchange of the stock). The Code specifies the shareholder's tax consequences when such an event occurs, including capital gain or loss, dividend income, a dividends received deduction, or some other result.
In contrast, financial statement income often includes gain or loss with respect to stock even if there has been no realization event for Federal income tax purposes. For example, financial statement income may include unrealized appreciation or depreciation in stock prices, a proportionate share of the corporation's income or loss, or loss from impairment.
Section 56A(c)(15) authorizes the Secretary to issue regulations or other guidance to provide for such adjustments to AFSI as the Secretary determines necessary to carry out the purposes of section 56A, including adjustments to carry out the principles of part II of subchapter C (relating to corporate liquidations) and part III of subchapter C (relating to corporate organizations and reorganizations) of chapter 1.
For Federal income tax purposes, a taxpayer generally recognizes gain or loss on the exchange of property if the property received differs in material kind or extent from the property exchanged. The purpose of the corporate liquidation, organization, and reorganization provisions in parts II and III of subchapter C is to provide nonrecognition treatment for certain specifically described distributions or exchanges incident to certain readjustments of corporate structures made in one of the particular ways specified in the Code that are required by business exigencies and that effect only a readjustment of a continuing interest in property in modified corporate form.
Parties to nonrecognition transactions under subchapter C generally take the acquired assets with a carryover basis (that is, the assets' basis in the hands of the party from whom the assets were acquired) and take the qualifying property (that is, property that is permitted to be received under section 354 or 355 without the recognition of gain or loss) received in the transaction with an exchanged basis (that is, the basis in the property exchanged for qualifying property). If the assets being transferred include stock of another corporation, the basis in the assets of that other corporation generally is not affected by the transaction.
Business combinations and dispositions are treated differently under financial accounting principles than under Federal income tax principles. Under financial accounting principles, acquisitions of entities or lines of business generally are recorded on the AFS at fair value, with the acquiring corporation (acquiror) valuing the assets and liabilities of the acquired entity or line of business at their fair value as of the acquisition date (that is, purchase accounting).
Additionally, although entities generally have separate books and records for financial accounting purposes, financial consolidation generally eliminates the effects of multiple tiers of ownership and disregards the ownership of stock of lower-tier entities as such. Instead, financial consolidation looks through separate legal entities in order to present the financial results as if all of the items of income, expense, gain, and loss of the members of the financial consolidation were the items of a single corporation. In contrast, domestic corporations that are not members of a tax consolidated group generally are treated as separate entities for Federal income tax purposes.
Certain non-pro rata distributions also result in financial accounting gain or loss (
Section 3 of Notice 2023-7 provides guidance under section 56A(c)(15) by describing adjustments to carry out the principles underlying the corporate liquidation, organization, and reorganization provisions of subchapter C. Section 2.01(3)(a) of Notice 2023-7 provides that the financial accounting treatment of corporate transactions controls the determination of AFSI resulting from a transaction unless the treatment is modified as described in Notice 2023-7. For example, under Notice 2023-7, the treatment of a disposition of property that results in gain or loss for Federal income tax purposes (that is, a covered recognition transaction) would be governed by financial accounting principles. As a result, the acquired entities or lines of business generally would be recorded on the AFS at fair value.
However, section 3.03 of Notice 2023-7 further provides, in part, that if a transaction results in no gain or loss for Federal income tax purposes to the party to a transaction under sections 332, 337, 351, 354, 355, 357, 361, 368, or 1032 of the Code (that is, a covered nonrecognition transaction), (i) the party does not take into account the financial accounting gain or loss resulting from the transaction to compute its AFSI, and
Section 56A(a) generally requires AFSI to be determined based on the taxpayer's AFS unless an adjustment provided in section 56A applies. Accordingly, except as otherwise provided in the section 56A regulations, the section 56A regulations generally implement the CAMT by following financial accounting principles. For example,
Section 56A(c)(2)(C) constitutes an exception to the general rule in section 56A(a) concerning the determination of AFSI by a CAMT entity with respect to a corporation that is not included on a tax consolidated return with the CAMT entity. In the context of a CAMT entity that is a shareholder in a domestic corporation, section 56A(c)(2)(C) is implemented by providing that, if a CAMT entity's role in a transaction is purely as a shareholder of a domestic corporation (and not as a party to the transaction), regular tax rules govern the CAMT entity's determination of its AFSI, using CAMT inputs (such as CAMT earnings and CAMT basis) where applicable. In other words, in the context of a CAMT entity that is a shareholder in a domestic corporation, section 56A(c)(2)(C) should apply with respect to situations in which the CAMT entity holds stock in the domestic corporation. Such situations include, for example, dividend distributions (
In the case of a domestic corporation that is not included in a CAMT entity's tax consolidated group, section 56A(c)(2)(C) is implemented to mean that it applies solely to transactions with respect to holding the corporation's stock (and not to transactions to which the CAMT entity is a party), for several reasons. First, this approach would give effect to the statutory exception in section 56A(c)(2)(C) with due regard for the broad statutory requirement in section 56A(a) that a corporate CAMT entity's AFSI must be determined starting with financial accounting net income or loss. Second, construing section 56A(c)(2)(C) so broadly as to result in the general application of regular tax rules to all transactions involving corporations that are not members of the same tax consolidated group is inconsistent with Congress's grant of authority to the Secretary in section 56A(c)(15)(B) to incorporate the principles of parts II and III of subchapter C.
While this approach is an appropriate implementation of section 56A(c)(2)(C) in the context of investments in domestic corporations, additional considerations are present in the case of investments in foreign corporations that call for a different application of section 56A(c)(2)(C) in that context (for instance, the interaction of section 56A(c)(2)(C) and (c)(3), which raises unique double-counting issues with respect to distributions by CFCs and transfers of stock of CFCs).
Proposed §§ 1.56A-18 and 1.56A-19 would clarify and expand the guidance in Notice 2023-7 concerning covered recognition transactions and covered nonrecognition transactions (collectively, covered transactions). Under proposed §§ 1.56A-18 and 1.56A-19, a CAMT entity would use financial accounting rules to determine its AFSI resulting from a corporate transaction unless the entity qualifies for an exception under proposed § 1.56A-18 or 1.56A-19.
More specifically, under proposed §§ 1.56A-18 and 1.56A-19, the CAMT consequences of corporate transactions would be determined under financial accounting principles (using CAMT inputs, such as CAMT retained earnings) unless the CAMT entity qualifies solely for nonrecognition treatment under the relevant Code section. In other words, if a transaction results in the recognition of any amount of gain or loss for regular tax purposes with regard to that CAMT entity (the so-called “cliff effect”), the CAMT entity would apply the relevant financial accounting principles (and not the applicable section of the Code) to the covered recognition transaction.
In contrast, if the CAMT entity qualifies solely for nonrecognition treatment with respect to a transaction, the CAMT entity would determine its AFSI from the transaction by applying regular tax rules with CAMT inputs. Accordingly, the transaction would result in a deferral of AFSI to the CAMT entity, but a stepped-up basis in the assets transferred in the transaction would be prohibited to ensure that such AFSI could be recognized in the future.
The proposed approach to covered transactions is based upon the following principles. First, the grant of authority in section 56A(c)(15)(B) to provide for such adjustments as the Secretary determines necessary to carry out the principles of parts II and III of
Second, the proposed approach reflects the long-standing principle of parts II and III of subchapter C that a taxpayer should not recognize gain or loss on its investment unless it “cashes out” its investment.
The Treasury Department and the IRS considered several alternatives to the proposed “cliff effect” approach with respect to covered transactions. Under one alternative, the regular tax rules of parts II and III of subchapter C would be incorporated wholesale, using CAMT inputs (such as CAMT basis) in lieu of regular tax inputs. However, as noted previously, section 56A(c)(15)(B) does not compel the wholesale importation of the regular tax rules of parts II and III of subchapter C with respect to covered transactions. Additionally, this alternative approach would not adequately implement section 56A(a), which generally requires the use of financial accounting net income or loss.
Under another alternative, financial accounting principles would be incorporated in proportion to the amount of “boot” (that is, money or property received in a corporate transaction other than stock and securities permitted to be received without the recognition of gain or loss under the applicable Code section(s)) in a transaction that otherwise qualifies for nonrecognition treatment to the CAMT entity. However, such a “proportionate” approach would be inappropriate because many aspects of the financial accounting treatment of corporate transactions are not easily proportioned. For example, under GAAP, a corporate transaction may be recharacterized to reverse the identity of the acquiror and the target corporation, or the direction of a spin-off may be reversed such that the parent corporation is the one whose stock is treated as distributed for GAAP purposes. These types of characterizations are binary in effect (that is, they are either applied or not applied).
Proposed § 1.56A-18(b) and (c) would provide definitions and operating rules, respectively, for purposes of proposed §§ 1.56A-18 and 1.56A-19. Proposed §§ 1.56-18(d) through (h) and 1.56A-19 would provide rules to determine the CAMT consequences of various types of covered transactions.
As discussed in part XVIII.C.1.a of this Explanation of Provisions, section 56A(c)(2)(C) conforms the treatment of investments in the stock of domestic corporations for purposes of section 56A to Federal income tax principles during the period in which the shareholder holds the stock. Accordingly, proposed § 1.56A-18(c)(2) would provide that, in computing AFSI, CAMT entities disregard any FSI resulting from equity ownership of domestic corporations that are not members of the CAMT entity's tax consolidated group, except with respect to amounts that result from a transaction described in proposed § 1.56A-18 or 1.56A-19. For example, a shareholder CAMT entity would disregard FSI that otherwise would result from applying the equity method or the fair value method to the CAMT entity's investment in stock of the subsidiary domestic corporation. Instead, CAMT entities would be required to follow Federal income tax principles to determine AFSI resulting from equity ownership of subsidiary domestic corporations.
Proposed § 1.56A-18(c)(2) also would provide that a CAMT entity disregards any adjustments to carrying values or retained earnings on the CAMT entity's AFS, and instead adjusts CAMT basis in the stock and adjusts CAMT retained earnings as provided in proposed § 1.56A-18 or 1.56A-19. In other words, CAMT entities would adjust the CAMT basis in stock when required by the applicable provision of the Code, and CAMT entities would adjust the CAMT retained earnings based on AFSI.
The Treasury Department and the IRS considered an alternative approach under which Federal income tax principles would determine
The Treasury Department and the IRS request comments on whether additional guidance is needed under proposed §§ 1.56A-18 and 1.56A-19 for shareholders in corporations that appear on the same consolidated AFS as the shareholder but that do not file a consolidated Federal income tax return with the shareholder.
The proposed regulations would provide that purchase accounting and push-down accounting adjustments are disregarded in computing any aspect of AFSI resulting from covered transactions that are stock acquisitions, including for purposes of determining the acquiror corporation's CAMT basis and CAMT earnings.
Proposed § 1.56A-18(c)(6) would provide that a CAMT entity's CAMT basis in domestic corporate stock is equal to the CAMT entity's adjusted basis in the stock for regular tax purposes as of the first day of the CAMT entity's first taxable year beginning after December 31, 2019, adjusted as required by proposed § 1.56A-18 or 1.56A-19, rather than the carrying value of the stock on the CAMT entity's AFS on that day. Because the carrying value of the stock reflects adjustments under financial accounting principles that do not require a realization event, adopting the carrying value as the CAMT basis may lead to the duplication or omission of income with respect to domestic corporate stock. Additionally, the Treasury Department and the IRS understand that the carrying value of stock is not always maintained for financial accounting purposes because it is not relevant for the preparation of the AFS (for example, if the shareholder and the corporation appear on the same consolidated AFS).
As discussed in part XVIII.C.1 of this Explanation of Provisions, the proposed regulations would provide that financial accounting treatment governs the computation of a domestic corporation's AFSI with respect to a covered transaction, but that the AFSI computation is modified if the covered transaction qualifies as a covered nonrecognition transaction. This proposed approach would be consistent with Notice 2023-7. Additionally, in certain cases, the proposed regulations would provide modified rules for computing AFSI from covered recognition transactions.
Under Notice 2023-7, the determination of whether a transaction qualifies as a covered nonrecognition transaction is made on a party-by-party and transaction-by-transaction basis. To clarify the treatment of the various parties to covered transactions, proposed §§ 1.56A-18(d) through (h) and 1.56A-19 would significantly expand the covered transaction guidance described in Notice 2023-7 to provide separate rules for the following types of covered transactions: (i) non-liquidating distributions; (ii) distributions for which an election under section 336(e) is made; (iii) corporate liquidations; (iv) taxable sales of stock and assets; (v) stock reorganizations; (vi) asset reorganizations; (vii) divisive transactions to which section 355 applies; (viii) single-corporation reorganizations; and (ix) corporate formations to which section 351 applies. The proposed rules for certain of these covered transactions are described in the remainder of this part XVIII.C.5 of the Explanation of Provisions.
The proposed regulations generally would require a CAMT entity that is a party to a covered nonrecognition transaction: (i) to disregard any gain or loss reflected in FSI resulting from the transaction; (ii) to determine AFSI resulting from the transaction by applying the relevant Code section (that is, no AFSI is recognized); (iii) to determine the basis consequences of the transaction by applying the relevant Code section (using CAMT basis in lieu of AFS basis); and (iv) to adjust CAMT earnings (in lieu of AFS retained earnings) by applying section 312 (and, if applicable, section 381(c)(2)). In other words, for covered nonrecognition transactions, proposed §§ 1.56A-18 and 1.56A-19 would provide that financial accounting gain or loss with respect to such transactions is not taken into account in computing AFSI, and that the parties to the transaction take a carryover or exchange basis (rather than a fair value basis) in the assets or stock received.
In contrast, the proposed rules generally would require a CAMT entity that is a party to a covered recognition transaction: (i) to determine its AFSI by recomputing any gain or loss reflected in its FSI using the CAMT basis of any property transferred in the transaction (in lieu of AFS basis); (ii) to determine the CAMT basis in any property received in the transaction to be its AFS basis; and (iii) to adjust CAMT earnings (in lieu of AFS earnings) by the amount of AFSI resulting from the transaction. In other words, financial accounting principles generally would apply to covered recognition transactions, using CAMT inputs in lieu of financial accounting inputs.
For CAMT entities that are shareholders, the same general rules would apply to both covered nonrecognition transactions and covered recognition transactions. The proposed regulations would require such a CAMT entity: (i) to determine its AFSI by disregarding any gain or loss reflected in its FSI and applying the relevant Code section, using the distribution amount and CAMT basis, if relevant; (ii) to determine the characterization of the transaction by applying the relevant Code section based on CAMT earnings (in lieu of earnings and profits); (iii) to determine CAMT basis in stock or other property received by applying the relevant Code section, using CAMT basis; and (iv) to adjust CAMT earnings (in lieu of AFS retained earnings) by applying section 312 based on AFSI.
Proposed § 1.56A-18(d) reflects the application of the general approach described in part XVIII.C.5.a of this Explanation of Provisions to non-liquidating distributions by a CAMT entity, including the treatment of CAMT entity shareholders that receive such distributions. Under proposed § 1.56A-18(d), the distributing corporation in a transaction that is a covered nonrecognition transaction with respect to the distributing corporation generally would be required (i) to disregard any FSI resulting from the non-liquidating distribution, (ii) to compute AFSI by applying the relevant Code section (section 311(a)) (that is, no AFSI would be recognized), and (iii) to adjust CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution by applying the relevant Code section (section 312). In contrast, if the distribution is a covered recognition transaction with respect to the distributing corporation, the distributing corporation would be required (i) to determine its AFSI by recomputing any gain or loss reflected in its FSI using the CAMT basis in the distributed property, and (ii) to adjust CAMT earnings (in lieu of AFS earnings) by the amount of AFSI resulting from the transaction.
Regardless of whether the non-liquidating distribution is a covered nonrecognition transaction or a covered recognition transaction, CAMT entities that are shareholders of the distributing corporation would be required (i) to disregard any FSI resulting from the non-liquidating distribution, (ii) to compute AFSI by applying the relevant Code section, using CAMT basis and CAMT earnings, and (iii) to adjust CAMT earnings resulting from the distribution by applying the relevant Code section (section 312). However, for administrability and to limit the burden on smaller entities, the proposed regulations would provide that the character of any distribution is determined based on regular tax earnings and profits of the distributing corporation or the target corporation unless the shareholder receiving the distribution owns more than 25 percent by vote or value of the distributing corporation or the target corporation and the distributing corporation or the target corporation itself would not qualify for the safe harbor for determining applicable corporation status in proposed § 1.59-2(g).
Proposed § 1.56A-18(g) would address the treatment of taxable sales of domestic stock. Proposed § 1.56A-18(g)(1)(i) generally would require a target corporation shareholder in a taxable stock sale (that is, a covered recognition transaction), including a transaction to which section 304 applies, (i) to determine gain or loss resulting from the sale for AFSI purposes by using CAMT basis in lieu of AFS basis, (ii) to determine its CAMT basis in the property received in the transaction to be equal to the shareholder's AFS basis in that property (that is, the financial accounting treatment is unmodified), and (iii) to determine its CAMT current earnings based on its AFSI. Proposed § 1.56A-18(g)(3) would provide analogous rules for the acquiror corporation.
However, proposed § 1.56A-18(g)(1)(ii) would provide that, if an election is made for a disposition or purchase of domestic stock under sections 336(e) or 338, respectively, then the transfer of stock is disregarded, and the target corporation shareholder adjusts its CAMT current earnings to reflect the deemed liquidation of the target corporation. Proposed § 1.56A-18(g)(2) and (4) would further provide that, if an election is made for a sale or purchase, as applicable, of stock of a domestic target corporation under section 336(e), 338(g), or 338(h)(10), the target corporation's AFSI is computed under regular tax rules, using the CAMT basis in its assets, and the new target corporation's CAMT basis in the property deemed to be received from the target corporation equals the new target corporation's regular tax basis in that property as a result of that election.
Proposed § 1.56A-18(h) would address the treatment of taxable asset sales by a domestic corporation. Under these proposed rules, each of the acquiror corporation and the target corporation would (i) determine its AFSI resulting from the transaction by redetermining any gain or loss reflected in its FSI by reference to its CAMT basis (in lieu of AFS basis) in the transferred property, (ii) determine its CAMT basis in the property received to be equal to its AFS basis in that property, and (iii) adjust (to the extent applicable) its CAMT current earnings (in lieu of AFS retained earnings) based on its AFSI.
In the case of covered nonrecognition transactions described in section 368(a)(1)(B) (B reorganizations), proposed § 1.56A-19(b)(1) would require the target corporation shareholder or security holder: (i) to determine its AFSI by disregarding any resulting gain or loss reflected in its FSI and applying the relevant Code section (section 354) to the transfer (that is, no AFSI would be recognized by the target corporation shareholder or security holder); (ii) to determine its CAMT basis in the stock received from the acquiror corporation by applying the relevant Code section (section 358), using CAMT basis (in lieu of AFS basis); and (iii) to adjust its CAMT earnings (in lieu of AFS retained earnings) resulting from the transaction by applying section 312. Proposed § 1.56A-19(b)(3) would provide analogous rules for the acquiror corporation in a B reorganization.
If a stock acquisition fails to qualify as a B reorganization, the rules applicable to taxable stock sales or section 351(b) transactions would apply, as appropriate.
In the case of acquisitive reorganizations other than B reorganizations, proposed § 1.56A-19(c) would expand upon the approach described in Notice 2023-7. In a transaction that is a covered nonrecognition transaction with respect to the target corporation, proposed § 1.56A-19(c)(1) would require the target corporation: (i) to disregard any FSI resulting from the exchange of target corporation property for acquiror stock; (ii) to apply section 361(a) and (b) to the transfer (that is, the transaction would not result in AFSI to the target corporation); (iii) to determine the CAMT basis of the property received by applying section 358, using CAMT basis in lieu of AFS basis; and (iv) to adjust its CAMT earnings (in lieu of AFS retained earnings) resulting from the transaction by applying section 312.
An additional rule would apply if the target corporation purges all “boot” received in the transaction (that is, if the target corporation distributes or transfers all non-qualifying property) and qualifies solely for nonrecognition treatment under section 361(c).
Conversely, if the target corporation recognizes any gain or loss on the distribution or transfer of the boot to its shareholders or security holders, then the transaction would be a covered recognition transaction, and the target corporation would determine any gain or loss resulting from the distribution or transfer in its AFSI by reference to its CAMT basis (in lieu of AFS basis) in the distributed or transferred property.
Proposed § 1.56A-19(c)(3)(i) would provide that, in an acquisitive reorganization that is a covered nonrecognition transaction with respect to the domestic acquiror corporation, the acquiror corporation disregards any FSI resulting from the exchange of acquiror corporation stock or other property for target corporation assets, and instead applies section 1032(a) in determining AFSI (that is, the transaction would not result in AFSI to the acquiror corporation). Proposed § 1.56A-19(c)(3)(ii) would provide that the acquiror corporation takes a carryover basis in the assets acquired (
In contrast, if an acquisitive reorganization is a covered recognition transaction with respect to the acquiror corporation, the transaction would be treated in the same manner as a taxable asset sale.
In the case of divisive transactions, proposed § 1.56A-19(d) would retain the general approach described in Notice 2023-7, with certain clarifications and other revisions. Proposed § 1.56A-19(d)(1) generally would provide that, in a divisive transaction that is solely a covered nonrecognition transaction with respect to the distributing corporation, the distributing corporation disregards any FSI resulting from (i) the transfer of assets and liabilities to the controlled corporation, (ii) the receipt of any controlled corporation securities or other consideration in the transaction, and (iii) the distribution of controlled corporation stock to the distributing corporation's shareholders in the transaction. The distributing corporation would compute its AFSI with respect to the transaction by applying sections 355 and 361 (that is, the transaction would not result in AFSI to the distributing corporation), would determine its basis in any property received from the controlled corporation by applying section 358 (using CAMT basis in lieu of AFS basis), and would adjust CAMT retained earnings (in lieu of AFS retained earnings) by applying section 312.
Proposed § 1.56A-19(d)(1)(ii) would further provide that, if all qualified property (within the meaning of section 355(c)(2)(B) or section 361(c)(2)(B), as appropriate) is distributed in a transaction that qualifies the distributing corporation solely for nonrecognition treatment under section 361(c), then the distributing corporation computes AFSI by disregarding any FSI relating to the distribution of the qualified property. In other words, the aforementioned “cliff effect” would be inapplicable if the distributing corporation distributes all of the boot received to its shareholders and security holders in a manner that qualifies the distributing corporation solely for nonrecognition treatment under the regular tax rules.
However, proposed § 1.56A-19(d)(2) would provide that, if a section 355 transaction causes the distributing corporation to recognize gain or loss, then the section 355 transaction is a covered recognition transaction to the distributing corporation, which would be required to determine its gain or loss resulting from the transaction by using CAMT basis in lieu of AFS basis. Similarly, if the distributing corporation recognizes any gain or loss on the distribution or transfer of property under section 361(c), then the distribution or transfer would be a covered recognition transaction, and the distributing corporation would determine any gain or loss resulting from the distribution or transfer in its AFSI by reference to its CAMT basis (in lieu of AFS basis) in the distributed or transferred property.
As reflected in the foregoing paragraph, a distributing corporation that transfers property to a controlled corporation in a section 355 transaction is treated as a party to the transaction. Therefore, the rule for shareholders in proposed § 1.56A-18(c)(2)—under which Federal income tax principles rather than financial accounting principles would apply—is inapplicable. However, as mentioned previously, the applicable Code provision(s) would govern the transaction so long as the distributing corporation “purges” all of the boot received in the transaction to its shareholders and securities (that is, if the transaction qualifies as a covered nonrecognition transaction to the distributing corporation).
Under proposed § 1.56A-19(d)(3), the treatment of the distributing corporation's shareholders or security holders generally would follow the regular tax treatment, except that basis consequences would be determined using CAMT basis in lieu of AFS basis, and CAMT retained earnings would be adjusted using AFSI.
Proposed § 1.56A-19(d)(4) would provide that, if a controlled corporation transfers solely its stock to the distributing corporation in a transaction that qualifies as a covered nonrecognition transaction with respect to the controlled corporation, the controlled corporation does not include in AFSI any FSI with respect to the transfer. Instead, the controlled corporation would apply section 1032(a) to the transfer (that is, no AFSI would be recognized by the controlled corporation), would determine the basis of any property received from the distributing corporation using CAMT basis (in lieu of AFS basis), and would adjust CAMT earnings by applying section 312. In contrast, if a controlled corporation transfers money or other property (in addition to stock) to a distributing corporation as part of a section 355 transaction, proposed § 1.56A-19(d)(5)(i)(A) would treat the transfer as a covered recognition transaction to the controlled corporation, unless the distributing corporation purges all boot received in the transfer and qualifies solely for nonrecognition treatment under section 361(b).
Proposed § 1.56A-18(e) would clarify the AFSI computation for a distributing corporation and a target corporation if a distributing corporation makes an election under section 336(e), as described in § 1.336-2(b)(1).
Proposed § 1.56A-19(g) would address the treatment of covered transactions to which section 351 applies. For purposes of proposed § 1.56A-19(g), a section 351 transferor is treated as a party to the section 351 exchange. Therefore, the rule for shareholders in proposed § 1.56A-18(c)(2)—under which Federal income tax principles rather than financial accounting principles would apply—is inapplicable. Additionally, unlike the target corporation in an acquisitive reorganization or the distributing corporation in a section 355 transaction, the section 351 transferor cannot preclude the recognition of gain or loss (and, thus, the aforementioned “cliff effect”) by distributing any non-stock consideration to its shareholders as part of the transaction, because such an outcome is not permitted under the regular tax rules.
Proposed § 1.56A-19(g)(1) would clarify that a section 351 exchange can be a covered nonrecognition transaction with respect to the section 351 transferee and certain section 351 transferors and also be a covered recognition transaction with respect to the section 351 transferee and other section 351 transferors. Treatment of the component transactions of the section 351 exchange as a covered nonrecognition transaction or a covered recognition transaction would be tested separately with respect to each party to the section 351 exchange. Each component transaction of the section 351 exchange in which the section 351 transferee transfers solely stock (including nonqualified preferred stock described in section 351(g)(2) (NQPS)) to a section 351 transferor would be a covered nonrecognition transaction with respect to the section 351 transferee. Each component transaction of the section 351 exchange in which the section 351 transferee transfers money or other property in addition to its stock to a section 351 transferor would be a covered recognition transaction with respect to the section 351 transferee. A component transaction of a section 351 transferor that is a party to the section 351 exchange would be a covered nonrecognition transaction with respect to the section 351 transferor if section 351(a) would apply to the section 351 transferor and would be a covered recognition transaction with respect to the section 351 transferor if section 351(b) would apply to the section 351
Proposed § 1.56A-19(g)(2) and (4) would provide the CAMT consequences of A component transactions of a section 351 exchange that are covered nonrecognition transactions with respect to section 351 transferors and section 351 transferees, respectively. Proposed § 1.56A-19(g)(2) would provide that, if a section 351 exchange is a covered nonrecognition transaction with respect to the section 351 transferor, then the section 351 transferor disregards any FSI resulting from the exchange, computes its AFSI by applying section 351 to the exchange (that is, the transaction would not result in AFSI to the section 351 transferor), and determines its CAMT basis in the stock received by applying section 358, using CAMT basis in lieu of AFS basis. Similarly, if a component transaction of a section 351 exchange is a covered nonrecognition transaction with respect to the section 351 transferee, then proposed § 1.56A-19(g)(4) would provide that the section 351 transferee would disregard any FSI resulting from the exchange, would compute its AFSI by applying section 1032(a) to the exchange (that is, the transaction would not result in AFSI to the section 351 transferee), and generally would determine CAMT basis in the property received by applying section 362(a)(1), using CAMT basis in lieu of AFS basis and CAMT recognized gain (relevant only if the exchange involves NQPS, which is “stock” for purposes of section 1032 but is treated as “other property” for purposes of section 351(b)), subject to the special CAMT basis rule in proposed § 1.56A-19(g)(4)(iii).
The special CAMT basis rule in proposed § 1.56A-19(g)(4)(iii) is an application of the authority granted in section 56A(c)(15)(A) to adjust CAMT basis to prevent the duplication or omission of CAMT items through the receipt of a relatively small amount of NQPS by a CAMT-irrelevant section 351 transferor to increase the section 351 transferor's CAMT basis in the transferred property that could result under proposed § 1.56A-19(g)(4)(ii). Under proposed § 1.56A-19(g)(4)(iii), a section 351 transferee would determine its CAMT basis in the property received from a section 351 transferor by redetermining the amount of any CAMT gain recognized by the section 351 transferor to include only the amount, if any, by which the fair market value of the portion of the property transferred by the section 351 transferor in exchange for NQPS exceeds the section 351 transferor's CAMT basis in that portion of the transferred property. This special CAMT basis rule would apply if (i) the section 351 transferor is not an applicable corporation and its AFSI otherwise is not required to be taken into account by any applicable corporation for the taxable year in which qualification of the component transaction as a covered recognition transaction with respect to the section 351 transferor otherwise would be determined under the section 56A regulations, (ii) the section 351 transferee solely transfers its stock to that section 351 transferor, and (iii) the fair market value of the NQPS is 10 percent or less of the aggregate fair market value of the stock (including the NQPS) transferred by the section 351 transferee to the section 351 transferor in the section 351 exchange.
However, if a section 351 transferor receives money or other property from the section 351 transferee in a section 351 exchange, then the section 351 exchange would be a covered recognition transaction with respect to both the section 351 transferor under proposed § 1.56A-19(g)(3) and the section 351 transferee under proposed § 1.56A-19(g)(5) (unless no money is received and the “other property” is solely NQPS, in which case the exchange would be a covered recognition transaction with respect to the section 351 transferor under proposed § 1.56A-19(g)(3) but a covered nonrecognition transaction with respect to the section 351 transferee under proposed § 1.56A-19(g)(4)). Proposed § 1.56A-19(g)(3) would provide that the section 351 transferor (i) determines its gain or loss on the exchange for AFSI purposes by using CAMT basis in lieu of AFS basis, (ii) determines its CAMT basis in the property received as equal to its AFS basis in the property transferred, and (iii) adjusts its CAMT retained earnings based on its AFSI. Proposed § 1.56A-19(g)(5) would provide analogous rules for the section 351 transferee, subject to the special CAMT basis rule in proposed § 1.56A-19(g)(5)(iii).
The special CAMT basis rule in proposed § 1.56A-19(g)(5)(iii) is an application of the authority granted in section 56A(c)(15)(A) to adjust CAMT basis to prevent the duplication or omission of CAMT items through the transfer of a relatively small amount of money or other property by a section 351 transferee to increase the section 351 transferee's CAMT basis in the transferred property that could result under proposed § 1.56A-19(g)(5)(ii). Under proposed § 1.56A-19(g)(5)(iii), a section 351 transferee would determine its CAMT basis in the property received from a section 351 transferor by redetermining the section 351 transferee's AFS basis in that property to not exceed the sum of the amount of the section 351 transferor's CAMT basis in the transferred property immediately before the section 351 exchange and the amount, if any, by which the fair market value of the portion of the property other than stock of the section 351 transferee that the section 351 transferee transfers to the section 351 transferor exceeds the section 351 transferee's CAMT basis in that portion of the transferred property. This special CAMT basis rule would apply if (i) the section 351 transferor is not an applicable corporation and its AFSI otherwise is not required to be taken into account by any applicable corporation for the taxable year in which qualification of the component transaction as a covered recognition transaction with respect to the section 351 transferee otherwise would be determined under the section 56A regulations, (ii) the section 351 transferee transfers its stock and money or other property to that section 351 transferor, and (iii) the amount of money and fair market value of other property is 10 percent or less of the sum of the money and the aggregate fair market value of the stock and other property transferred by the section 351 transferee to the section 351 transferor in the section 351 exchange.
Proposed § 1.56A-18(f) would address the treatment of complete liquidations under section 331 or section 332 of the Code and other corporate dissolutions. In the case of a complete liquidation that is a covered nonrecognition transaction with respect to the liquidating corporation, proposed § 1.56A-18(f)(1) would provide that the liquidating corporation disregards any gain or loss in its FSI resulting from the liquidation and instead applies section 337(a) to the liquidating distributions (that is, the transaction would not result in AFSI to the liquidating corporation). In the case of a complete liquidation that is a covered recognition transaction with respect to the liquidating corporation, proposed § 1.56A-18(f)(2) would provide that the liquidating corporation determines any gain or loss from the liquidation or dissolution for AFSI purposes by using CAMT basis in lieu of AFS basis.
Proposed § 1.56A-18(f)(4) would provide that a liquidation recipient receiving a distribution in a covered nonrecognition transaction (i) disregards any gain or loss resulting from the distribution in its FSI, (ii) applies section 332 to the liquidating distributions received (that is, the
Proposed § 1.56A-18(f)(3) would clarify that a single liquidation or other corporate dissolution can be a covered nonrecognition transaction with respect to the liquidating corporation and one liquidation recipient and also be a covered recognition transaction with respect to the liquidating corporation and other liquidation recipients.
Pursuant to the authority granted by section 56A(c)(2)(D)(i), (c)(15), and (e), proposed § 1.56A-20 would provide rules under section 56A(c)(15)(B), which authorizes the Secretary to issue regulations or other guidance to provide for such adjustments to AFSI as the Secretary determines necessary to carry out the purposes section 56A, including adjustments to carry out the principles of part II of subchapter K.
The guidance concerning Covered Nonrecognition Transactions and Covered Recognition Transactions described in section 3 of Notice 2023-7 apply to certain partnership transactions. For contributions of property by a partner to a partnership to which nonrecognition treatment under section 721 of the Code applies in whole, section 3 of Notice 2023-7 provides that any FSI resulting for AFS purposes to a partnership or a contributing partner is not taken into account in the partnership's or the partner's AFSI (partnership contribution rule). For distributions of property by a partnership to a partner to which nonrecognition treatment under section 731 of the Code applies in whole, section 3 of Notice 2023-7 provides that any FSI resulting for AFS purposes to a partnership or a partner to a transaction is not taken into account in the partnership's or the partner's AFSI (partnership distribution rule; together with the partnership contribution rule, the partnership covered nonrecognition rules).
Proposed § 1.56A-20(a)(2) would provide that the rules in proposed § 1.56A-20 apply to contributions to or distributions from a partnership, but not with respect to stock of a foreign corporation except in the limited circumstance of the effect on the CAMT basis of a partnership investment for a distribution of foreign stock that is distributed in the same transaction as other property. Proposed § 1.56A-20(b) would provide a general operating rule for transactions between a CAMT entity and a partnership in which it holds an investment. This general operating rule would require each of the CAMT entity, any other partners in that partnership, and the partnership itself to include in its AFSI any income, expense, gain, or loss reflected in its FSI as a result of the transaction, except as otherwise provided in proposed § 1.56A-20 (which would apply after the application of § 1.56A-1(c) and (d)).
According to stakeholders, one possible approach to the partnership contribution rule would be to import certain rules into the CAMT that apply to partnership contributions for regular tax purposes, such as section 704(c) or the so-called “mixing bowl” rules under sections 704(c)(1)(B) and 737 of the Code, to prevent the shifting of built-in gains or losses inherent in contributed property from contributing partners subject to the CAMT to partners that are not subject to the CAMT. Some stakeholders proposed incorporating section 704(c) principles in their entirety, while other stakeholders proposed alternative methods of preventing the shifting of gains or losses between partners without incorporating the complexity of section 704(c) into the CAMT.
One alternative proposed by stakeholders as a means of avoiding much of the complexity associated with incorporating the existing section 704(c) methodologies, including the ceiling rule described in § 1.704-3(b)(1), into the CAMT, is a deferred sale approach based on former proposed § 1.704-3(d) (
Rules are needed to prevent the shifting of built-in gain or loss away from the contributing partner. However, the Treasury Department and the IRS believe that importing section 704(c) as well as sections 704(c)(1)(B) and 737 in their entirety into the CAMT would create significant complexity and administrative burden for taxpayers, partnerships, and the IRS.
Pursuant to the authority granted by section 56A(c)(15) and (e), as an alternative to importing these subchapter K rules in their entirety into the CAMT, the proposed regulations would adopt a deferred sale method. More specifically, proposed § 1.56A-20(c)(1) generally would provide that, if property (other than stock in a foreign corporation) is contributed by a CAMT entity (contributor) to a partnership in a transaction to which section 721(a) applies (subject to special rules in proposed § 1.56A-20(e) and (f) for determining section 721(a) treatment), any gain or loss reflected in the contributor's FSI from the property transfer is included in the contributor's AFSI in accordance with the deferred sale approach set forth in proposed § 1.56A-20(c)(2). The deferred sale approach would not apply to disregard any other FSI amount resulting to the contributor or the partnership from the transaction (for example, FSI gain or loss resulting from a deconsolidation or a dilution) for purposes of determining AFSI.
Under proposed § 1.56A-20(c)(2)(i), a contributor would be required to include the amount of gain or loss reflected in its FSI (deferred sale gain or loss) resulting from the contribution of the property to a partnership in a transaction described in proposed § 1.56A-20(c)(1) (deferred sale property) in its AFSI ratably, on a monthly basis, over the applicable recovery period beginning on the first day of the month that the deferred sale property is contributed to the partnership, unless the special rule in proposed § 1.56A-20(c)(2)(i)(E) would apply to the timing of the inclusion. If the contribution is treated as a sale for AFS purposes, the gain or loss resulting from the transaction would be redetermined by reference to the contributor's CAMT
The applicable recovery period for the deferred sale property would depend on the type of deferred sale property contributed to a partnership. For deferred sale property that is section 168 property or qualified wireless spectrum and placed in service by the contributor in a taxable year prior to the taxable year in which the property becomes deferred sale property, the applicable recovery period would be the full recovery period that was assigned to the property by the contributor in the taxable year such property was placed in service for purposes of depreciating or amortizing the property for regular tax purposes.
For deferred sale property subject to depreciation or amortization for AFS purposes that is not section 168 property or qualified wireless spectrum in the hands of the contributor or the partnership, the applicable recovery period would be the recovery period used by the partnership to depreciate or amortize the deferred sale property for AFS purposes.
Under proposed § 1.56A-20(c)(2)(ii), a contributor would accelerate a portion of its deferred sale gain or loss into its AFSI upon the occurrence of certain events. If a contributor's distributive share percentage in the partnership decreases by more than one-third following its contribution of the deferred sale property (whether by sale or exchange, liquidation of all or a part of the contributor's interest in the partnership, dilution, deconsolidation, or otherwise), the contributor would include in its AFSI for the taxable year in which the decrease occurs an amount of the remaining deferred sale gain proportionate to the percentage change in the contributor's distributive share percentage. Any remaining deferred sale gain would continue to be included in the contributor's AFSI ratably on a monthly basis over the remaining applicable recovery period of the deferred sale property.
If the contributor defers gain upon a contribution to which section 721(c) applies in accordance with the gain deferral method described in § 1.721(c)-3, and if the deferred sale approach under proposed § 1.56A-20(c)(2) applies, then additional acceleration rules would apply. Under proposed § 1.56A-20(c)(2)(iv), if an acceleration event described in § 1.721(c)-4(b) occurs, the contributor must include in its AFSI for the contributor's taxable year of the event the amount of any deferred sale gain with respect to the deferred sale property that has not yet been included in the contributor's AFSI as of the date of the acceleration event. If a partial acceleration event described in § 1.721(c)-5(d) occurs, then the contributor would include in its AFSI in the taxable year of the event an amount of deferred sale gain that bears the same ratio to the total amount of any deferred sale gain that has yet to be included in the contributor's AFSI immediately before the event, that the taxable gain required to be recognized under § 1.721(c)-5(d)(2) or (3) bears to the total amount of remaining built-in gain (as defined in § 1.721(c)-1(b)(13)) with respect to section 721(c) property, as computed for regular tax purposes. The amount (if any) of deferred sale gain with respect to deferred sale property remaining after application of proposed § 1.56A-20(c)(2)(iv) would continue to be included in the contributor's AFSI ratably on a monthly basis over the remaining applicable recovery period of the deferred sale property.
If a contribution of property to a partnership would result in section 721(a) not applying (and, thus, would result in the recognition of gain or loss for regular tax purposes (for example, under section 721(b) or (c)), then the CAMT entity would include in its AFSI in the taxable year of contribution all FSI resulting from the contribution. However, if the CAMT entity defers gain upon a contribution to which section 721(c) applies in accordance with the gain deferral method described in § 1.721(c)-3, then the deferred sale approach in proposed § 1.56A-20(c)(2) would apply.
If the contributor is a partnership for Federal tax purposes, the deferred sale gain or loss included in the AFSI of the contributor partnership (that is, the UTP) for a taxable year in accordance with the deferred sale approach would be included in the distributive share amounts of the partners of the contributor partnership (whether or not they were partners at the time of contribution) in proportion to their distributive share percentages for that taxable year, as determined under proposed § 1.56A-5(e)(2).
Proposed § 1.56A-20(c)(3) would provide basis rules for contributions of property. Proposed § 1.56A-20(c)(3)(i) would provide that the partnership's initial CAMT basis in contributed property would be the partnership's initial AFS basis in the contributed property at the time of contribution, regardless of whether section 721(a) applies, in whole or in part, to the contribution.
Proposed § 1.56A-20(c)(3)(ii) would provide that the contributor's initial CAMT basis in its partnership investment upon a contribution of property to the partnership to which
A stakeholder recommended that section 731 generally should apply upon a distribution of property to prevent the recognition of gain or loss by the partnership or partners for purposes of the CAMT if gain or loss would not be recognized for regular tax purposes. Likewise, if a partner would have a stepped-up basis in distributed assets for AFS purposes, stakeholders recommended the inclusion of CAMT rules similar to the carryover basis rules of section 732 to prevent the omission of gains. Stakeholders also suggested that it may be appropriate to import other rules from subchapter K into the CAMT, such as basis adjustments under section 734(b) or the mixing bowl rules under sections 704(c)(1)(B) and 737 (as previously discussed), to prevent the omission of gains or losses or to prevent the shifting of built-in gains or losses among partners. However, given the complexity of importing basis adjustment or mixing bowl rules into the CAMT, the stakeholder also proposed either turning off section 731 entirely for purposes of the CAMT or adopting a deferred sales method at the partnership level.
If section 731(a) and (b) were imported into the CAMT in their entirety, then other rules that apply to partnership distributions for regular tax purposes also would need to be imported into the CAMT to prevent the omission of certain gains or losses or the shifting of built-in gains or losses. However, the Treasury Department and the IRS believe that importing sections 731, 732, 734, 704(c)(1)(B), and 737 into the CAMT in their entirety would create significant complexity and an administrative burden.
Accordingly, pursuant to the authority granted by section 56A(c)(15) and (e), these proposed regulations would adopt a deferred distribution gain or loss approach (similar to the rules for contributions of property in proposed § 1.56A-20(c)(2)) to the gain or loss recognized by the partnership on a distribution of property to which section 731(b) applies. The proposed regulations would not alter the AFS results to a partner using the principles of section 731(a) because importing section 731(a) into the CAMT also would require importing the carryover basis rules under section 732(a)(2) and (b) and, thus, the basis adjustment rules under section 734(b). As such, the timing or amount of any FSI resulting to a CAMT entity partner from a distribution of partnership property would not be affected by these rules, except to the extent of the CAMT entity's distributive share amount of any deferred distribution gain or loss resulting from the distribution.
Proposed § 1.56A-20(d)(1)(i) generally would provide that, except as provided in proposed § 1.56A-20(f), if a partnership distributes property to a partner in a transaction to which section 731(b) applies, any gain or loss reflected in the partnership's FSI resulting from the distribution of property is disregarded for purposes of determining the partnership's modified FSI (as defined in proposed § 1.56A-5(e)(3)). Instead, any such gain or loss would be included by the partners in their distributive share amounts (as defined in proposed § 1.56A-5(e)) in accordance with the deferred distribution gain or loss approach in proposed § 1.56A-20(d)(1)(ii) and (iii) and (d)(2). The deferred distribution gain or loss approach would not apply to disregard any other FSI amount resulting from the transaction (for example, FSI gain or loss to a partner resulting from a deconsolidation or dilution) for purposes of determining AFSI.
Under proposed § 1.56A-20(d)(1)(ii), the amount of gain or loss reflected in the partnership's FSI (deferred distribution gain or loss) resulting from the distribution of property (deferred distribution property) (i) would be allocated among the partners in proportion to their distributive share percentages for the taxable year in which the distribution occurs (as determined under proposed § 1.56A-20(d)(2)(i)) (a partner's allocable share of deferred distribution gain or loss), and (ii) would be included by each partner in their respective distributive share amounts ratably, on a monthly basis, over the applicable recovery period for the deferred distribution property beginning on the first day of the month in which the distribution occurs.
If the distribution is treated as a sale for AFS purposes, the partnership would redetermine the amount of deferred distribution gain or loss by reference to the partnership's CAMT basis in the deferred distribution property at the time of the distribution rather than its AFS basis in the deferred distribution property.
The applicable recovery period for the deferred distribution property would depend on the type of property. For deferred distribution property that is section 168 property or qualified wireless spectrum and that was placed in service by the partnership in a taxable year prior to the taxable year in which the property becomes deferred distribution property, the applicable recovery period would be the full recovery period that was assigned to the property by the partnership in the taxable year such property was placed in service for purposes of depreciating or amortizing the property for regular tax purposes.
For deferred distribution property subject to depreciation or amortization for AFS purposes that is not section 168 property or qualified wireless spectrum, the applicable recovery period would be the recovery period for newly placed in service property that was used by the partnership to depreciate or amortize the deferred distribution property for AFS purposes.
Under proposed § 1.56A-20(d)(1)(iii), a partner would accelerate the remaining amount of its allocable share of deferred distribution gain or loss into its AFSI upon the occurrence of certain events. If a partnership (i) terminates under section 708(b)(1) of the Code as a result of a dissolution or liquidation, (ii) sells or exchanges all or substantially all of its assets, or (iii) merges or consolidates with one or more partnerships and is not the resulting partnership for regular tax purposes (as determined under § 1.708-1(c)), then for the taxable year in which the acceleration event occurs, each partner must include in its distributive share amount the amount of the partner's allocable share (if any) of deferred distribution gain or loss that has yet to be included in its distributive share amount as of the date immediately before the acceleration event. Similarly, if a partner disposes of its entire investment in the partnership, including through a liquidating distribution by the partnership, the partner must include in its distributive share amount for the partner's taxable year in which the disposition occurs the amount of the partner's allocable share (if any) of deferred distribution gain or loss that has yet to be included in the partner's distributive share amount as of the disposition date.
If a distribution of property or money from a partnership to a partner results in any gain, loss, or other amount being reflected in the partner's FSI, that amount would be redetermined using the relevant CAMT basis, if applicable, and included in the partner's AFSI in the year of the distribution. If the relevant CAMT basis is the partner's CAMT basis in its partnership investment, proposed § 1.56A-20(d)(2)(iii) would provide that (A) money distributed in the same transaction as property is treated as reducing CAMT basis, if applicable, prior to any distribution of property, (B) stock in a foreign corporation distributed in the same transaction is treated as reducing CAMT basis prior to any distribution of property other than stock in a foreign corporation, and (C) principles similar to § 1.731-1(a)(1)(ii) apply for purposes of calculating the effect of the distribution on the CAMT entity's AFSI.
If any partner of the distributing partnership is a partnership for Federal tax purposes, then proposed § 1.56A-20(d)(2)(iv) would provide that the deferred distribution gain or loss included in the partner's distributive share amount under proposed § 1.56A-20(d)(2)(i) is included in its partners' respective distributive share amounts (whether or not the partners were partners in the partnership at the time of the distribution) in proportion to their distributive share percentages for the taxable year, as determined under proposed § 1.56A-5(e)(2).
Proposed § 1.56A-20(d)(3) would provide basis rules for distributions of property. Proposed § 1.56A-20(d)(3)(i) would provide that a partner's initial CAMT basis of property distributed by a partnership is the partner's initial basis of the property for AFS purposes, determined immediately after the distribution. Proposed § 1.56A-20(d)(3)(ii) would provide that the CAMT basis of a partner's investment in a partnership following the partnership's distribution of property is increased or decreased (i) at the end of each taxable year during the applicable recovery period, by the amount required to be included in the partner's distributive share amount in each taxable year in accordance with proposed § 1.56A-20(d)(1)(ii), and (ii) immediately prior to an acceleration event described in proposed § 1.56A-20(d)(1)(iii) or (d)(2)(ii), by the amount of deferred distribution gain or loss not previously included in the partner's distributive share amount.
One stakeholder suggested that, as part of importing sections 721 and 731 into the CAMT, section 752 of the Code should be fully imported into the CAMT to better align the treatment of contributions to and distributions from a partnership under the CAMT with their treatment for regular tax purposes, to prevent resulting distortions, and to reduce the potential for tax avoidance. Another stakeholder suggested an alternative approach that would not import any aspect of section 752 into the CAMT, on the grounds that the alternative approach would provide administrative simplicity and be consistent with how liabilities are treated for financial accounting purposes.
Importing section 752 into the CAMT would create significant administrative complexity and generally would be inconsistent with how partner and partnership liabilities are treated for AFS purposes. Accordingly, proposed § 1.56A-20(e)(1) generally would provide that the treatment of partner and partnership liabilities for purposes of determining a partner's or partnership's AFSI is based on the treatment of such liabilities for AFS purposes and not how such liabilities are treated under section 752.
With regard to the treatment of liabilities upon a contribution or distribution of property to or from a partnership, proposed § 1.56A-20(e)(2) would provide that section 752 is inapplicable in determining the amount of gain or loss to be included in the AFSI of the partner or partnership. Accordingly, any rules relating to liabilities for regular tax purposes, such as those under §§ 1.707-5 and 1.707-6, would not apply for purposes of the CAMT. For example, if section 707 or section 752 of the Code would provide that gain or loss is not recognized for regular tax purposes upon a contribution of encumbered property, that rule would be disregarded in determining whether section 721(a) or 731(b) applies to a transaction for purposes of the CAMT.
As previously described, the partnership Covered Nonrecognition Transaction guidance described in Notice 2023-7 applies only if no gain or loss is recognized on the transaction for regular tax purposes. Stakeholders recommended that these rules also apply to partnership contributions and distributions that are afforded partial nonrecognition treatment for regular tax purposes, and that AFSI generally should result from the transaction in proportion to the amount of gain or loss that is recognized for regular tax purposes.
As discussed in parts XIX.B and C of this Explanation of Provisions, proposed
Accordingly, proposed § 1.56A-20(f) would provide that, if a transfer of property by a partner to a partnership, or by a partnership to a partner, is not a nonrecognition transaction for regular tax purposes, in whole or in part, under section 721(a) or section 731(b), respectively (or would not be a nonrecognition transaction under these Code sections for regular tax purposes considering the application of proposed § 1.56A-20(e)), then the partner or partnership, as applicable, must include an amount in its AFSI for the taxable year of the transfer. The amount to be included is an amount (if any) of the FSI reflected on the partner's or partnership's AFS resulting from the transaction that (i) bears the same ratio to the total amount of gain or loss reflected in the partner's or partnership's FSI resulting from the transaction, as (ii) the taxable gain or loss that would be recognized on the transfer without the application of section 752 and the exceptions in §§ 1.707-5 and 1.707-6 bears to the taxable gain or loss realized on the transfer for regular tax purposes. Any FSI resulting from the transaction must be calculated using the CAMT basis of the property and not the AFS basis of the property. Any resulting FSI that is not included in AFSI in the taxable year of the transfer under the rule described in proposed § 1.56A-20(f) would be subject to the deferred sale approach or the deferred distribution gain or loss approach.
Proposed § 1.56A-20(g) would provide rules relating to the maintenance of books and records and reporting requirements for a partnership and each CAMT entity that is a partner in the partnership. The Treasury Department and the IRS are aware that, for a CAMT entity partner to determine the timing of inclusion in its AFSI of any deferred sale gain or loss resulting from its contribution of deferred sale property, the CAMT entity partner will require information from the partnership. Similarly, a partnership may require information from a partner receiving a distribution of deferred distribution property to determine the timing of inclusion of deferred distribution gain or loss in the CAMT entities' distributive share amounts. To facilitate compliance with the rules of proposed §§ 1.56A-20 and 1.56A-5, the proposed regulations would require partnerships and CAMT entity partners in such partnership to maintain certain information in their respective books and records and to report that information as appropriate.
Proposed § 1.56A-20(g)(1) would require a partnership and each CAMT entity that is a partner in the partnership to include in its respective books and records all information necessary for the partnership and each CAMT entity to comply with the rules of proposed §§ 1.56A-20 and 1.56A-5. As applicable for partnerships and CAMT entities to comply with their respective requirements under these proposed regulations, the information to be maintained in their separate books and records includes, without limitation, (i) the recovery periods used to depreciate deferred sale property and deferred distribution property for regular tax purposes; (ii) the properties contributed to the partnership that had a built-in gain or loss at the time of contribution and the amount of the built-in gain or loss with respect to each property for AFSI purposes; (iii) the CAMT basis of any property contributed to or distributed from the partnership; and (iv) the amount of deferred distribution gain or loss to be allocated among, and included in the distributive share amounts of, the partners of the partnership.
Proposed § 1.56A-20(g)(2)(i) would provide that partnerships must report to a CAMT entity the information required for the CAMT entity to comply with the rules of proposed §§ 1.56A-20 and 1.56A-5. The information to be reported to CAMT entities that are partners in a partnership to facilitate compliance with these sections includes, without limitation, (A) the recovery periods used to depreciate deferred sale property, (B) the date on which the partnership sold, distributed, or otherwise disposed of deferred sale property; (C) the date on which an acceleration event described in § 1.721(c)-4(b) occurred; and (D) the amount of deferred distribution gain or loss resulting from a distribution of property that is included in the CAMT entity partner's distributive share amount under proposed § 1.56A-20(d).
A partnership may report information to a CAMT entity partner in any reasonable manner sufficient for a CAMT entity to comply with the rules of proposed § 1.56A-20. However, if any information relates to the determination of a CAMT entity's distributive share amount with respect to its investment in the partnership, the proposed regulations would require the partnership to report the information consistently with the rules of proposed § 1.56A-5(h).
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-21 would provide rules under section 56A regarding financially troubled companies.
The U.S. Bankruptcy Code (11 U.S.C. 101-1532) governs bankruptcies in the United States. The Bankruptcy Code and related authorities give debtors relief from debts they cannot repay to allow them to reorder their affairs and enjoy a “fresh start.” For example, bankruptcy gives otherwise viable business enterprises a chance to continue intact, thereby preserving jobs for employees and the availability of products and services for customers, and enhancing market competition and stability.
The Internal Revenue Code plays an important role in implementing the foregoing objective. Section 61(a)(11) of the Code provides that, except as otherwise provided in subtitle A, gross income includes income from the discharge of indebtedness in the year of the discharge. However, section 108(a)(1) of the Code provides that gross income does not include any amount that otherwise would be includible in gross income by reason of the discharge (in whole or in part) of indebtedness of the taxpayer, if the discharge occurs under circumstances specified in section 108(a)(1)(A) through (E), including in a title 11 case and if the
Section 108(b) requires taxpayers that exclude income under section 108(a) to reduce certain specified tax attributes, including net operating losses (NOLs) and the minimum tax credit under section 53(b) of the Code. Section 108(b)(1) provides that the amount of income excluded under section 108(a) (excluded COD income, also referred to as discharge of indebtedness income) is applied to reduce the tax attributes of the taxpayer as provided in section 108(b)(2). Thus, section 108 effectively defers rather than excludes tax on excluded COD income.
Section 108(b)(2) generally provides that the following tax attributes are reduced in the following order: (i) any NOL; (ii) amounts used to determine the general business credit under section 38 of the Code; (iii) the minimum tax credit available under section 53(b); (iv) any net capital losses and any capital loss carryover under section 1212 of the Code; (v) the basis of the property of the taxpayer (
Any amount of excluded COD income that remains after attribute reduction under section 108(b) (so-called “black hole COD”) is not includible in income.
As under section 61(a)(11) of the Code, financial accounting principles generally require debtors to recognize gain on debt discharges. If debts are extinguished, GAAP requires gain to be recognized on the difference between the price at which the debt is satisfied and the carrying value of the debt.
Both the Code and financial accounting principles also address a corporation's emergence from bankruptcy. Section 368(a)(1)(G) provides nonrecognition treatment for the transfer by a corporation of its assets to another corporation in a title 11 or similar case, so long as certain requirements are satisfied. Taxpayers also may emerge from bankruptcy in a taxable transaction, with favorable rules that permit the use of tax attributes to offset gain prior to the attribute reduction required by section 108(b).
Under GAAP, “fresh-start reporting” requires eligible companies to adjust the carrying values of assets and liabilities immediately before the emergence from bankruptcy.
Section 56A does not specifically address the treatment of troubled companies for purposes of the CAMT. However, absent adjustments to AFSI for income from debt discharges and fresh-start reporting, troubled companies would have additional tax liabilities under the CAMT that could impede the companies from achieving solvency or emerging from bankruptcy. Avoiding this unnecessary harm also would protect the interests of the government in its tax collection efforts. Authority for such adjustments is provided in section 56A(c)(15) and (e).
Sections 3.06 and 3.07 of Notice 2023-7 provide guidance for the exclusion of discharge of indebtedness income and gain resulting from fresh-start reporting, respectively. Under section 3.06(1) of Notice 2023-7, financial accounting gain equal to the amount of discharge of indebtedness income excluded under section 108(a) is not taken into account for purposes of calculating the AFSI of a financial statement group for the year in which the discharge of indebtedness occurs. Under section 3.06(2) of Notice 2023-7, financial statement groups with excluded income under section 3.06(1) reduce CAMT attributes to the extent of the reduction of regular tax attributes under section 108(b) using the principles and ordering rules of sections 108(b) and 1017. Section 3.07 of Notice 2023-7 provides that financial accounting gain or loss resulting from a financial statement group's emergence from bankruptcy, and resulting changes to the financial accounting basis of property, are not taken into account for purposes of calculating the financial statement group's AFSI.
Proposed § 1.56A-21 would provide rules for determining AFSI with respect to events relating to the bankruptcy or insolvency of a CAMT entity. Proposed § 1.56A-21 also would provide rules for determining AFSI with respect to the receipt of Federal financial assistance (within the meaning of section 597(c) of the Code and § 1.597-1(b)).
Consistent with section 3.06 of Notice 2023-7, proposed § 1.56A-21(c)(1)(i) would exclude from AFSI income from the discharge of indebtedness for CAMT entities in a title 11 case. This exclusion is intended to cover all FSI otherwise includible in AFSI that arises from an extinguishment or modification of a debt instrument during bankruptcy of the CAMT entity, regardless of the timing of the reporting of the item under financial accounting principles. The language of the proposed rule is similar to that of the bankruptcy exclusion in section 108(a)(1)(A), with modifications reflecting differences in the timing of the recognition of income for tax and financial accounting purposes.
Consistent with section 3.06 of Notice 2023-7 and section 108(a)(1)(B), proposed § 1.56A-21(c)(2)(i) would exclude from AFSI income from the discharge of indebtedness for insolvent CAMT entities (including foreign corporations), but only to the extent of their insolvency. However, stakeholders have indicated that the amount of insolvency ordinarily is not measured as
Special rules would address the application of the bankruptcy and insolvency exclusions to disregarded entities and partnerships. Disregarded entities would be eligible for these exclusions only if their regarded owner is eligible.
Consistent with section 3.06 of Notice 2023-7, proposed § 1.56A-21(c) would require CAMT entities that exclude income from a discharge of indebtedness under proposed § 1.56A-21(c)(1)(i) or (c)(2)(i) to reduce CAMT-specific assets in the order listed in proposed § 1.56A-21(c)(4)(iii). Under proposed § 1.56A-21(c)(4)(iii), the tax attributes subject to reduction (but not below zero) would be: (i) the CAMT basis of covered property, but only to the extent the basis of the covered property is reduced by the CAMT entity under section 108 for regular tax purposes; (ii) FSNOLs; (iii) CFC adjustment carryovers; (iv) the CAMT basis of property (other than covered property) that is depreciated or amortized for AFS purposes; (v) the CAMT basis of property (other than covered property) that is not depreciated or amortized for AFS purposes; (vi) CAMT foreign tax credits; and (vii) any remaining CAMT basis of covered property. For purposes of proposed § 1.56A-21, the term “covered property” would mean section 168 property, qualified wireless spectrum, and property whose regular tax basis is determined under section 21(c) of the ANCSA.
The attributes listed in clauses (i) through (v) and (vii) of the prior paragraph would be reduced by one dollar for each dollar excluded under proposed § 1.56A-21(c)(1)(i) and (c)(2)(i), subject to specified limitations for basis reductions. CAMT FTCs would be reduced under a conversion formula that takes into account the differing economic values of deductions and credits.
The proposed order and amount of the reduction of CAMT attributes generally would parallel the order and amount of tax attribute reductions in section 108(b). However, reductions to the CAMT basis of covered property would be prioritized over reductions to other CAMT attributes to the extent the basis of such property has been reduced under section 108(b)(1) (proposed prioritization rule). Under section 56A(c)(8), (13), and (14), depreciation deductions claimed for regular tax purposes with respect to property whose basis is determined under section 21(c) of the ANCSA, Section 168 Property, and qualified wireless spectrum, respectively, are carried over into the CAMT. The proposed prioritization rule would align reductions to the CAMT basis of these three categories of property with the section 108(b)(1) reductions to the same property for regular tax purposes. This proposed rule is intended to minimize regular tax and CAMT basis mismatches in these categories that would make the CAMT harder to administer and enforce.
The proposed prioritization rule also would address a stakeholder's concern that, absent such a rule, taxpayers that have a reduction in depreciable basis in Section 168 Property under section 108(b)(1) would incur a double detriment if they also were required to reduce attributes other than the CAMT basis of the same property. This double detriment would result because AFSI is computed with regular tax depreciation taken on Section 168 Property.
To prevent this double detriment, the proposed prioritization rule would tie reductions in CAMT depreciable basis to the same reductions for regular tax purposes, just as depreciation and amortization deductions for purposes of the CAMT are aligned with regular tax depreciation and amortization deductions under section 56A(c)(13) and (14), respectively. Only when all other attributes have been reduced to zero would the basis of section 168 property (and other covered property) be reduced more than the basis of that property is reduced under section 108(b)(1).
Under section 3.06(2) of Notice 2023-7, the amount of the CAMT attribute reduction is limited to the amount of tax attributes reduced under section 108(b). Stakeholders recommended eliminating this limitation because CAMT attributes are separate from, and arise out of, a different measure of income than the regular tax, and the attribute reduction limitation in Notice 2023-7 does not take this difference into account. Under these proposed regulations, the CAMT attribute reduction would be limited to the amount of CAMT attributes subject to reduction rather than to the amount of tax attributes reduced under section 108(b).
Proposed § 1.56A-21(c)(4)(iv)(A) would specify that attribute reductions for FSNOLs, CFC net loss carryforwards, and CAMT FTCs are made after the determination of CAMT liability in the taxable year of a discharge. This provision is similar to § 1.108-7(b), which provides an ordering rule for attribute use and reduction under section 108(b). Similarly, proposed § 1.56A-21(c)(4)(iv)(B) would specify that CAMT basis reductions are made immediately before the close of the taxable year of the discharge of indebtedness of the CAMT entity solely with regard to assets of the CAMT entity under that section that the CAMT entity will hold at the beginning of the immediately subsequent taxable year. Proposed § 1.56A-21(c)(4)(iv)(C) would provide that a CAMT entity must make CAMT basis reductions in the same manner as basis reductions for regular tax purposes.
Proposed § 1.56A-21(d) would provide rules for the computation of AFSI for CAMT entities emerging from bankruptcy. Under proposed § 1.56A-21(d)(2)(i), gain or loss reflected in FSI resulting from a CAMT entity's emergence from bankruptcy would be disregarded, with corresponding adjustments to CAMT basis and CAMT earnings to eliminate financial accounting changes from the excluded gain or loss. This proposed rule would be consistent with section 3.07 of Notice 2023-7, with additional clarifications as to the scope of its application.
For example, stakeholders expressed uncertainty as to whether section 3.06 of Notice 2023-7 (concerning discharge of indebtedness income) or, rather, section 3.07 of Notice 2023-7 (concerning
To clarify that the discharge of indebtedness provisions take priority in cases involving the emergence from bankruptcy, proposed § 1.56A-21(d)(2)(ii) would provide that, in such cases, a CAMT entity would rely on proposed § 1.56A-21(c) to determine the CAMT consequences of a discharge of indebtedness. Proposed § 1.56A-21(d)(2)(iii) and (d)(3) would provide that, in the case of an emergence from bankruptcy in a covered transaction, the rules of §§ 1.56A-18 and 1.56A-19 would apply to determine the CAMT consequences of the emergence transaction.
Proposed § 1.56A-21(e) provides rules for determining the AFSI of a CAMT entity that is a partner in a partnership that realizes discharge of indebtedness income. Proposed § 1.56A-21(e)(2)(i) provides that any discharge of indebtedness income reflected in a partnership's FSI is disregarded for determining the partnership's AFSI. Instead, any exclusion from AFSI for a partnership's discharge of indebtedness income, and any resulting CAMT attribute reductions, are applied at the partner level in the manner as the rules in section 108(a) and section 108(b) are applied at the partner level for regular tax purposes. For purposes of applying the attribute reduction rules, proposed § 1.56A-21(e)(2)(ii)(B) provides that a CAMT entity treats its partnership investment as covered property to the extent the basis of covered property held by the partnership is reduced by the partnership for regular tax purposes under § 1.1017-1(g)(2). Additionally, if a CAMT entity that is a partner in a partnership treats its partnership investment as covered property, the basis adjustment rules under § 1.1017-1(g)(2) with respect to covered property held by the partnership apply for purposes of determining the CAMT entity's distributive share amount under proposed § 1.56A-5. Proposed § 1.56A-21(e)(2)(iii) provides that discharge of indebtedness income reflected in a partnership's FSI is separately stated to the partners in accordance with their distributive share percentages for the taxable year in which the income is realized for AFS purposes. For purposes of determining whether a CAMT entity that is a partner in a partnership is insolvent, proposed § 1.56A-21(e)(3) provides that the CAMT entity includes its share of partnership's liabilities under section 752 of the Code in the same manner as its share of partnership liabilities would be included for regular tax purposes.
Stakeholders have expressed concern over the inclusion in AFSI of financial accounting gain attributable to amounts that constitute “Federal financial assistance” (FFA), as defined in proposed § 1.56A-21(b)(4), for regular tax purposes. FFA may arise in the context of an acquisition of a troubled financial institution. Financial accounting principles may require gain attributable to these amounts to be reported as gain on a CAMT entity's AFS and included in FSI when the relevant transaction is entered into (for example, as a result of bargain purchase gain). In contrast, for regular tax purposes, the recognition of gross income attributable to FFA may be deferred over multiple taxable years under section 597 and the regulations under section 597.
Stakeholders stated that this mismatch in timing of recognition of amounts attributable to FFA for AFSI purposes and regular tax purposes may cause or increase CAMT tax liability solely because of a CAMT entity's participation in transactions involving troubled financial institutions that the provision of FFA is otherwise intended to encourage. To address this mismatch in timing, proposed § 1.56A-21(f) would provide adjustments to AFSI so as not to include any financial accounting gain attributable to FFA any earlier than when the gain is included in gross income for purposes of section 597 and the regulations under section 597.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-22 would provide rules under section 56A regarding insurance companies and other specified industries.
Some insurance companies issue insurance contracts (including variable contracts, as defined in section 817(d) of the Code) for which the insurance company's obligations to the contract holders (and the company's corresponding reserves) reflect (in whole or in part) the change in value of a designated pool of investment assets supporting the contracts. These contracts generally are accounted for on the insurance company's financial statements by including in its FSI both (i) the change in the unrealized gain or loss in the supporting assets, and (ii) the offsetting change in liability resulting from the related change in the company's obligation to the contract holders.
In the absence of a special rule for insurance companies issuing this type of contract, AFSI would be determined by disregarding (i) the change in unrealized gain or loss on certain stock under section 56A(c)(2)(C) and proposed §§ 1.56A-4, 1.56A-18, and 1.56A-19, and (ii) the change in unrealized gain or loss on certain partnership interests (in whole or in part) under section 56A(c)(2)(D) and proposed §§ 1.56A-5 and 1.56A-20, even though the offsetting change in liabilities would be taken into account. This outcome would result in a mismatch that could significantly overstate or understate AFSI for these insurance companies relative to both taxable income and economic income.
Section 3 of Notice 2023-20 provides interim guidance that addresses this mismatch. Under section 3 of Notice 2023-20, for purposes of determining an insurance company's AFSI, the change in the obligation to holders of “Covered Variable Contracts”, as defined in section 2.05(2) of Notice 2023-20, is disregarded to the extent the related gains or losses on assets supporting the contracts are both (i) taken into account in determining FSI, and (ii) excluded from AFSI under section 56A(c)(2)(C) or (c)(2)(D)(i).
A stakeholder suggested that “turning off” section 56A(c)(2)(C) and (c)(2)(D)(i) could achieve the same result as under Notice 2023-20 and would be simpler to administer, because no adjustments to an insurance company's AFSI would be needed to eliminate the mismatch. In contrast, the approach described in Notice 2023-20 requires two adjustments: first, section 56A(c)(2)(C) or (c)(2)(D)(i) is applied to exclude from AFSI certain gains and losses in the assets supporting the contracts; and
To address the foregoing mismatch in a manner that is simple to administer, proposed § 1.56A-22(c)(1) generally would provide that proposed §§ 1.56A-4, 1.56A-5, and 1.56A-18 through 1.56A-20 (and, thus, any statutory AFSI adjustments implemented by these provisions) would not apply to exclude from an insurance company's AFSI any gains or losses on assets supporting covered variable contracts, as defined in proposed § 1.56A-22(b)(5), to the extent that (i) the gains and losses result in a change in the amount of the obligations to the contract holders, and (ii) this change is included in the insurance company's FSI.
A stakeholder also suggested that the definition of Covered Variable Contracts in Notice 2023-20 be broadened. Accordingly, proposed § 1.56A-22(b)(5) would define this term more generally rather than by including in the definition only specific types of identified contracts.
In certain types of reinsurance arrangements (namely, funds withheld reinsurance and modified coinsurance agreements), the ceding company retains the investment assets that support the obligations to the holders of the underlying insurance contracts. Under these agreements, the reinsurance operates like conventional reinsurance, but from a legal title and financial accounting perspective, the ceding company retains these investment assets as security for the reinsurer's obligations under the reinsurance agreement (and for modified coinsurance, the ceding company also retains the reserves).
Under GAAP and IFRS, the change in unrealized gains and losses on certain of these retained assets generally is accounted for in the ceding company's OCI, and the change in a related and offsetting payable to the reinsurer is accounted for in the ceding company's FSI.
Section 4 of Notice 2023-20 provides interim guidance that addresses this mismatch. Section 4 of Notice 2023-20 also provides related guidance to the reinsurer, guidance in the case of a retrocession, and guidance if the insurance company elects to account for parts of the reinsurance arrangement at fair value.
The rules in proposed § 1.56A-22(d) generally would be consistent with section 4 of Notice 2023-20. Proposed § 1.56A-22(d)(1) generally would provide that (i) the ceding company in a “covered reinsurance agreement”, as defined in proposed § 1.56A-22(b)(4), excludes from AFSI any changes in the amount of the payable to the reinsurer that correspond to the unrealized gains and losses in the withheld assets to the extent the unrealized gains and losses are not included in AFSI, and (ii) the reinsurer in a covered reinsurance agreement excludes from AFSI any changes in the amount of the receivable from the ceding company that correspond to the unrealized gains and losses in the assets withheld by the ceding company.
However, the rule in proposed § 1.56A-22(d)(3), related to accounting for the reinsurance arrangement at fair value, would “turn off” the general rule in proposed § 1.56A-22(d)(1) if the insurance company either (i) makes an election for AFS purposes to account for the covered reinsurance agreement at fair value in its FSI, or (ii) otherwise accounts for both the payable (for the ceding company) or the receivable (for the reinsurer) and the covered reinsurance agreement at fair value in its FSI. Accordingly, proposed § 1.56A-22(d)(3) would apply only if the covered reinsurance agreement is accounted for at fair value in FSI. Comments are requested on whether the rule in proposed § 1.56A-22(d)(3) appropriately describes the circumstances (under GAAP, IFRS, and other generally accepted accounting standards) in which the general rule in proposed § 1.56A-22(d)(1) should not apply.
Various Acts of Congress fully subjected to Federal taxation certain entities that previously had been exempt from Federal taxation (in whole or in part).
Consistent with section 5 of Notice 2023-20, proposed § 1.56A-22(e) would provide that, for purposes of determining AFSI, the adjusted basis of any asset held by the entity since the date it became fully taxable is determined in accordance with the particular Act that fully subjected the entity to Federal taxation.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-23 would provide rules under section 56A(d) for determining the AFSI adjustment for financial statement net operating loss (FSNOL) carryovers, built-in losses, and other attributes.
Section 56A(d)(1) provides that AFSI is reduced by an amount equal to the lesser of (i) the aggregate amount of FSNOL carryovers to the taxable year, or (ii) 80 percent of AFSI computed without regard to the FSNOL adjustment. Section 56A(d)(2) provides that an FSNOL for any taxable year is a financial statement net operating loss carryover to each taxable year following the taxable year of the loss. The portion of the FSNOL carried to subsequent taxable years is the amount of the FSNOL remaining after subtracting the adjustments under section 56A(d)(1) for previous years. Section 56A(d)(3) defines an “FSNOL” as the amount of the net loss set forth on a corporation's applicable financial statement as adjusted by section 56A(c), and without regard to the FSNOL deduction, for taxable years ending after December 31, 2019.
Proposed § 1.56A-23(c) would provide that, if the AFSI of a corporation for a taxable year is positive (determined after application of the section 56A regulations), the corporation's AFSI is reduced by an amount equal to the lesser of (i) the aggregate amount of FSNOL carryovers to the taxable year, or (ii) 80 percent of the AFSI of the corporation (determined after application of the section 56A regulations and without regard to proposed § 1.56A-23). Proposed § 1.56A-23(d)(1) would provide that an FSNOL for any taxable year is carried
The section 56A(d) rules regarding the use of FSNOLs generally match the rules regarding the use of NOLs applicable to most corporations for regular tax purposes under section 172 in that both FSNOLs and NOLs generally (i) may be carried forward for an indefinite number of years but may not be carried back and (ii) may be used to reduce only 80 percent of AFSI (as described in section 56A(d)(1)) or taxable income (as described in section 172(a)(2)), respectively. However, section 172 provides exceptions to the general rule for nonlife insurance companies that are not in section 56A(d). In particular, section 172 provides that a nonlife insurance company's NOLs may be carried back for two years and carried forward 20 years and also that the NOLs are not subject to the 80 percent limit described in section 172(a)(2).
The existence of FSNOLs and built-in losses may incentivize acquisitions for Federal income tax reasons in a manner inconsistent with the purposes of section 56A. Accordingly, proposed § 1.56A-23(e) and (f) would limit the use of FSNOLs and built-in losses, respectively, to which an applicable corporation succeeds (i) in a reorganization or liquidation described in section 381(a), or (ii) after a stock acquisition (including a stock acquisition in which the target corporation becomes a member of a tax consolidated group) (collectively, successor transactions, as defined in proposed § 1.56A-23(e)(3)). The proposed limitation is intended to replicate the target corporation's ability to use the CAMT attributes prior to the transaction.
Proposed § 1.56A-23(e) would limit the use of FSNOLs after a successor transaction. Under proposed § 1.56A-23(e)(2), a successor corporation or successor group could use the FSNOLs of an acquired business to offset the successor's AFSI only if the acquired business is separately tracked in the successor's books and records, and only to the extent of the AFSI generated by the separately tracked business after the successor transaction (separately tracked income). Proposed § 1.56A-23(e)(2)(ii) would provide rules for determining separately tracked income for purposes of proposed § 1.56A-23(e), proposed § 1.56A-23(e)(3)(iii) would provide rules regarding the separation of an acquired business from the associated acquired FSNOLs, and proposed § 1.56A-23(e)(3)(iv) would provide rules regarding the integration of an acquired business with the successor's business.
Proposed § 1.56A-23(f) would provide rules regarding the use of built-in losses after a successor transaction. Under proposed § 1.56A-23(f), built-in losses that are recognized after a successor transaction would be treated as if they were acquired FSNOLs for purposes of proposed § 1.56A-23(e). This rule is intended to ensure that acquired built-in losses are treated similarly to acquired FSNOLs. For this purpose, “built-in losses” would be defined by reference to certain specified provisions in section 382 of the Code.
The foregoing limitations are modeled after the separate return limitation year rules in §§ 1.1502-15 and 1.1502-21(c). Stakeholders also had recommended applying section 382 to limit the use of FSNOLs and other CAMT attributes after an acquisition. However, the Treasury Department and the IRS are not proposing to apply the limitation in section 382 to FSNOLs or other CAMT attributes due to complexities that would arise from importing the section 382 limitation into the CAMT system. Additionally, applying section 382 and the regulations under section 382 to the use of FSNOLs and other CAMT attributes is not necessary to carry out the purposes of section 56A for two reasons: (i) the SRLY-like limitation in proposed § 1.56A-23(e) would operate to deter acquisitions undertaken to acquire FSNOLs and other CAMT attributes, and (ii) the administrative burden of applying section 382 and the regulations under section 382 to FSNOLs and other CAMT attributes would outweigh the benefits of applying the section 382 limitation to FSNOLs.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-24 would provide rules under section 56A regarding hedging transactions and hedged items.
Depending on the relevant accounting standards, certain categories of assets and liabilities (for example, derivatives) may be required to be periodically measured and reflected in the AFS at fair value. Stakeholders expressed concern regarding the inclusion in a CAMT entity's AFSI of these periodic measurements of fair value, referred to by certain stakeholders as book or financial statement “mark-to-market” adjustments.
More specifically, some stakeholders expressed concern about situations in which an asset or a liability is periodically measured at fair value and reflected in FSI in a CAMT entity's AFS, but a related asset or liability is not. For example, in the case of a hedging transaction and the related item, the hedging transaction may be required to be periodically measured at fair value, but the related item may not. As a result, in situations involving hedging transactions, CAMT entities may have AFS mismatches between the hedging transaction and the related item, despite the hedging transaction and the related item offsetting each other economically. This mismatch may give rise to distortions in the determination of AFSI that should be alleviated with an adjustment to FSI to avoid the non-economic results that would arise absent an adjustment. The Joint Committee on Taxation has stated that Congress intended for mismatches involving certain hedging transactions to be addressed in the regulations.
These situations also may cause volatility in the determination of a CAMT entity's AFSI due to unrealized gain and loss on a hedging transaction or the related item in cases in which there may not be corresponding economic volatility for the hedging transaction and the related item. For example, a CAMT entity may manage risk with respect to price fluctuations of commodities for future customer delivery obligations by entering into hedging transactions with similar terms as those customer delivery obligations. The delivery obligations may not be periodically measured at fair value, but the hedging transaction generally would be required to be periodically measured at fair value. As a result, a CAMT entity could have volatility in the determination of AFSI attributable to fluctuations in commodities prices even if those fluctuations are hedged as an economic matter. Stakeholders have expressed concern that absent an adjustment for these hedging transactions used to manage business risks, there may be unintended cashflow constraints due to the inclusion of unrealized gain or loss in FSI in the context of hedging transactions in which there generally are not meaningful economic gains or losses.
Some stakeholders also expressed concern about the AFSI treatment of a hedging transaction entered into to manage the foreign currency exposure of a net investment in a foreign operation. In particular, stakeholders expressed concern that changes in the fair value of these hedges are included in equity accounts, such as retained earnings or OCI, and as a result not included in FSI. However, these hedges may be marked to market for regular tax purposes, resulting in a divergence between FSI and regular taxable income due to the manner in which changes in values with respect to these particular hedging transactions are required to be reported under applicable financial accounting principles.
To address the mismatches and distortions described in part XXIII.A of this Explanation of Provisions, proposed § 1.56A-24 would provide certain adjustments to AFSI (determined without regard to proposed §§ 1.56A-23 and 1.56A-24, but after giving effect to all other sections of the section 56A regulations) for an AFSI hedge or the related item. Under proposed § 1.56A-24(b)(1), an “AFSI hedge” generally would include hedging transactions for regular tax purposes (for example, those defined in § 1.1221-2(b), whether or not the character of gain or loss from the transaction is determined under § 1.1221-2) as well as hedging transactions for financial accounting purposes. However, an AFSI hedge would not include a hedging transaction entered into by an insurance company to hedge obligations to holders of life insurance or annuity contracts that take into account the value of one or more specified assets or indices (for example, contracts that have guaranteed minimum benefits or crediting rates), because the amount of the liabilities that corresponds to the hedging transaction is also included in the insurance company's FSI.
Proposed § 1.56A-24(b)(3) would provide that the term “fair value measurement adjustment” means a change in the value of an asset or a liability due to required periodic determinations at least annually of the increases or decreases in fair value of that asset or liability included in a CAMT entity's FSI, regardless of whether the determinations are required due to the type of asset or liability or an election by the CAMT entity. A fair value measurement adjustment would not include an impairment loss or impairment loss reversal within the meaning of proposed § 1.56A-1(b)(29) and (30), respectively. Under the definition of the term fair value measurement adjustment, changes in the value of an asset or liability not included in a CAMT entity's FSI, such as those generally resulting from a cash flow hedge (as defined in Accounting Standards Codification paragraph 815-30-20 or IFRS 9 Chapter 6.5.11), do not constitute fair value measurement adjustments.
Under proposed § 1.56A-24(c)(2), a fair value measurement adjustment for an AFSI hedge or a hedged item for a taxable year would be disregarded by a CAMT entity for purposes of determining the CAMT entity's AFSI if the CAMT entity (i) has a fair value measurement adjustment with respect to an AFSI hedge but not the hedged item or (ii) has a fair value measurement adjustment with respect to a hedged item but not the AFSI hedge. However, in either situation, the fair value measurement adjustment would not be disregarded if either the AFSI hedge or hedged item is marked to market for regular tax purposes. In these cases, the book and regular tax treatment of the AFSI hedge or hedged item are likely to correspond (for example, the hedged item may be marked-to-market for both book and regular tax purposes), so that no adjustment to AFSI is needed.
The adjustments to AFSI in proposed § 1.56A-24(c)(2) would delay the inclusion in AFSI of unrealized gain or loss attributable to fair value measurement adjustments for an AFSI hedge or a hedged item until the earlier of when the gain or loss on the corresponding hedged item or AFSI hedge (as applicable) is recognized for FSI purposes, or an “AFSI subsequent adjustment date” (as defined in proposed § 1.56A-24(b)(2)) otherwise occurs. These adjustments to AFSI are intended to address certain financial accounting mismatches between an AFSI hedge and a hedged item by coordinating the timing of recognition between AFSI hedges and hedged items in a manner similar to other rules involving economically integrated transactions, such as § 1.446-4.
The rules in proposed § 1.56A-24(c)(2) are intended to avoid the inclusion of unrealized gain or loss in AFSI that is offset economically by a hedged item or AFSI hedge (as applicable) but for which there are timing differences for recognition for financial accounting purposes. By doing so, these proposed rules also are intended to avoid situations in which a CAMT entity would have volatility in the determination of AFSI (and, potentially, in the determination of whether the CAMT entity is subject to the CAMT) because only one of an AFSI hedge or a hedged item is subject to fair value measurement adjustments included in net income, and there is no corresponding difference for regular tax purposes. In the commodities hedging example described in part XXIII.A of this Explanation of Provisions, if the requirements of proposed § 1.56A-24(c)(2) were satisfied, the hedging transaction would be an AFSI hedge for which fair value measurement adjustments would be disregarded until an AFSI subsequent adjustment date occurs, resulting in similar timing for the inclusion of gain or loss in AFSI between the AFSI hedge and the hedged item.
Proposed § 1.56A-24(d) would apply in situations in which a CAMT entity marks to market a “net investment hedge,” as defined in proposed § 1.56A-24(b)(5), for regular tax purposes. Under proposed § 1.56A-24(d), the CAMT entity would include the amount of
Proposed § 1.56A-24(e)(1) would provide operative rules for the inclusion of certain taxable amounts in AFSI for fair value measurement adjustments disregarded from a CAMT entity's AFSI under proposed § 1.56A-24(c)(2). Under proposed § 1.56A-24(e)(1), if the fair value measurement adjustment includes items corresponding to items of income, gain, deduction, or loss for regular tax purposes, such as the accrual of original issue discount on a bond, those items would be taken into account for AFSI purposes.
Proposed § 1.56A-24(e)(2) would provide for subsequent adjustments for an AFSI hedge or a hedged item (as applicable) in the taxable year in which there is an AFSI subsequent adjustment date. In general, proposed § 1.56A-24(e)(2) would provide for the inclusion in AFSI of the cumulative fair value measurement adjustments previously disregarded in determining AFSI under proposed § 1.56A-24(c)(2) and for certain adjustments to CAMT basis. Proposed § 1.56A-24(e)(3) would provide for subsequent adjustments for a net investment hedge in the taxable year in which a net investment hedge matures or is sold, disposed of, or otherwise terminated, or the asset or liability that was a net investment hedge subject to § 1.56A-24(d) otherwise ceases to constitute a net investment hedge.
These proposed rules address the situations described by stakeholders in which one component of a transaction is periodically measured at fair value and reflected in FSI in a CAMT entity's AFS, but a related asset or liability is not, without a corresponding mismatch in treatment for regular tax purposes. The Treasury Department and the IRS invite comments on whether there are other similar situations potentially giving rise to a substantial mismatch for which a similar adjustment to AFSI may be appropriate.
Pursuant to the authority granted by section 56A(e), proposed § 1.56A-25 would provide rules under section 56A(c)(10)(A) regarding mortgage servicing income. CAMT entities that hold contracts to service mortgage assets (mortgage servicing contracts) may have servicing assets or servicing liabilities related to those mortgage servicing contracts. For mortgage servicing contracts that are servicing assets, the relevant accounting standards (for example, ASC 860-50-35) generally require a CAMT entity to determine FSI by taking into account either changes in fair value of the mortgage servicing contracts or the amortization of the value of those contracts.
In general, for regular tax purposes, the treatment of certain sales of mortgages originated by a taxpayer and the income from related mortgage servicing contracts is determined under Rev. Rul. 91-46, 1991-2 C.B. 358 (for example, if the contract entitles the taxpayer to receive amounts that exceed reasonable compensation for the services to be performed, the income attributable to this excess is taken into account under the timing rules for stripped coupons in section 1286 of the Code). In addition, if the taxpayer is a dealer in securities under section 475 of the Code, the mark-to-market method of accounting generally applies to any securities, including any excess mortgage servicing rights treated as stripped coupons. As a result, the timing for the inclusion of items related to mortgage servicing contracts for financial accounting purposes may be different than the timing for the inclusion of items related to mortgage servicing contracts for regular tax purposes.
Consistent with section 56A(c)(10)(A), proposed § 1.56A-25 would provide that AFSI is adjusted so as not to include any item of income in connection with a mortgage servicing contract any earlier than the period in which such income is included in gross income under chapter 1. This proposed rule implements the statutory provision, which results in consistent treatment of items of income in connection with a mortgage servicing contract of a taxpayer for purposes of the CAMT and for regular tax purposes.
Section 56A(c)(10)(B) authorizes the Secretary to provide regulations to prevent the avoidance of taxes imposed by chapter 1 of subtitle A of the Code for amounts not representing reasonable compensation (as determined by the Secretary) with respect to a mortgage servicing contract. While this NPRM does not include proposed regulations under section 56A(c)(10)(B), the Treasury Department and the IRS continue to study the issue and invite comments concerning whether regulations should be issued pursuant to this specific grant of regulatory authority.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-26 would provide rules regarding certain related-party transactions and CAMT avoidance transactions. The Treasury Department and the IRS are concerned that taxpayers may enter into transactions with related parties or enter into other transactions or arrangements in order to avoid the application of CAMT or to improperly reduce CAMT liability. Proposed § 1.56A-26(b) would defer AFSI losses resulting from transactions between related parties. Proposed § 1.56A-26(c) would provide an anti-abuse rule for arrangements undertaken with a principal purpose of avoiding CAMT, including avoiding treatment as an applicable corporation or reducing or otherwise avoiding a liability under section 55(a). Proposed § 1.56A-26(c) permits the Commissioner to disregard or recharacterize such arrangements to the extent necessary to carry out the purposes of CAMT. An arrangement includes, for example, the filing of a financial statement with the SEC or with an agency of a foreign government that is equivalent to the SEC, where such filing is not required and is made for the purpose of affecting which financial accounting standard is considered the applicable financial accounting standard under the FPMG rules in proposed § 1.59-3.
Proposed § 1.56A-26(d) would require income, expense, gain, or loss arising from transactions between commonly controlled CAMT entities to be clearly reflected for purposes of the CAMT, consistent with the principles of section 482 of the Code. More specifically, proposed § 1.56A-26(d) would require any item of income, expense, gain, or loss reflected in the FSI of a CAMT entity with respect to a controlled transaction or controlled transfer (as defined in § 1.482-1(i)(8)) between two or more CAMT entities to be adjusted to reflect the principles of section 482 and the regulations under section 482, regardless of whether section 482 otherwise is considered to apply. This proposed rule would clarify that the principles of section 482 apply to determine the effect of controlled transactions and controlled transfers on AFSI. No inference is intended regarding how section 482 applies to affect any amount required for the calculation of AFSI without regard to this proposed rule.
Pursuant to the authority granted by section 56A(c)(15) and (e), proposed § 1.56A-27 would provide rules under section 56A regarding AFSI adjustments for income of foreign governments. These proposed rules would provide for an adjustment to AFSI of a foreign government for any amount that, if it were properly treated as gross income for regular tax purposes, would be excluded from gross income and exempt from taxation under subtitle A pursuant to section 892 of the Code.
Under proposed § 1.56A-1(d)(2), except as provided in the section 56A regulations, a CAMT entity may not make any adjustments to its FSI in determining its AFSI. The Treasury Department and the IRS are of the view that any amount of FSI, if it were properly treated as gross income for regular tax purposes and would qualify for the exemption under section 892 for that person, should be excluded from that person's FSI when determining its AFSI only for purposes of determining CAMT liability. Therefore, proposed § 1.56A-27(b) would provide for an adjustment to AFSI for income of foreign governments that qualifies for treatment under section 892.
The adjustment in proposed § 1.56A-27 would apply only for purposes of determining CAMT liability, and not for purposes of determining whether a corporation is an applicable corporation under section 59(k).
Pursuant to the authority granted by section 59(k)(1)(C) and (k)(3), proposed § 1.59-2 would provide rules under section 59(k) for determining whether a corporation is an applicable corporation for purposes of sections 55 through 59. Proposed § 1.59-2(b) would provide definitions that apply for purposes of section 59, including the definition of an “applicable corporation.” For purposes of the special rules provided in proposed § 1.59-2(f) (
Proposed § 1.59-2(c)(1) describes the average annual AFSI test applied to a corporation that is not a member of an FPMG to determine whether such a corporation is an applicable corporation. Such a corporation meets the average annual AFSI test for a taxable year if its average annual AFSI for the 3-taxable-year period ending with such taxable year exceeds $1,000,000,000. For this purpose, the AFSI of the corporation and the AFSI of all persons treated as a single employer with the corporation under section 52(a) or (b) would be treated as the AFSI of the corporation.
Consistent with section 59(k)(1), the AFSI of a corporation described in proposed § 1.59-2(c)(1)(i) and the AFSI of any person treated as a single employer with the corporation under section 52(a) or (b) would be determined without regard to certain specified AFSI adjustments.
To avoid the duplication of AFSI, if a partnership is treated as a single employer with a corporation under section 52(a) or (b), then the AFSI of any partner in the partnership that is either that corporation or treated as a single employer with that corporation would be determined without regard to any amounts reflected in the partner's FSI that is derived from, and included in, the FSI of the partnership.
To provide for the application of the rules relating to discharge of indebtedness income with respect to partnership investments, if a partnership is treated as a single employer with a corporation under section 52(a) or (b), then the exclusions from AFSI for discharge of indebtedness income in proposed § 1.56A-21(c) apply to the partnership's AFSI, but are based on a determination of whether the relevant partner meets any of the exclusions provided in proposed § 1.56A-21(c)(1) and (2), including the application of any resulting CAMT attribute reductions provided in proposed § 1.56A-21(c)(4) and (5).
Proposed § 1.59-2(c)(2) describes the average annual AFSI test applied to a corporation that is a member of an FPMG for purposes of determining whether such corporation (FPMG corporation) is an applicable corporation. The FPMG corporation is subject to the two-prong average annual AFSI test described in proposed § 1.59-2(c)(2) if it is a member of an FPMG at the beginning or end of its taxable year.
Certain specified AFSI adjustments would be disregarded in applying the first prong of this test. In addition to those AFSI adjustments disregarded when applying the average annual AFSI test to corporations that are not members of an FPMG, the adjustments for income of CFCs and income effectively connected with a U.S. trade or business (
For purposes of applying the $1,000,000,000 average AFSI threshold test in proposed § 1.59-2(c)(2)(i)(A), an FPMG corporation that is a foreign corporation and any relevant aggregation entity that is not a United States person (as defined in section 7701(a)(30)) would not make any AFSI adjustment described in the section 56A regulations that is dependent on the treatment of an item for regular tax purposes, such as for depreciation (
This rule is intended to lessen the burden of determining AFSI when there is no regular tax treatment of an item while ensuring that the item is taken into account. Absent such a rule, it would be necessary to determine the regular tax treatment of an item solely for CAMT purposes. This would present an added compliance burden while not achieving the purpose of conforming the CAMT treatment of an item to the regular tax treatment of an item, since there is no regular tax treatment of such item. Moreover, specifically in the context of the AFSI adjustments with respect to stock of a foreign corporation in proposed § 1.56A-4, the double counting concerns that support applying regular tax rules are not necessarily present in the case of a foreign corporation that does not take the item into account for regular tax purposes (such as a foreign corporation that is not a CFC that has U.S. shareholders that own (within the meaning of section 958(a)) stock of the foreign corporation). The Treasury Department and the IRS invite comment on the rule.
To avoid the duplication of AFSI, if a partnership is a relevant aggregation entity with respect to an FPMG corporation, then the AFSI of any partner in the partnership that is either the FPMG corporation or a relevant aggregation entity would be determined without regard to any amount reflected in the partner's FSI that is derived from, and included in, the FSI of the partnership.
To provide for the application of the rules relating to discharge of indebtedness income with respect to partnership investments, if a partnership is a relevant aggregation entity with respect to an FPMG corporation, then the exclusions from AFSI for discharge of indebtedness income in proposed § 1.56A-21(c) apply to the partnership's AFSI, but are based on a determination of whether the relevant partner meets any of the exclusions provided in proposed § 1.56A-21(c)(1) and (2), including the application of any resulting CAMT attribute reductions provided in proposed § 1.56A-21(c)(4) and (5).
The proposed regulations provide a rule to avoid the duplication of AFSI in certain cases in which AFSI of a shareholder of a foreign corporation and AFSI of the foreign corporation would both be taken into account under the aggregation rules.
The Treasury Department and the IRS are studying whether additional guidance is needed to carry out the purposes of proposed § 1.59-2(c)(2)(ii)(F), including guidance on determining when an item is attributable to FSI. The Treasury Department and the IRS welcome comments on this matter.
Under the second prong, the average annual AFSI of an FPMG corporation for the 3-taxable-year period ending with the taxable year must be $100,000,000 or more.
Proposed § 1.59-2(d) would implement the special rules in section 59(k)(1)(E) for applying the average annual AFSI test. If a corporation has been in existence for less than three taxable years, the average annual AFSI tests would be applied on the basis of the period during which the corporation, or any predecessor, was in existence.
A stakeholder recommended that extraordinary items in a short taxable year be disregarded in annualizing income for a short period. Proposed § 1.59-2(d)(2)(ii) would provide that, in annualizing the income for a short period, items described as extraordinary items in § 1.6655-2(f)(3)(ii)(A) are disregarded, but the items are included in AFSI for the annualized 12-month period after the AFSI for the short period has been annualized.
Proposed § 1.59-2(e) would provide rules under section 59(k)(1)(D) for determining whether a corporation and another person are treated as a single employer under section 52(a) or (b). Under these proposed rules, solely for purposes of determining whether a corporation is an applicable corporation, all AFSI of persons treated as a single employer with the corporation under section 52(a) or (b) would be treated as AFSI of that corporation.
In accordance with section 52(a), proposed § 1.59-2(e)(1) generally would provide that corporations that are members of a controlled group of corporations are treated as a single employer. Section 52(a) and proposed § 1.59-2(e)(1) would define a “controlled group of corporations” by reference to section 1563(a), except that “more than 50 percent” is substituted for “at least 80 percent” each place it appears in section 1563(a)(1). Section 1563(a)(1), (2), and (3) provide that a controlled group of corporations may be a parent-subsidiary controlled group, a brother-sister controlled group, or a combined group of corporations. Proposed § 1.59-2(e)(1)(iii) would provide the definition of brother-sister controlled group in accordance with section 1563(f)(5). A controlled group of corporations is determined by taking into account the ownership interests described in section 1563(d)(1) and (2), as applicable.
In accordance with section 52(b), proposed § 1.59-2(e)(2) generally would provide that trades or businesses that are under common control are members of a controlled group and are treated as a single employer. Section 52(b), which applies to partnerships, trusts, estates, corporations, and sole proprietorships, provides that the regulations under section 52(b) are to be based on principles similar to the principles that apply under section 52(a). Section 52(b) and § 1.52-1 provide rules similar to the rules under section 52(a), but with certain modifications to account for different types of ownership interests. The constructive ownership rules under section 1563(d) that apply for purposes of section 52(a) also apply for purposes of section 52(b).
Section 1018(s)(3)(A) of the Technical and Miscellaneous Revenue Act of 1988 amended section 1563(d)(1)(B) to expand the constructive ownership rules of section 1563(e) that apply for purposes of section 1563(d)(1) to include section 1563(e)(2) relating to attribution from partnerships and section 1563(e)(3) relating to attribution from estates or trusts.
A controlled group of corporations under section 52(a), which cross-references section 1563, is determined based on all of the applicable constructive ownership rules of section 1563(e), including section 1563(e)(2) and (e)(3). By contrast, a group of trades or businesses under common control under section 52(b) is determined based on the constructive ownership rules in § 1.52-1(b) and (c). The constructive ownership rules in § 1.52-1(c)(1) were proposed to be revised to conform with the statutory amendment to section 1563(d)(1)(B) by a proposed regulation published in the
These proposed regulations would apply the constructive ownership rules under section 52(b) that are set forth in § 1.52-1(c)(1) as revised by the proposed regulation published in the
Proposed § 1.59-2(e)(4) would provide that, although an S corporation, a RIC, or a REIT is excluded from the definition of an “applicable corporation,” the S corporation, RIC, or REIT is not excluded from being treated as a single employer under section 52(a) or (b) for purposes of proposed § 1.59-2(c)(1)(ii)(A), (c)(2)(ii)(A), and (c)(2)(iii)(A).
The Treasury Department and the IRS considered two approaches for applying the relevant aggregation rules necessary to determine a corporation's AFSI for purposes of the average annual AFSI test. The first approach would require the corporation to determine its test
Accordingly, proposed § 1.59-2(f)(1) would provide special rules for applying the average annual AFSI test if a corporation's test group changes. These rules generally would require that a corporation include in its AFSI for a taxable year the AFSI of all persons treated as related to the corporation under the relevant relationship criteria at any point during the taxable year. If a person is treated as related to the corporation under the relevant relationship criteria for only a portion of the taxable year, the corporation includes in its AFSI for that taxable year the AFSI of the person for only the portion of the taxable year in which the relevant relationship criteria is satisfied. Similar to the rules in proposed § 1.56A-3 for CAMT entities with a financial accounting period that differs from the CAMT entity's taxable year, the related person determines AFSI for the portion of the corporation's taxable year by performing an interim closing of its books. For example, if a corporation has the calendar year as its taxable year and a person becomes related to the corporation on April 1 and unrelated on November 1 of the taxable year, the person would perform an interim closing of its books at the end of the day on March 31 and October 31, and the corporation would include the AFSI of that person on the person's books (after taking the interim closing of the books into account) from April 1 through October 31 for that year.
However, proposed § 1.59-2(f)(2) would provide additional rules if a corporation experiences a change in ownership during a taxable year. Proposed § 1.59-2(f)(2)(i) would provide that a corporation (that is not a test group parent) experiences a change in ownership during a taxable year if the corporation is no longer related under the relevant relationship criteria at the end of the taxable year to a test group parent it was related to as of the first day of the taxable year. If a corporation is treated as related to multiple test group parents under the relevant relationship criteria as of the first day of the taxable year, then the determination of whether the corporation experiences a change in ownership is made separately with respect to each test group parent. Therefore, such a corporation could experience a change in ownership during the taxable year with respect to one test group parent but not another. If a corporation experiences a change in ownership during a taxable year that results in the corporation and a person no longer being treated as related under the relevant relationship criteria, proposed § 1.59-2(f)(2)(i) would provide that the corporation does not include that person's AFSI in the corporation's AFSI for any period prior to the change in ownership to determine whether the corporation meets the average annual AFSI test described in proposed § 1.59-2(c) for the taxable year in which the change in ownership occurs or for any subsequent taxable year so long as the corporation and the person remain unrelated. In addition, if a corporation experiences a change in ownership during a taxable year that results in the corporation joining a tax consolidated group that is an applicable corporation for the taxable year that includes the corporation's first taxable year in which it is a member of the tax consolidated group, then the corporation is treated as an applicable corporation beginning with the first taxable year in which it is a member of the tax consolidated group. For the taxable years in which the corporation is a member of the tax consolidated group, the corporation's AFSI is included in the tax consolidated group's AFSI under § 1.1502-56A.
Stakeholders noted that the approach provided in section 3 of Notice 2023-7 would result in the AFSI of target and acquirer being double counted in determining the applicable corporation status of relevant corporations following the change in ownership. The Treasury Department and IRS are of the view that section 59(k)(1)(C)(i)(I) (providing that the term “applicable corporation” does not include any corporation if the corporation has a change in ownership) contemplates that a corporation that experiences a change in ownership should be afforded a “fresh start” following the change in ownership, including in determining the applicable corporation status of the corporation following the change in ownership (regardless of whether the corporation was an applicable corporation at the time of the change in ownership). Accordingly, a corporation that experiences a change in ownership sheds the AFSI history of any persons to which it is no longer related due to the change in ownership in determining its applicable corporation status following the change in ownership.
Section 59(k)(3)(A) authorizes the Secretary to issue regulations or other guidance providing a simplified method for determining whether a corporation is an applicable corporation subject to the CAMT. Under that authority, proposed § 1.59-2(g) would provide a simplified safe harbor method for determining applicable corporation status. Except as discussed in this part XXVII.D of this Explanation of Provisions, the proposed regulations regarding the simplified method would be consistent with section 5 of Notice 2023-7.
Proposed § 1.59-2(g)(2) would provide that, under the simplified method, the average annual AFSI tests are applied with specified modifications. Under these modifications, the dollar thresholds in proposed § 1.59-2(c)(1)(i) and (c)(2)(i)(A) would be reduced from $1 billion to $500 million, and the dollar threshold in proposed § 1.59-2(c)(2)(i)(B) would be reduced from $100 million to $50 million.
Some stakeholders suggested that these reduced dollar thresholds, which would be consistent with the thresholds under the simplified method in section 5 of Notice 2023-7, should be raised. Other stakeholders suggested that these thresholds could be lowered further if necessary to extend the applicability of the safe harbor method. The thresholds used in Notice 2023-7 are based on an analysis prepared by the Treasury Department to reduce the risk that entities that meet the simplified method thresholds would have been applicable corporations subject to CAMT liability under the statutory tests. Accordingly, the thresholds used in Notice 2023-7 and that would be provided under proposed § 1.59-2(g)(2) are not intended
Proposed § 1.59-2(g)(2)(iii)(B) would further provide that, in determining AFSI under the simplified method, the only AFSI adjustments are those in proposed § 1.56A-8(b) (concerning taxes) and, solely for purposes of proposed § 1.59-2(c)(2)(i)(B) (the $100 million second prong of the FPMG test), in proposed § 1.56A-7 (concerning effectively connected income). In determining the AFSI of a person whose financial results are reflected on a consolidated AFS, those members of a test group whose financial results are reflected on the consolidated AFS would be treated as a single CAMT entity for purposes of § 1.56A-1(c)(3) and (4) (regarding FSI of a CAMT entity whose financial results are reflected on a consolidated AFS). Thus, consolidation entries would be taken into account and would not be disregarded, except for consolidation entries that eliminate transactions between persons whose AFSI is not aggregated for purposes of the average annual AFSI tests (that is, persons that are neither treated as a single employer under section 52(a) or (b) nor members of an FPMG).
Under section 5.03(1) of Notice 2023-7, the simplified method applies only for the first taxable year beginning after December 31, 2022. Stakeholders recommended that the simplified method be extended to subsequent taxable years. The simplified method should be extended to apply for any taxable year for which applicable corporation status is relevant.
Proposed § 1.59-2(h) would provide rules regarding the termination of applicable corporation status under section 59(k)(1)(C). Under proposed § 1.59-2(h)(1)(i), a corporation's status as an applicable corporation would terminate following certain ownership changes described in proposed § 1.59-2(f)(2)(i) (generally, an ownership change in which the corporation and its test group parent(s) no longer satisfy the relationship criteria under section 52(a) or (b) or section 59(k)(2)(A), as applicable). However, proposed § 1.59-2(h)(3)(ii) would provide that if a corporation whose status as an applicable corporation terminates for the taxable year due to a change in ownership that results in the corporation joining a tax consolidated group that is an applicable corporation for the tax consolidated group's taxable year that includes such taxable year, then the corporation is also treated as an applicable corporation for such taxable year and subsequent taxable years, as applicable.
Under proposed § 1.59-2(h)(1)(ii), a corporation's status as an applicable corporation also would terminate if the corporation did not meet the average annual AFSI test for five consecutive taxable years. As the determination of a corporation's status as an applicable corporation for a taxable year is based on average annual AFSI for a prior three-taxable-year period, a corporation with AFSI for a taxable year that is unusually high or inconsistent with historical levels or a corporation that is experiencing a consistent downward trend in AFSI for each taxable year would continue to remain an applicable corporation until such time that its average annual AFSI for the three taxable years either no longer includes an anomaly year or fully captures the downward trend AFSI. Accordingly, five taxable years is an appropriate period for determining whether the corporation's status should terminate under proposed § 1.59-2(h).
Finally, proposed § 1.59-2(h)(3)(i) would provide that, except for a corporation that joins a tax consolidated group that is already an applicable corporation, a corporation whose status as an applicable corporation is terminated under proposed § 1.59-2(h)(1) continues to apply the rules in proposed § 1.59-2 to determine whether it is an applicable corporation for the taxable year in which the status termination occurs (that is, the corporation may become an applicable corporation for the same taxable year in which its status terminates or for any taxable year thereafter).
Proposed § 1.59-2(i) would require a corporation (other than an S corporation, a RIC, or a REIT) to maintain books and records sufficient to demonstrate whether the corporation is an applicable corporation for any taxable year, including the identification of all persons treated as a single employer with the corporation under section 52(a) or (b) and whether the corporation is a member of an FPMG under § 1.59-3. Proposed § 1.59-2(j) would require a corporation (other than an S corporation, a RIC, or a REIT) to provide information to demonstrate whether the corporation is an applicable corporation in the form and manner as Form 4626 and other applicable forms (or any successor forms) or instructions prescribe.
Pursuant to the authority granted by section 59(k)(2)(B), (k)(2)(D), and (k)(3), proposed § 1.59-3 would provide rules under section 59(k) for determining whether a corporation is a member of an FPMG. As discussed in part XXVII of this Explanation of Provisions, the average annual AFSI tests that apply in determining whether a corporation is an applicable corporation depend on whether the corporation is a member of an FPMG.
Proposed § 1.59-3(c) would define an FPMG with respect to any taxable year of a corporation as two or more entities, one of which is the corporation, if: (1) at least one of the entities is a domestic corporation and at least one of the entities is a foreign corporation; (2) the entities are included in the same applicable financial statement for that taxable year; and (3) one of the entities is an FPMG common parent.
Under the proposed regulations, an FPMG common parent would be an ultimate parent that is a foreign corporation.
In general, a foreign corporation includes, in addition to a foreign corporation for regular tax purposes, a deemed foreign corporation.
In general, a domestic corporation includes, in addition to a domestic corporation for regular tax purposes, a deemed domestic corporation.
The foreign corporation may be engaged, or treated as engaged, in a U.S. trade or business as a result of activities of one or more disregarded entities or pass-through entities in which the foreign corporation has a direct or indirect interest. For example, if a foreign corporation owns a disregarded entity and that disregarded entity owns an interest in a partnership that is engaged in a U.S. trade or business, the foreign corporation's U.S. trade or business resulting from its indirect ownership of the partnership interest will be treated as a separate domestic corporation that is wholly owned by the foreign corporation.
For purposes of the FPMG determination under proposed § 1.59-3, an entity is any CAMT entity and any deemed domestic corporation. Any disregarded entity or branch that is owned by a CAMT entity, including through ownership of one or more disregarded entities or branches, is treated as part of that CAMT entity, except to the extent the disregarded entity or branch is a deemed domestic corporation.
Whether an entity has a controlling interest is determined under proposed § 1.59-3(f). Under proposed § 1.59-3(f)(1) an entity (upper-tier entity) would have a controlling interest in another entity (lower-tier entity) if, under the applicable financial accounting standard (as described in part XXVIII.C of this Explanation of Provisions), the upper-tier entity's consolidated financial statement is required to reflect the assets, liabilities, equity, income, and expenses of the lower-tier entity. An upper-tier entity may have a controlling interest in a lower-tier entity without having a direct interest in that entity. Whether the upper-tier entity has a controlling interest under proposed § 1.59-3(f)(1) is based on the rules of the applicable financial accounting standard and therefore is not dependent on what is reflected in the entities' financial statements. For example, the analysis is not impacted by whether a consolidated financial statement is prepared and, if it is prepared, whether an entity's financial results are reflected in the consolidated financial statement. As a result, if a consolidated financial statement is not prepared, an upper-tier entity may nonetheless have a controlling interest in a lower-tier entity under the applicable financial accounting standard, or if a consolidated financial statement is prepared but erroneously excluded an entity, the upper-tier entity would still have a controlling interest in that erroneously excluded entity.
In addition, under proposed § 1.59-3(f)(2), there are three circumstances in which an upper-tier entity has a controlling interest in another entity even if there would not be a controlling interest under the applicable financial accounting standard. First, the upper-tier entity has a controlling interest in any deemed domestic corporation that the upper-tier entity, or any foreign corporation in which the upper-tier entity has a controlling interest, is treated as owning under proposed § 1.59-3(d). For example, if the upper-tier entity is engaged in a U.S. trade or business and therefore is deemed to own a deemed domestic corporation under proposed § 1.59-3(d), the upper-tier entity would be treated as having a controlling interest in that deemed domestic corporation even if for accounting purposes there would be only one entity and therefore no consolidated financial statement. Similarly, if the upper-tier entity has a controlling interest in a foreign corporation that is engaged in a U.S. trade or business and therefore is deemed to own a deemed domestic corporation under proposed § 1.59-3(d), then the upper-tier entity is treated as having a controlling interest in that deemed domestic corporation even if that deemed domestic corporation does not exist under the applicable financial accounting standards.
Second, if an entity is owned, directly or indirectly, by a member of an FPMG without regard to this controlling interest rule and both entities are in the same section 52 group, then the member of the FPMG (and therefore the FPMG common parent) would have a controlling interest in the entity. A section 52 group, with respect to a person, means that person and the persons whose AFSI is required to be aggregated with the AFSI of that person under proposed § 1.59-2(c)(1)(ii)(A).
Third, the upper-tier entity has a controlling interest in any entity in which it would have a controlling interest but for the fact that the entity is (or would be) excluded from the upper-tier entity's consolidated financial statement: (1) based on size or materiality; (2) because the entity is held for sale; (3) because the entity or business is being wound down, liquidating, or otherwise ceasing operations or being terminated or disposed of; or (4) because the entity is permitted but not required to be excluded under the applicable financial accounting standard from a consolidated financial statement of the upper-tier entity. For example, if a foreign corporation wholly owned a domestic corporation that was held for sale, even if the foreign corporation is not treated as having a controlling interest in the domestic corporation under the applicable financial accounting standard because the stock of the domestic corporation is held for sale, the foreign corporation would be treated as having a controlling interest in the domestic corporation.
The Treasury Department and the IRS are considering structures that may result in divergence between the financial accounting rules and economics (for example, where taxpayers own a significant economic interest in an entity but are not treated as having a controlling interest), as well as how to address structures that are linked, including multi-parented groups, companies with stapled stock, and dual listed companies, as those structures may present additional questions regarding which entity is the ultimate parent for purposes of determining whether there is an FPMG and who are the members of the FPMG under proposed § 1.59-3. Future guidance may include these structures for determining the FPMG and its members, including by treating more than one entity as an FPMG common parent of the FPMG.
Under the general rule in proposed § 1.59-3(f)(1), the determination of whether an upper-tier entity has a controlling interest in a lower-tier entity would depend on the applicable financial accounting standard. The applicable financial accounting standard for this purpose would be GAAP unless an exception applies.
The goal of these exceptions is, for cases in which a group prepares a consolidated financial statement that is of the ultimate parent and that is filed with the SEC or a foreign equivalent, to apply the controlling interest test based on the financial accounting standard used in preparing that consolidated financial statement. The Treasury Department and the IRS are of the view that this would appropriately reduce compliance burden because the controlling interest determination required under proposed § 1.59-3(f) would generally already have been made for purposes of preparing the consolidated financial statement and would increase reliability due to review by an external auditor and regulator.
For special cases, such as consolidated financial statements of the ultimate parent that are prepared under multiple financial accounting standards, there would be a prioritization of GAAP over IFRS and IFRS over other financial accounting standards. This order of priority is set forth in proposed § 1.59-3(g)(2)(i) through (iii). If there are no consolidated financial statements of the ultimate parent, if consolidated financial statements are prepared for only a sub-group that does not include the ultimate parent, or if there are multiple consolidated financial statements at the same priority but for different ultimate parents, GAAP would be the default financial accounting standard for purposes of applying the controlling interest test for FPMG determination purposes.
Under the first exception, IFRS is the applicable financial accounting standard if the assets, liabilities, equity, income, and expenses of the corporation being tested for applicable corporation status (tested corporation) are reflected in the consolidated financial statement described in § 1.56A-2(c)(2)(i) of its ultimate parent (determined by treating IFRS as the applicable financial accounting standard).
Under the second exception, a financial accounting standard other than GAAP or IFRS would be the applicable financial accounting standard if the assets, liabilities, equity, income, and expenses of the tested corporation are reflected in a consolidated financial statement described in § 1.56A-2(c)(3)(i) prepared using the financial accounting standard and the consolidated financial statement is that of the ultimate parent (as determined under that financial accounting standard).
In such cases, if the accounting standard used to prepare one of those consolidated financial statements was the applicable financial accounting standard in the prior taxable year, that accounting standard would be the applicable financial accounting
The exceptions apply in descending order and only if there is not a GAAP consolidated financial statement prepared that is that of the ultimate parent, as determined by treating GAAP as the applicable financial accounting standard. Therefore, if an exception under an earlier paragraph of proposed § 1.59-3(g)(2) applies, the later exceptions do not.
For purposes of the applicable financial accounting standard determination, the assets, liabilities, equity, income, and expenses of the tested corporation are treated as reflected in a consolidated financial statement if either they are reflected in the consolidated financial statement, or they would have been but for the tested corporation being excluded for a reason mentioned in the controlling interest test in proposed § 1.59-3(f)(2)(iii)(A) through (D). For example, if the assets, liabilities, equity, income, and expenses of the tested corporation would have been reflected in the consolidated financial statement but for the fact the stock of the tested corporation is held for sale, the assets, liabilities, equity, income, and expenses of the tested corporation would be treated as reflected in the consolidated financial statement.
The tested corporation is required to specify the financial accounting standard that is its applicable financial accounting standard on a statement attached to the Form 4626 (or any successor form) of the tested corporation or as otherwise directed in the instructions to the form each taxable year the applicable financial accounting standard is relevant in determining whether the tested corporation is a member of an FPMG.
Under proposed § 1.59-3(h), the FPMG common parent and all entities in which the FPMG common parent has a controlling interest at any time during the taxable year would be included in the same applicable financial statement for that taxable year for purposes of proposed § 1.59-3. The relevant taxable year is dependent on who is applying the provision and would generally be the taxable year of the corporation determining if it is an applicable corporation. For purposes of determining which entities are included in the same applicable financial statement for that taxable year, it is not relevant whether a consolidated financial statement of the FPMG common parent is prepared or whether an entity is included in a consolidated financial statement of the FPMG common parent or would be if one was prepared. For example, if the FPMG common parent is treated as having a controlling interest in an entity under proposed § 1.59-3(f)(2) during the taxable year, that entity will be treated as included in the same applicable financial statement for that taxable year. The entities treated as included in the same applicable financial statement for that taxable year may differ from the entities included in the applicable financial statement(s) determined under proposed § 1.56A-2.
Each entity included in the same applicable financial statement for that taxable year under proposed § 1.59-3(h) as the FPMG common parent is a member of that FPMG (including the FPMG common parent).
Under section 59(l), if an applicable corporation chooses to claim a foreign tax credit for any taxable year, the applicable corporation is allowed a CAMT foreign tax credit (CAMT FTC) for the taxable year. Section 59(l)(1) provides that the amount of the CAMT FTC for the applicable corporation for the taxable year equals the sum of:
(i) The lesser of (A) the aggregate of the applicable corporation's pro rata share (as determined under section 56A(c)(3)) of the amount of income, war profits, and excess profits taxes (within the meaning of section 901) imposed by any foreign country or possession of the United States that are taken into account in the AFS of each CFC with respect to which the applicable corporation is a U.S. shareholder, and paid or accrued (for Federal income tax purposes) by each such CFC, or (B) the product of the amount of the adjustment under section 56A(c)(3) and the percentage specified in section 55(b)(2)(A)(i) (currently, 15 percent); and
(ii) In the case of an applicable corporation that is a domestic corporation, the amount of foreign income taxes imposed by any foreign country or possession of the United States to the extent such taxes are taken into account in the applicable corporation's AFS and paid or accrued (for Federal income tax purposes) by the applicable corporation.
Section 59(l)(2) further provides that, if an applicable corporation's pro rata shares of foreign income taxes of the CFCs in which it is a U.S. shareholder exceeds 15 percent of the adjustment under section 56A(c)(3) (such excess, unused CFC taxes), then the unused CFC taxes are carried forward to any of the first five succeeding taxable years to the extent not absorbed in a prior taxable year. Finally, section 59(l)(3) authorizes the Secretary to issue regulations or other guidance as is necessary to carry out the purposes of section 59(l).
Pursuant to the authority granted by section 59(l)(3), proposed § 1.59-4 would provide rules under section 59(l)
Generally, under proposed § 1.59-4, a CAMT FTC would be available only with respect to an “eligible tax.” Under proposed § 1.59-4(b)(1), an “eligible tax” would include a foreign income tax other than a foreign income tax for which a credit is disallowed or suspended for regular tax purposes under sections 245A(d) and (e)(3), 901(e) and (f), 901(i) through (m), 907, 908, 909, 965(g), 999, and 6038(c) of the Code.
The Treasury Department and the IRS are of the view that the policies underlying these disallowances and suspensions for regular tax purposes apply equally in the context of the CAMT FTC. For instance, the Treasury Department and the IRS are of the view that CAMT FTCs should not be available with respect to taxes paid or accrued to specified foreign countries under section 901(j) based on the same foreign policy grounds that justify the disallowance for regular tax purposes. Accordingly, the Treasury Department and the IRS are exercising the authority under section 59(l)(3) to incorporate the specified disallowances and suspensions into CAMT to carry out the purposes of section 59(l). Incorporating the same amount of disallowances or suspensions for regular tax purposes, instead of creating a separate, parallel set of CAMT FTC rules, is intended to reduce taxpayers' compliance burden and the IRS's administrative burden.
Proposed § 1.59-4(c) would provide rules for determining the amount of the CAMT FTC an applicable corporation can claim if it chooses to claim the foreign tax credit under section 901. Generally, for an applicable corporation that is a domestic corporation, the amount of the CAMT FTC for the taxable year would equal the sum of: (i) the lesser of (A) the aggregate of the applicable corporation's pro rata share of taxes of CFCs, as determined under proposed § 1.59-4(d), or (B) the product of the amount of the adjustment under proposed § 1.56-6(b)(1) and the percentage specified in section 55(b)(2)(A)(i) (currently, 15 percent), and (ii) the amount of eligible taxes paid by the applicable corporation during the taxable year, to the extent the taxes have been taken into account, within the meaning of proposed § 1.56A-8(d), on the applicable corporation's AFS.
Proposed § 1.59-4(d) would provide rules for determining an applicable corporation's pro rata share of the taxes of a CFC in which the applicable corporation is a U.S. shareholder for a taxable year. Generally, under proposed § 1.59-4(d), an applicable corporation's pro rata share of the taxes of a CFC in which the applicable corporation is a U.S. shareholder for the taxable year is the sum of two amounts: (i) the applicable corporation's pro rata share of taxes under section 960(b) of the Code, and (ii) the applicable corporation's pro rata share of eligible current year taxes, as defined in § 1.960-1(b)(5), of the CFC, in each case reduced to reflect the suspensions and disallowances described in the definition of “eligible tax” that apply at the level of the U.S. shareholder.
Specifically, under proposed § 1.59-4(d)(2), an applicable corporation may claim a CAMT FTC for the amount of foreign income taxes deemed paid by the applicable corporation under § 1.960-3(b) for its taxable year, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the AFS of the applicable corporation or any CFC with respect to which the applicable corporation is a U.S. shareholder. Under proposed § 1.59-4(d)(3), an applicable corporation may claim a CAMT FTC for its pro rata share of eligible current year taxes, as defined in § 1.960-1(b)(5), for a taxable year. The applicable corporation's pro rata share of eligible current year taxes comprises: (i) the amount of eligible current year taxes that are deemed paid by the applicable corporation under § 1.960-2(b) for regular tax purposes (relating to foreign income taxes properly attributable to subpart F income) for the taxable year; (ii) the aggregate of the applicable corporation's proportionate share of eligible current year taxes of the CFC for each tested income group within each section 904 category of the CFC, as determined under § 1.960-2(c)(5) for regular tax purposes for the taxable year; (iii) in the case of a subpart F income group or tested income group within a section 904 category of the CFC for which the denominator of the applicable corporation's proportionate share fraction (as described in § 1.960-2(b)(3)(i) and (c)(5), respectively) is zero or less than zero (which may occur because the CFC has a loss in such income group or, in the case of a subpart F income group, because the denominator of the fraction is reduced under § 1.960-2(b) in respect of the current year E&P limitation or a chain deficit under section 952(c)(1)(A) or (C), respectively), the aggregate amount of eligible current year taxes of the CFC for each such subpart F income group and tested income group within a section 904 category of the CFC multiplied by the pro rata share percentage, as defined in proposed § 1.59-4(b)(3), for the taxable year of the CFC that ends with or within the taxable year of the applicable corporation; and (iv) the aggregate amount of eligible current year taxes of the CFC for each residual income group of the CFC multiplied by the pro rata share percentage, as defined in proposed § 1.59-4(b)(3), for the taxable year of the CFC that ends with or within the taxable year of the applicable corporation. Finally, the applicable corporation can claim a CAMT FTC for its pro rata share of taxes of its CFC only to the extent the taxes have been taken into account, within the meaning of proposed § 1.56A-8(d), on the AFS of the CFC or the applicable corporation. As reflected in proposed § 1.59-4(d)(2), the Treasury Department and the IRS are of the view that providing a CAMT FTC for PTEP taxes deemed paid by the applicable corporation would be consistent with the purposes of section 59(l). Furthermore, as reflected in proposed § 1.59-4(d)(3), the Treasury Department and the IRS are of the view that a CAMT FTC generally should be provided with respect to taxes imposed on the earnings of a CFC regardless of the character of those earnings for regular tax purposes, because all the earnings of the CFC are taken into account for CAMT purposes under section 56A(c)(3). For instance, the proposed regulations would allow a CAMT FTC with respect to taxes imposed on the residual earnings of a CFC because such earnings of the CFC are included in AFSI of the U.S. shareholder of the CFC through the application of section 56A(c)(3).
Additionally, incorporating certain regular tax rules for determining an applicable corporation's pro rata share of PTEP taxes and eligible current year taxes of CFCs, instead of creating a separate set of CAMT FTC rules, is intended to reduce taxpayers'
Proposed § 1.59-4(b)(3) would define “unused CFC taxes” as the excess (if any) of (i) the aggregate of the applicable corporation's pro rata shares of taxes of CFCs, as determined under proposed § 1.59-4(d), over (ii) the product of the amount of the adjustment under proposed § 1.56A-6(b)(1) and the percentage specified in section 55(b)(2)(A)(i) (currently, 15 percent). If an applicable corporation chooses to claim the foreign tax credit under section 901 for regular tax purposes for a taxable year, any unused CFC taxes for the taxable year are carried to each of the five succeeding taxable years, in chronological order, to the extent not absorbed as taxes deemed paid in a prior taxable year.
As reflected in proposed § 1.59-4, a foreign income tax may be claimed as a CAMT FTC in the taxable year in which the tax is paid, within the meaning of § 1.901-2(g)(5), to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), in the AFS of the CFC or the applicable corporation, as applicable. In many instances, the timing of the CAMT FTC will align with the timing of the foreign tax credit for regular tax purposes. However, under proposed § 1.59-4(f), foreign income taxes paid or accrued as a result of a foreign tax redetermination, as defined in § 1.905-3(a), would be eligible to be claimed as a CAMT FTC only if the domestic corporation is an applicable corporation in the taxable year to which the foreign tax redetermination relates (relation-back year). A CAMT FTC with respect to such foreign income taxes may be claimed only in the relation-back year, even if the taxes are reflected in a journal entry of an AFS within a taxable year that is later than the relation-back year.
Under proposed § 1.59-4(g), for purposes of proposed § 1.59-4(c)(2), the amount of eligible taxes paid or accrued for the taxable year by an applicable corporation that is a direct or indirect partner in a partnership includes the amount of creditable foreign tax expenditures, within the meaning of § 1.704-1(b)(4)(viii), allocated to the applicable corporation for regular tax purposes, reduced by the suspensions and disallowances described in the definition of “eligible tax” that apply at the level of the partner.
Proposed § 1.59-4(h) would provide that members of a tax consolidated group are treated as a single U.S. shareholder for purposes of applying the CAMT FTC provisions in proposed § 1.59-4. For rules regarding the use of consolidated unused CFC taxes,
Proposed § 1.1502-2(a)(10) would add the alternative minimum tax imposed by section 55(a) to the list of taxes that are added together to determine the tax liability of a tax consolidated group for a consolidated return year.
Section 1.1502-3(d)(4) is proposed to be removed and reserved because it relates to the former corporate alternative minimum tax.
Pursuant to the authority granted by sections 53, 56A(e), and 1502, proposed § 1.1502-53 would provide rules under section 53 regarding the determination of a tax consolidated group's consolidated minimum tax credit. Proposed § 1.1502-53(b) would define the consolidated minimum credit and set out the application of the limitation in section 53(c) to consolidated groups, based on consolidated regular tax liability and consolidated tentative minimum tax.
Under proposed § 1.1502-53(c), a tax consolidated group's use of a member's minimum tax credits arising in separate return years (as defined in § 1.1502-1(e)) is limited to the member's contribution to the consolidated section 53(c) limitation. Proposed § 1.1502-53(c)(2) would specify how to calculate each member's contribution to the consolidated section 53(c) limitation. In general, a member's contribution to the consolidated section 53(c) limitation is determined by subtracting the member's share of consolidated tentative minimum tax from the member's share of consolidated net regular tax liability. A member's share of the consolidated tentative minimum tax would be determined by multiplying the consolidated tentative minimum tax by a fraction, the numerator of which is the member's positive separate AFSI, and the denominator of which is the tax consolidated group's AFSI. For years in which the group has CAMT liability, the member's contribution to the section 53(c) limitation would be reduced by the member's share of the group's CAMT liability under proposed § 1.1502-56A(j).
Proposed § 1.1502-53(d) would provide that, if any consolidated MTC that is attributable to a member may be carried to a separate return year of the member, the amount attributable to the
The proposed method for allocating the consolidated MTC would be consistent with the approach suggested by certain stakeholders, who recommended allocating the consolidated MTC under the mechanisms of § 1.1502-21(b)(2) (with certain modifications, such as substituting “AFSI” for “taxable income”) in the interest of administrability. The proposed method would differ from, and would be simpler than, the allocation method in proposed regulations under section 55 that were published on December 30, 1992 (
Section 1.1502-55 is proposed to be removed and reserved because it relates to the former corporate alternative minimum tax.
Pursuant to the authority granted by section 56A(c)(2)(B), (c)(15), and (e), and section 1502, proposed § 1.1502-56A would provide rules under section 56A regarding the application of the CAMT to tax consolidated groups.
Section 56A(c)(2)(B) provides a general rule that, if the taxpayer is part of a tax consolidated group for any taxable year, AFSI for that group for that taxable year must take into account items on the group's AFS that are properly allocable to members of that group. However, section 56A(c)(2)(B) authorizes the Secretary to prescribe by regulation exceptions to that general rule.
Proposed § 1.1502-56A would provide rules regarding the computation of the AFSI and CAMT liability of a tax consolidated group. The proposed rules would implement the single-entity computations inherent in section 56A(c)(2)(B) and would provide guidance for applying the AFSI computational rules in proposed § 1.56A-1(c) and (d) to tax consolidated groups.
Additionally, proposed § 1.1502-56A would provide rules regarding (i) the use of FSNOL, CFC adjustment, and unused CFC tax carryovers (including the limitations that apply for purposes of computing the AFSI of a tax consolidated group after a corporation joins the group), (ii) the computation of CAMT basis in member stock, (iii) tax items relating to intercompany transactions (as defined in § 1.1502-13(b)(1)(i)), and (iv) the allocation of CAMT liability, the consolidated minimum tax credit (consolidated MTC), and AFSI among members of a tax consolidated group.
Consistent with section 3.05 of Notice 2023-7, proposed § 1.1502-56A(a)(2) would provide that members of a tax consolidated group are treated as a single CAMT entity during their period of consolidation for purposes of determining AFSI and CAMT liability, except as otherwise provided in proposed § 1.1502-56A (for example,
Consistent with section 6.03(1) of Notice 2023-64, proposed § 1.1502-56A(c)(1) would provide that, if the consolidated AFS for a taxable year includes the income, expense, gain, and loss solely of members of a tax consolidated group, the group's FSI for the year equals the FSI on the group's consolidated AFS for the year, as determined under proposed §§ 1.56A-1(c) and 1.56A-2(g)(2). Consistent with section 6.03(2) of Notice 2023-64, proposed § 1.1502-56A(c)(2) would provide that, if a tax consolidated group's consolidated AFS includes the income, expense, gain, or loss of one or more CAMT entities that are not members of the group, the group's FSI for the taxable year is determined from the consolidated AFS by treating all members of the group as a single CAMT entity.
Thus, for example, a tax consolidated group's FSI would be determined by taking into account each AFS consolidation entry regarding (i) a transaction between members and (ii) one member's investment in another member. However, these consolidating entries would be taken into account only as long as the relevant members continue to be members of the same tax consolidated group at the end of the taxable year and if any relevant property continues to be held by the tax consolidated group at the end of the taxable year. The group's FSI also would be determined by disregarding each AFS consolidation entry regarding (i) a transaction between a member and a non-member, (ii) a member's investment in a non-member, and (iii) a non-member's investment in a member.
Consistent with section 6.03(2) of Notice 2023-64, proposed § 1.1502-56A(c)(4) would clarify that treating a tax consolidated group as a taxpayer for purposes of proposed § 1.1502-56A does not change the Federal tax classification of an entity classified as a partnership that is owned only by members of the group.
Although proposed § 1.1502-56A generally would treat members of a tax consolidated group as a single CAMT entity for purposes of determining AFSI and CAMT liability, proposed § 1.1502-56A(d)(1) would provide that the group's AFSI includes gain or loss from one member's sale or exchange of stock of another member. For this purpose, gain or loss would be computed relative to the CAMT basis of the stock (as determined under proposed § 1.1502-56A(d)(3)).
As discussed in part XVIII.C.4 of this Explanation of Provisions, the CAMT basis of stock generally equals the regular tax basis as of the beginning of the first taxable year beginning after December 31, 2019, adjusted as required by proposed §§ 1.56A-18 and/or 1.56A-19. Any stock of members of a tax consolidated group held as of the beginning of the first taxable year beginning after December 31, 2019, would be subject to this rule.
However, the group's initial CAMT basis in any member stock acquired after that date would equal the CAMT basis of the stock in the hands of a shareholder member immediately after the acquisition (again adjusted as required by proposed §§ 1.56A-18 and/or 1.56A-19).
Adjustments would be made to the AFS basis of member stock on the consolidated AFS for the period during which the member is a member of the group, including adjustments to reflect all other adjustments to FSI under section 56A(c) and the section 56A regulations.
Therefore, consistent with proposed § 1.1502-56A(c), financial accounting adjustments to the AFS basis of subsidiary member stock (as modified under section 56A and the section 56A regulations) would be respected for purposes of determining inclusions for CAMT purposes with regard to that stock. For example, the CAMT operating income or loss of a member of a tax consolidated group would be reflected for purposes of the CAMT in the CAMT basis of the member stock in the hands of its shareholder member. However, the AFS basis of the stock would include negative adjustments for deductions or losses of a subsidiary member only to the extent those items are absorbed by a member of the group under section 56A and the section 56A regulations. These proposed rules are in general conformity with the stock basis adjustment rules applicable for regular tax purposes.
For purposes of computing AFSI, several provisions in section 56A(c) and the section 56A regulations disregard items that appear on a CAMT entity's AFS and replace them with regular tax items.
Proposed § 1.1502-56A(e) would address the application of the foregoing provisions to tax items relating to intercompany transactions. These proposed rules are intended to clarify that intercompany transactions do not affect the tax items taken into account in determining a tax consolidated group's AFSI.
The regular tax items substituted into AFSI under section 56A(c)(13) and (14) and proposed §§ 1.56A-15 and 1.56A-16 could be construed to include a member's increased depreciation or amortization deductions as a result of an intercompany transaction. For example, if one member of a tax consolidated group sells section 168 property to another member at a gain, the asset may give rise to higher depreciation deductions in the hands of the buying member (which has a higher basis in the asset) than in the hands of the selling member.
This outcome is inappropriate because it is inconsistent with the general treatment of a tax consolidated group as a single entity for purposes of computing AFSI.
Stakeholders recommended that the proposed regulations allocate FSNOLs to members of a tax consolidated group under the mechanisms of § 1.1502-21(b)(2) (concerning the carryover and carryback of consolidated net operating losses (CNOLs), including rules regarding the allocation of CNOLs to corporations that cease to be members of a tax consolidated group), with certain modifications (such as substituting “AFSI” for “taxable income”).
The Treasury Department and the IRS tentatively have determined that consolidated FSNOLs (that is, the portion of an FSNOL that is attributable to a tax consolidated group) should be treated in a manner similar to CNOLs. Accordingly, under proposed § 1.1502-56A(f), the use of consolidated FSNOL carryovers to offset the AFSI of a tax consolidated group would be determined under rules that are based upon, and that are intended to operate in a manner consistent with, the rules in § 1.1502-21(b).
Proposed § 1.1502-56A(f)(1) generally would provide that the amount of consolidated FSNOL carryovers of a tax consolidated group that can be used to offset the AFSI of the group for any consolidated return year is the aggregate of the group's consolidated FSNOL carryovers to that year. Proposed § 1.1502-56A(f)(2) would provide that consolidated FSNOL carryovers include both (i) any consolidated FSNOL of the consolidated group, and (ii) any FSNOLs of the members of the group arising in the respective separate return years of those members (to the extent available for use under proposed §§ 1.56A-23 and 1.1502-56A). Proposed § 1.1502-56A(f)(3) would provide rules regarding the application of the 80-percent limitation in section 56A(d)(1). Proposed § 1.1502-56A(f)(4) and (5) would provide detailed rules regarding the carryover of consolidated FSNOLs, including rules regarding situations in which one or more tax consolidated group members deconsolidate from the group.
Stakeholders also recommended that a tax consolidated group's absorption of the FSNOLs of a new member should be subject to the limitations under § 1.1502-21(c) (which provides rules limiting the use of NOLs arising in a separate return limitation year (SRLY)) and section 382 of the Code and the regulations under section 382, with modifications to align with the provisions of the CAMT.
The Treasury Department and the IRS are of the view that a limitation akin to the SRLY limitations in §§ 1.1502-21(c) and 1.1502-15(c) (which imposes a SRLY limitation on built-in losses) should apply to a tax consolidated group's absorption of FSNOLs. Accordingly, proposed § 1.56A-23(e), as described in part XXII of this Explanation of Provisions, would limit the use of FSNOLs acquired from outside the tax consolidated group.
However, as noted previously, the Treasury Department and the IRS do not propose to apply section 382 and the regulations under section 382 to limit the use of FSNOL carryovers. Although the Treasury Department and the IRS are concerned that taxpayers might have incentive to acquire a business that has generated FSNOLs even if there is no business reason for the acquisition, applying section 382 and the regulations under section 382 to the use of FSNOL carryovers is not necessary to carry out the purposes of section 56A for two reasons: (i) the SRLY-like limitation in
Consolidated CFC adjustment carryovers (that is, the portion of a CFC adjustment carryover that is attributable to a tax consolidated group) should generally be treated in a manner similar to FSNOL carryovers. Accordingly, under proposed § 1.1502-56A(h), the use of consolidated CFC adjustment carryovers to reduce the tax consolidated group's adjustment to AFSI under § 1.56A-6(b)(1) would be determined under rules that are based upon the rules in proposed § 1.1502-56A(f), with certain differences to reflect the differences in the rules for CFC adjustment carryovers as compared with the rules for FSNOL carryovers. For example, the 80-percent limitation in section 56A(d)(1) does not apply to CFC adjustment carryovers and is therefore not included in § 1.1502-56A(h).
Proposed § 1.1502-56A(h)(1) generally would provide that the amount of consolidated CFC adjustment carryovers of a tax consolidated group that can be used to reduce the group's adjustment to AFSI under proposed § 1.56A-6(b)(1) is the aggregate of the group's consolidated CFC adjustment carryovers to that year. Proposed § 1.1502-56A(h)(2) generally would provide that consolidated CFC adjustment carryovers include both (i) any consolidated CFC adjustment carryovers of the tax consolidated group, and (ii) any CFC adjustment carryovers of the members of the group arising in the respective separate return years of those members (to the extent available for use under proposed §§ 1.56A-6 and 1.1502-56A).
The Treasury Department and the IRS are of the view that a limitation akin to the SRLY limitations in § 1.1502-21(c) should also apply to a tax consolidated group's absorption of CFC adjustment carryovers. Because CFC adjustment carryovers can only be used to reduce a group's adjustment to AFSI under proposed § 1.56A-6(b)(1), SRLY limitations akin to § 1.1502-21(c) may be sufficient and the more expansive limitations in proposed § 1.56A-23(e), applicable to FSNOLs, may not be required. Accordingly, proposed § 1.1502-56A(h)(3) would generally provide that, in any consolidated return year, the aggregate amount of CFC adjustment carryovers from all separate return years of a member of a tax consolidated group that can be used to reduce the group's adjustment to AFSI under proposed § 1.56A-6(b)(1) cannot exceed the adjustment to AFSI under proposed § 1.56A-6(b)(1) generated by the member. However, the Treasury Department and the IRS are considering whether CFC adjustment carryovers generated in a separate return year should be subject to more expansive limitations similar to the limitations in proposed § 1.56A-23(e), which currently are proposed to apply to FSNOLs and certain built-in items. The Treasury Department and the IRS welcome comments on this matter.
Proposed § 1.1502-56A(h)(4) would provide ordering rules for the use of CFC adjustment carryovers, generally following the rules that apply to FSNOL carryovers under proposed § 1.1502-56A(f)(4). Proposed § 1.1502-56A(h)(5) would provide rules regarding the carryover of CFC adjustment carryovers to separate return years, which apply when a member deconsolidates from a tax consolidated group. Consistent with the general approach of incorporating rules that apply to FSNOL carryovers, proposed § 1.1502-56A(h)(5) directs taxpayers to apply the principles of proposed § 1.1502-56A(f)(5).
Proposed § 1.1502-56A(i)(1) generally would provide that the amount of consolidated unused CFC taxes of a tax consolidated group that can be used to determine the consolidated tentative minimum tax of the group for any consolidated return year is the aggregate of the group's unused CFC taxes in that year. Proposed § 1.1502-56A(i)(2) would provide that consolidated unused CFC taxes include both (i) any unused CFC taxes of the consolidated group to the extent available for use under the carryover rules in proposed § 1.59-4(e), and (ii) any unused CFC taxes of the members of the group arising in the respective separate return years of those members to the extent available for use under the carryover rules in proposed § 1.59-4(e). Proposed § 1.1502-56A(i)(3) would provide rules limiting the use of unused CFC taxes from separate return years of a member. Proposed § 1.1502-56A(i)(4) would provide rules regarding the amount of unused CFC taxes that can be used in a consolidated return year. Proposed § 1.1502-56A(i)(5) would provide rules regarding situations in which one or more members deconsolidate from the group.
The Treasury Department and the IRS are of the view that a limitation akin to the SRLY limitations in § 1.1502-21(c) should apply to a tax consolidated group's absorption of unused CFC taxes. Accordingly, proposed § 1.1502-56A(i)(3) would limit, in any consolidated return year, the use of unused CFC taxes from all separate return years of a member of a tax consolidated group to an amount equal to (1) the product of (a) the AFSI adjustment with respect to CFCs described in proposed § 1.56A-6(b)(1) generated by the member and (b) 15 percent (the percentage specified in section 55(b)(2)(A)(i) for the consolidated year); less (2) the amount of the member's share of taxes of CFCs for which it is a U.S. shareholder, as determined under proposed § 1.59-4(d) for the consolidated return year.
Proposed § 1.1502-56A(j) would provide rules for allocating CAMT liability among members of a tax consolidated group. Proposed § 1.1502-56A(j)(1) would provide that liability for the tax imposed on a tax consolidated group under section 55(b)(2) for a consolidated return year is apportioned among members based on the percentage of AFSI attributable to each member for the year. Under proposed § 1.1502-56A(j)(2), the percentage of AFSI for the consolidated return year attributable to a member equals the separate positive AFSI of the member (determined by computing the AFSI by reference to only the member's items of income, gain, expense, and loss) for the consolidated return year, divided by the sum of the AFSI for that year of all members having positive AFSI for that year. This allocation rule is based upon, and is intended to operate in a manner consistent with, the allocation rules in § 1.1502-21(b)(2).
The allocation of AFSI that would occur under proposed § 1.59-2 if a corporation's test group changes is intended to ensure that any future group of which the CAMT entity is a member accurately reflects the income-generating history of the members of the group following the acquisition. The accurate reflection of this history is no less important in cases in which the CAMT entity departing the test group is a member of a tax consolidated group.
Proposed § 1.1502-56A(k)(1) would provide that, on leaving a tax consolidated group, a member is allocated its AFSI for purposes of applying the average annual AFSI test under proposed § 1.59-2(c) as if the
The Treasury Department and the IRS are considering rules that would provide AFSI adjustments for a corporation that elects under section 1354(a) of the Code (electing corporation), or an electing group as defined in section 1355(a)(2) of the Code that includes an electing corporation, to be subject to the provisions of sections 1352 through 1359 of the Code (tonnage tax regime). The tonnage tax is imposed in lieu of the Federal corporate income tax that would otherwise be imposed under section 11 of the Code on the income of an electing corporation (or electing group) from qualifying shipping activities.
Under section 1352, an electing corporation's qualifying shipping activities are subject to tax on a notional amount of shipping income, which is determined under section 1353(b) based on the net tonnage of qualifying vessels that the electing corporation operates in foreign trade during the taxable year. Section 1357(a) provides that the gross income of an electing corporation does not include its income from qualifying shipping activities. Section 1357(b) provides that gross income of a corporation (other than an electing corporation) that is a member of an electing group also does not include its income from qualifying shipping activities conducted by such member. Section 1355(a)(2) defines the term “electing group” to mean a controlled group that would be treated as a single employer under section 52(a) or (b) of the Code (without regard to section 52(a)(1) or (2)) and one or more members of which is an electing corporation. Under section 1357(c), items of loss, deduction, or credit of any taxpayer from activities giving rise to income excluded under section 1357 are disallowed, subject to limited exceptions for certain depreciation and interest.
The tonnage tax regime was enacted to bolster the U.S. shipping industry by eliminating a competitive disadvantage faced by operators of United States-flag vessels that otherwise would be subject to higher taxes than their foreign-based competition. H.R. No. 108-548 Part 1 (2004) at 177. By incentivizing United States-flag shipping, the tonnage tax regime also supports the national security goals of the Maritime Security Program (MSP), which maintains a fleet of active, militarily-useful, privately-owned vessels to meet national defense and other security requirements and maintains a United States presence in international commercial shipping.
The Treasury Department and the IRS received feedback from stakeholders noting that, unlike former section 56(g) of the Code, section 56A does not provide an AFSI adjustment for an electing corporation and requesting that an AFSI adjustment be provided, in part, to exclude income subject to the tonnage tax regime from AFSI (and therefore from the CAMT). Stakeholders noted that there is tension with applying the CAMT to income subject to the tonnage tax regime given that the regime's purpose is to encourage the use of United States-flag vessels in international shipping. These stakeholders also noted that maintaining United States-flag and United States-crewed merchant vessels for the MSP is important to United States national security, both in peacetime and during times of war. The stakeholders therefore suggested that subjecting such income to the CAMT could undermine the United States national security purpose of the tonnage tax regime.
The Treasury Department and the IRS are considering rules that would provide AFSI adjustments with respect to electing corporations and electing groups within the scope of the tonnage tax regime, including adjustments relating to income from qualifying shipping activities and other adjustments that may be necessary to prevent the imposition of duplicative alternative tax regimes that limit the benefit of certain deductions, NOLs, and credits. The Treasury Department and the IRS request comments on whether to provide such rules addressing the interaction of the CAMT and the tonnage tax, including comments on how best to provide AFSI adjustments to meet the United States national security policy goals of the tonnage tax regime and the MSP while appropriately imposing the CAMT with respect to other AFSI of such entities.
Pursuant to the authority granted by section 56A(c)(15), the Treasury Department and the IRS are considering transition rules to address AFSI and CAMT attribute adjustments necessary to implement the rules in final regulations if a CAMT entity accounted for and reported the AFSI adjustment or CAMT attribute in a manner inconsistent with the final regulations in prior taxable years. The Treasury Department and the IRS are considering three different transition approaches that may apply under the final regulations. The transition approach applied may vary based on the particular AFSI adjustment or CAMT attribute; thus, different transition approaches may be applied in specified circumstances under the transition rules in the final regulations. The transition rules would apply to the CAMT entity's first taxable year for which a particular final rule is applicable (transition year).
Under one potential transition approach, a CAMT entity would be required to redetermine as of the beginning of the transition year the cumulative amount of AFSI, and redetermine any relevant CAMT attribute, as if the entity had first applied the rules in the final regulations in its first taxable year beginning after December 31, 2019. The difference between the redetermined cumulative AFSI amount and the aggregate AFSI amounts reported in years prior to the transition year would result in an adjustment to AFSI (transition year adjustment). In conjunction with the transition year adjustment, any CAMT attribute previously determined using the prior treatment would be adjusted to equal the redetermined CAMT attribute as of the beginning of the transition year.
The transition year adjustment would be an adjustment to the CAMT entity's AFSI for the transition year. However, the Treasury Department and the IRS are also considering whether to allow CAMT entities to spread the transition year adjustment across multiple taxable years for AFSI purposes in specified circumstances. The Treasury Department and IRS are considering a rule that would allow a transition year adjustment that involves a change in the timing of when an AFSI adjustment amount is included in AFSI to be spread over periods similar to those for section
The Treasury Department and the IRS are considering the scope of the final rules that should be subject to a transition year adjustment. For example, such rules may include, but would not be limited to, items similar to those included within the scope of AFSI-only changes (
As noted previously, while the transition year adjustment would be determined by recomputing prior year AFSI and CAMT attributes to reflect the final rules, the transition year adjustment is an adjustment to the CAMT entity's AFSI for the transition year (subject to proposed spread periods). Accordingly, with respect to a CAMT entity with a partnership investment, the partnership would not need to file an amended partnership return or file a request for an administrative adjustment under section 6227, as applicable, to revise the amount of any partnership-related item relevant in determining the application of section 56A that was reported to the CAMT entity partner in prior taxable years. Instead, the transition rules would provide that the partnership should report additional information to the CAMT entity partner for the first taxable year in which a final rule is appliable to the extent necessary for the CAMT entity partner to determine its transition year adjustment for such partnership-related item. The Treasury Department and the IRS request comments on the application of this transition approach to a CAMT entity that is a partner in a partnership to which this approach would apply.
Under a second potential transition approach, the transition to the final regulations for certain AFSI adjustments and CAMT attributes would be implemented on a cut-off basis similar to the approach provided in section 2.07 of Rev. Proc. 2015-13, 2015-5 I.R.B. 419. Accordingly, under a cut-off basis transition approach, there would be no transition year adjustment to AFSI for the transition year. In addition, under a cut-off basis transition approach, CAMT attributes (such as the CAMT basis of an asset) would not be redetermined as of the beginning of the transition year as if the CAMT entity had first applied the rules in the final regulations in its first taxable year beginning after December 31, 2019. The Treasury Department and the IRS are considering applying the cut-off basis transition approach to AFSI adjustments and CAMT attributes where the CAMT entity no longer holds the property and has already accounted for the disposition of such property in AFSI in a taxable year not subject to the final regulations (even if accounted for in a manner not consistent with the final regulations), for example, certain transactions subject to proposed § 1.56A-18, 1.56A-19, or 1.56A-20. In such situations, the Treasury Department and the IRS request comments as to whether special rules are needed for the transferor or transferee to prevent the duplication or omission of the transferor's or transferee's AFSI related to the transaction. The Treasury Department and the IRS also request comments on the scope of AFSI adjustments and CAMT attributes that should be subject to a cut-off basis transition approach and the application of such transition approach to a CAMT entity that is a partner in a partnership to which this transition approach would apply.
Finally, under a third potential transition approach, the transition to the final regulations for certain rules would be implemented using a “fresh start” transition approach with the relevant CAMT attribute redetermined as of the beginning of the transition year as if the entity had first applied the rules in the final regulations in its first taxable year beginning after December 31, 2019. Accordingly, under a “fresh start” transition approach, there would be no transition year adjustment to AFSI as of the beginning of the transition year. For instances where the CAMT basis of an asset may be subject to a “fresh start” transition approach, the Treasury Department and the IRS request comments as to whether the CAMT basis should be based on amounts other than the amounts that should have been reflected in AFSI in prior years under the final rules, such as the actual amounts reflected in AFSI in prior years. For example, if AFSI in prior years reflected excess amortization because the CAMT basis of an amortizable asset exceeded what the CAMT basis would have been had the final regulations applied (for example, due to push down accounting which is disregarded under proposed §§ 1.56A-4(c)(4) and 1.56A-18(c)(3)), comments are requested as to whether the redetermined CAMT basis should reflect a reduction for the actual amortization reflected in AFSI in prior years or if the redetermined CAMT basis should instead reflect a reduction for the amortization that would have been reflected in AFSI under the final rules.
The Treasury Department and the IRS are considering the scope of the final rules that should be subject to a “fresh start” transition approach. For example, such items may include, but are not limited to, determination of CAMT basis of assets of a foreign corporation under proposed § 1.56A-4, CFC adjustment carryovers with respect to controlled foreign corporations under proposed § 1.56A-6, determination of CAMT basis of assets of a domestic corporation under proposed §§ 1.56A-18 and 1.56A-19, and any unused CFC taxes under proposed § 1.59-4. The Treasury Department and the IRS request comments on the scope of CAMT attributes that should be subject to a “fresh start” transition approach as well as the application of such an approach to a CAMT entity that is a partner in a partnership to which this transition approach would apply.
The Treasury Department and the IRS welcome comments on these three transition approaches, as well as other
The Treasury Department and the IRS are aware that a CAMT entity may have a duplication or omission of AFSI or a CAMT attribute if the CAMT entity accounted for and reported the AFSI adjustment or CAMT attribute in a taxable year in a manner inconsistent with the manner used to determine such item in a prior taxable year. To avoid creating undue administrative burden for CAMT entities, and to facilitate a less burdensome interim period before the final regulations are applicable, the Treasury Department and the IRS are of the view that transition rules, including transition adjustments to AFSI, are not appropriate to account for any potential duplication or omission of AFSI or a CAMT attribute for taxable years prior to the transition year. Accordingly, CAMT entities may not make any AFSI adjustments as a result of a redetermination of the cumulative amount of AFSI or redetermine any CAMT attribute as of the beginning of, or during, any taxable year prior to the first taxable year in which a final rule is applicable.
For taxable years beginning after the transition year (
In order for a CAMT entity to make an AFSI-only change, the Treasury Department and the IRS are considering rules that would require a CAMT entity to follow consent procedures similar to those that apply for changes in method of accounting for regular tax purposes under sections 446 and 481. Similar to a change in method of accounting for regular tax purposes, a CAMT entity would not be permitted to make an AFSI-only change on an amended return or by filing an administrative adjustment request under section 6227. The AFSI-only change procedures would instead require that a CAMT entity request advance consent from the IRS before changing the item under consent procedures similar to those required under section 446(e) and Rev. Proc. 2015-13 (or successor) on a form similar to Form 3115. However, similar to Rev. Proc. 2015-13, automatic consent may be provided for certain changes. If automatic consent is provided for an AFSI-only change, the manner of obtaining automatic consent may involve reduced filing requirements or certain streamlined procedures. In addition, the consent procedures for AFSI-only changes may also include the computation of a cumulative adjustment to AFSI resulting from the AFSI-only change, which the CAMT entity would include in AFSI over a prescribed number of taxable years beginning with the year of change. Finally, such consent procedures would provide audit protection to taxpayers that voluntarily request to make an AFSI-only change in certain circumstances. Applying procedures to AFSI-only changes that are similar to the change in method of accounting principles under section 446(e) may encourage voluntary compliance when a CAMT entity is inadvertently accounting for an AFSI-only item in an impermissible manner because the CAMT entity would be afforded audit protection and favorable spread periods.
Alternatively, the Treasury Department and the IRS are considering providing taxpayers with automatic consent for all AFSI-only changes, along with reduced filing requirements, that may only require that a statement or abbreviated form be attached to the CAMT entity's tax return for the year in which the AFSI-only change is made. While this alternative may streamline the process for a CAMT entity to correct its AFSI if it is accounting for an AFSI-only item in an impermissible manner, the Treasury Department and IRS are considering whether to provide the CAMT entity with audit protection under this type of procedure and whether more restrictive spread periods should apply.
The Treasury Department and the IRS are evaluating whether consent procedures similar to those required for changes in method of accounting under section 446(e) and Rev. Proc. 2015-13 should apply to an AFSI-only change and request comments on this issue, as well as other approaches for implementing AFSI-only changes. The Treasury Department and the IRS request comments on the scope of AFSI-only items that should be subject to the consent procedures. The Treasury Department and the IRS also request comments on the criteria to be applied by a CAMT entity to determine whether it has established a consistent treatment for an AFSI-only item and, thus, is eligible for an AFSI-only change (for example, whether a CAMT entity needs to treat an AFSI-only item in an impermissible manner for a single taxable year, or multiple taxable years, before it may apply the procedures for making an AFSI-only change). The Treasury Department and the IRS also request comments on the consent
The provisions of the following sections are proposed to apply to taxable years ending after September 13, 2024: proposed §§ 1.56A-1 through 1.56A-4, 1.56A-6 through 1.56A-11, 1.56A-13, 1.56A-14, 1.56A-17, 1.56A-26, 1.56A-27, and 1.59-2 through 1.59-4 (together, with proposed § 1.56A-5(l)(2)(ii) and (iii), the specified regulations). The provisions of the following sections are proposed to apply to taxable years ending after [date of publication of final regulations in the
The Treasury Department and the IRS request comments regarding whether a different applicability date should apply for purposes of applying any specific provision of the proposed regulations and will consider such comments along with all other comments received in response to this notice of proposed rulemaking.
Taxpayers may rely on the specified regulations for any taxable year ending on or before September 13, 2024, provided the taxpayer, and each member of its test group determined under proposed § 1.59-2 for that taxable year, consistently follow all of the specified regulations in their entirety in that taxable year and each subsequent taxable year (taking into account any changes to its test group determined under proposed § 1.59-2 for each subsequent taxable year) until the first taxable year in which the final regulations are applicable. In the case of rules described in proposed §§ 1.56A-4 and 1.56A-6 that apply to transfers (as defined in proposed § 1.56A-4(b)(3)), taxpayers may rely on such rules for a transfer occurring on or before September 13, 2024, provided the taxpayer, and each member of its test group determined under proposed § 1.59-2 for the taxable year of the taxpayer that includes the date of the transfer, consistently follow all of the rules in proposed §§ 1.56A-4 and 1.56A-6 for all such transfers occurring on or before September 13, 2024, and if any such transfers occur in taxable years ending on or before September 13, 2024, must rely on the specified regulations for such taxable years.
Taxpayers may rely on one or more other sections of the proposed regulations for any taxable year ending on or before [date of publication of final regulations in the
Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally requires that a Federal agency obtain the approval of the Office of Management and Budget (OMB) before collecting information from the public, whether such collection of information is mandatory, voluntary, or required to obtain or retain a benefit. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.
This proposed regulation contains reporting, third-party disclosure, and recordkeeping requirements that are required to identify applicable corporations and determine their liability for the CAMT. These collections of information would generally be used by the IRS for tax compliance purposes and by taxpayers to facilitate proper reporting and recordkeeping. The likely respondents to these collections are businesses.
This proposed regulation requires corporations to report their determinations regarding whether they are applicable corporations and, if so, report their CAMT liability by using Form 4626 and the applicable form in the Form 1120 series. These requirements and associated forms are already approved by OMB under 1545-0123. To the extent there is a change in burden as a result of this proposed regulation, the change in burden will be reflected in updated burden estimates for the referenced forms.
This proposed regulation requires partnerships that receive a request for information to provide the information to partners that are subject to the CAMT (or partners directly or indirectly owned by an applicable corporation) and to report the information to the IRS on Schedules K and K-1 of Form 1065. For taxable year 2023, a partnership that receives a request for information after the preparation of its Schedules K and K-1 may provide the information to the partner on a separate statement. This proposed regulation contains recordkeeping requirements associated with the foregoing reporting obligations. These requirements and associated forms are already approved by OMB under 1545-0123. To the extent there is a change in burden as a result of this proposed regulation, the change in burden will be reflected in updated burden estimates for the referenced forms.
This proposed regulation requires a corporation to maintain records sufficient to substantiate its determination regarding whether it is an applicable corporation, including the identification of all persons treated as a single employer with the corporation under section 52(a) or (b) and whether the corporation is a member of an FPMG under proposed § 1.59-3. This proposed
The Regulatory Flexibility Act (5 U.S.C. 601
Pursuant to section 7805(f) of the Code, this notice of proposed rulemaking has been submitted to the Chief Counsel of the Office of Advocacy of the Small Business Administration for comment on its impact on small business.
The proposed regulations would provide guidance for the application of the CAMT, which is based on the AFSI of certain corporations for taxable years beginning after December 31, 2022. The proposed regulations would provide necessary definitions and rules that relate to the determination of AFSI, whether a corporation is an applicable corporation subject to the tax, and various statutory adjustments to AFSI, including rules regarding the application of the CAMT in the tax consolidated group, partnership, and international contexts. The Treasury Department and the IRS intend and expect that this guidance will allow corporations to determine whether they are subject to the tax and their total liability under the tax.
The RFA directs agencies to provide a description of, and if feasible, an estimate of, the number of small entities that may be affected by the proposed rules, if adopted. The Small Business Administration's Office of Advocacy estimates in its 2023 Frequently Asked Questions that 99.9 percent of American businesses meet its definition of a small business. While the CAMT applies only to certain corporations averaging over $1 billion of annual AFSI, referred to as applicable corporations, certain provisions in these proposed regulations apply irrespective of the size of the business, as defined by the Small Business Administration. As is described more fully in the preamble to this proposed regulation and in this IRFA, these proposed regulations may affect a variety of different businesses across several different industries.
These proposed regulations contain reporting, third-party disclosure, and recordkeeping requirements that are required to identify applicable corporations and to determine their liability for the CAMT. In determining whether a corporation is an applicable corporation, it may be necessary to aggregate its AFSI with the AFSI of other entities. Further, in determining the CAMT liability of an applicable corporation, it may be necessary to include in AFSI the applicable corporation's income from its investments in partnerships. In most cases, the AFSI of entities whose AFSI is aggregated with that of a corporation will be based on consolidated financial statements prepared by very large corporations that will bear this burden so that it should not be considered a burden imposed on small entities. However, under the proposed regulations, in order to determine the CAMT liability of an applicable corporation, partnerships would be compelled to provide information to their applicable corporation partners (and, in the case of structures with tiers of partnerships, to partners that are directly or indirectly owned by the applicable corporation) regarding the partner's distributive share of the partnership's AFSI, and to keep associated records. We estimate that approximately 25,000 of the partnerships that would be affected by this burden are small entities.
The Treasury Department and the IRS expect to receive more information on the impact on small businesses through comments on these proposed regulations.
The proposed regulations will impose recordkeeping and reporting requirements for partnerships directly or indirectly owned by applicable corporations. These proposed regulations require partnerships that receive a request for information to provide the information to partners that are subject to the CAMT (or to partners that are directly or indirectly owned by an applicable corporation) and to report the information to the IRS on Schedules K and K-1 of Form 1065. For taxable year 2023, a partnership that receives a request for information after the preparation of its Schedules K and K-1 may provide the information to the partner on a separate statement. The proposed regulations impose recordkeeping requirements associated with the foregoing reporting obligations.
The Treasury Department and the IRS considered alternatives to the proposed regulations. As described in the Explanation of Provisions of this preamble, the Treasury Department and the IRS considered alternative approaches for computing an applicable corporation's distributive share of a partnership's AFSI. Under these approaches, an applicable corporation would generally have required a more limited amount of information from a partnership for the purpose of computing its distributive share of a partnership's AFSI.
One alternative approach considered was a “top-down” approach in which an applicable corporation would use the FSI reported on its AFS with respect to a partnership and adjust that amount by taking into account adjustments required under section 56A. The information necessary for an applicable corporation to compute these adjustments would need to be provided by the partnership. As this approach would still require the partnership to provide information to the partner, it did not substantially lessen the impact
Another set of approaches considered was to use tax information otherwise required to be maintained for tax purposes. That is, a partner's distributive share of a partnership's AFSI would be an applicable corporation's distributive share of a partnership's book income computed in accordance with the section 704(b) rules, or an applicable corporation's distributive share of partnership taxable income as reported on Schedule K-1.
Yet another alternative considered was the addition of a safe harbor to the proposed approach that would allow applicable corporations to use their financial statement income without making adjustments for partnership investments under section 56A(c)(2)(D)(i). This safe harbor would be in lieu of having the partnership report the partner's distributive share of AFSI to the partners.
These alternative approaches were not adopted in the proposed regulations because the Treasury Department and the IRS are of the view that they are not consistent with the statutory language or its purpose of taxing an applicable corporation's book income, as adjusted under section 56A. In many cases, an applicable corporation would not be able to reasonably take into account the adjustments required under section 56A to compute AFSI, or the applicable corporation would have to rely heavily or exclusively on regular tax amounts, or both.
The proposed rule would not duplicate, overlap, or conflict with any relevant Federal rules. As discussed previously, the proposed regulations would provide rules for the application of the CAMT. The Treasury Department and the IRS invite input from interested members of the public about identifying and avoided overlapping, duplicative, or conflicting requirements.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million (updated annually for inflation). This proposed rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.
Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has Federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. This proposed rule does not have Federalism implications and does not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.
Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) prohibits an agency from publishing any rule that has Tribal implications if the rule either imposes substantial, direct compliance costs on Indian Tribal governments and is not required by statute, or preempts Tribal law, unless the agency meets the consultation and funding requirements of section 5 of the Executive order. These proposed regulations do not have a substantial direct effect on one or more Federally recognized Indian Tribes and do not impose substantial direct compliance costs on Indian Tribal governments within the meaning of the Executive order.
However, the Treasury Department and the IRS held consultation with Alaska Native Corporations on December 2, 2022, to address questions under the IRA, including the application of the CAMT to Alaska Native Corporations, which informed the development of these proposed regulations. The Treasury Department and the IRS also intend to conduct consultation with Alaska Native Corporations on these proposed regulations.
Before these proposed regulations are adopted as final regulations, consideration will be given to any comments regarding the notice of proposed rulemaking that are submitted timely to the IRS, as prescribed in this preamble under the
A public hearing has been scheduled for January 16, 2025 beginning at 10 a.m. EST, in the Auditorium at the Internal Revenue Building, 1111 Constitution Avenue NW, Washington DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. Participants may alternatively attend the public hearing by telephone.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the time to be devoted to each topic by December 12, 2024. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. If no outline of the topics to be discussed at the hearing is received by December 12, 2024, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the
Individuals who want to testify in person at the public hearing must send an email to
Individuals who want to testify by telephone at the public hearing must send an email to
Individuals who want to attend the public hearing in person without testifying must also send an email to
Individuals who want to attend the public hearing by telephone without testifying must also send an email to
Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to
The principal authors of these regulations are Madeline Padner, Frank Dunham III, John Aramburu, James Yu, and C. Dylan Durham of the Office of Associate Chief Counsel (Income Tax and Accounting); Jeremy Aron-Dine, William W. Burhop, and John Lovelace of the Office of Associate Chief Counsel (Corporate); Diane Bloom, Seth Groman, and Chris Dellana of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes); Yosef Koppel, Elizabeth Zanet, and Brian Barrett of the Office of Associate Chief Counsel (Passthroughs and Special Industries); Daren J. Gottlieb, Dylan J. Steiner, Ryan Connery, John J. Lee, Michelle L. Ng, Joel Deuth, and Karen Walny of the Office of Associate Chief Counsel (International); Ian Follansbee and Vanessa Mekpong of the Office of Associate Chief Counsel (Financial Institutions and Products). However, other personnel from the Treasury Department and the IRS participated in their development.
Income taxes, Reporting and recordkeeping requirements.
Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 as follows:
26 U.S.C. 7805 * * *
Section 1.56A-1 also issued under 26 U.S.C. 56A(c)(2)(B), 56A(c)(15), and 56A(e).
Section 1.56A-2 also issued under 26 U.S.C. 56A(b), 56A(c)(15), and 56A(e).
Section 1.56A-3 also issued under 26 U.S.C. 56A(c)(1), 56A(c)(15), and 56A(e).
Section 1.56A-4 also issued under 26 U.S.C. 56A(c)(2)(C), 56A(c)(15), and 56A(e).
Section 1.56A-5 also issued under 26 U.S.C. 56A(c)(2)(D)(i), 56A(c)(15), and 56A(e).
Section 1.56A-6 also issued under 26 U.S.C. 56A(c)(5), 56A(c)(15), and 56A(e).
Section 1.56A-7 also issued under 26 U.S.C. 56A(c)(15) and 56A(e).
Section 1.56A-8 also issued under 26 U.S.C. 56A(c)(5), 56A(c)(15), and 56A(e).
Sections 1.56A-9 through 1.56A-12 also issued under 26 U.S.C. 56A(c)(15) and 56A(e).
Section 1.56A-13 also issued under 26 U.S.C. 56A(c)(11)(A), 56A(c)(15), and 56A(e).
Section 1.56A-14 also issued under 26 U.S.C. 56A(c)(15) and 56A(e).
Section 1.56A-15 also issued under 26 U.S.C. 56A(c)(13)(B)(ii), 56A(c)(15), and 56A(e).
Section 1.56A-16 also issued under 26 U.S.C. 56A(c)(14)(A)(ii)(II), 56A(c)(15), and 56A(e).
Section 1.56A-17 also issued under 26 U.S.C. 56A(c)(15), and 56A(e).
Sections 1.56A-18 and 1.56A-19 also issued under 26 U.S.C. 56A(c)(2)(C), 56A(c)(15), and 56A(e).
Section 1.56A-20 also issued under 26 U.S.C. 56A(c)(2)(D)(i), 56A(c)(15), and 56A(e).
Sections 1.56A-21 through 1.56A-24 also issued under 26 U.S.C. 56A(c)(15) and 56A(e).
Section 1.56A-25 also issued under 26 U.S.C. 56A(e).
Sections 1.56A-26 and 1.56A-27 also issued under 26 U.S.C. 56A(c)(15) and 56A(e).
Section 1.59-2 also issued under 26 U.S.C. 59(k)(1)(C) and (k)(3).
Section 1.59-3 also issued under 26 U.S.C. 59(k)(2)(B) and (D) and 59(k)(3).
Section 1.59-4 also issued under 26 U.S.C. 59(l)(3).
Sections 1.1502-53 and 1.1502-56A also issued under 26 U.S.C. 53, 56A(C)(2)(B), 56A(c)(15), 56A(e), and 1502.
This section lists the table of contents for §§ 1.56A-1 through 1.56A-27.
(a) Overview.
(1) In general.
(2) Scope of the section 56A regulations.
(b) Definitions.
(1) Adjusted financial statement income.
(2) Adjusted net income or loss.
(3) AFS basis.
(4) AFS consolidation entries.
(5) Applicable corporation.
(6) Applicable financial statement.
(7) CAMT basis.
(8) CAMT entity.
(9) CAMT foreign tax credit.
(10) CFC adjustment carryover.
(11) Change in accounting principle.
(12) Consolidated financial statement.
(13) Controlled foreign corporation.
(14) Disregarded entity.
(15) Equity method.
(16) Equity method base adjustment.
(17) Fair value method.
(18) Federal income taxes.
(19) Financial statement group.
(20) Financial statement income.
(21) Financial statement net operating loss.
(22) For regular tax purposes.
(23) Foreign income tax.
(24) FPMG.
(25) FPMG common parent.
(26) FSNOL carryover.
(27) GAAP.
(28) IFRS.
(29) Impairment loss.
(30) Impairment loss reversal.
(31) IRB guidance.
(32) Modified FSI.
(33) Partnership and tiered partnership.
(34) Pass-through entity.
(35) Purchase accounting.
(36) Push down accounting.
(37) Qualified wireless spectrum.
(38) Restated AFS.
(39) Section 56A regulations.
(40) Section 168 property.
(41) Separate financial statement.
(42) Statutory references.
(i) Chapter 1.
(ii) Code.
(iii) Subchapter K.
(iv) Subtitle A.
(43) Tax consolidated group.
(44) United States shareholder.
(c) General rules for determining FSI.
(1) Federal income tax treatment not relevant for FSI.
(2) Tax consolidated groups; CAMT entities that own disregarded entities.
(i) Tax consolidated groups.
(ii) CAMT entities that own a disregarded entity or branch.
(3) Determining FSI from a consolidated AFS.
(i) In general.
(ii) No netting losses against income within the consolidated AFS.
(iii) Elimination journal entries.
(iv) Consolidation entries other than elimination entries.
(v) Reconciliation requirement.
(4) Determining AFS basis and balance sheet account amounts if the CAMT entity's AFS is a consolidated financial statement.
(i) In general.
(ii) Purchase accounting and push down accounting.
(5) Coordination rule.
(6) Examples.
(i) Example 1: FSI of component members of a financial statement group.
(ii) Example 2: Consolidation entries if an item is converted from one financial accounting standard to another.
(d) General rules for determining AFSI.
(1) Federal income tax treatment not relevant for AFSI except as otherwise provided in guidance.
(2) Limitation on AFSI adjustments.
(3) AFSI adjustments for taxable years beginning before January 1, 2023.
(i) In general.
(ii) Exception for AFSI adjustments that arise from transactions or events that occur in taxable years ending on or before December 31, 2019.
(4) Redetermination of FSI gains and losses.
(5) Tax consolidated groups.
(6) CAMT entities that own disregarded entities.
(e) Rules for translating AFSI to U.S. dollars.
(f) Entity classification and treatment.
(1) Entity classification.
(2) Treatment of an entity as domestic or foreign.
(g) Substantiation requirement.
(1) In general.
(2) Other CAMT entity recordkeeping requirements.
(3) Applicable corporation determination record keeping requirements.
(h) Reporting requirement.
(1) Applicable corporations.
(2) Applicable corporation determination reporting requirements.
(3) Other reporting required for CAMT entities.
(i) Special rules for reporting distributive shares of AFSI and application of subchapter K.
(ii) Other reporting requirements.
(i) Applicability date.
(a) Overview.
(b) Definition of applicable financial statement.
(c) General financial statement priority.
(1) GAAP statements.
(2) IFRS statements.
(3) Financial statements prepared in accordance with other generally accepted accounting standards.
(4) Other government and regulatory statements.
(5) Unaudited external statements.
(6) Return.
(d) Certified financial statement.
(e) Restatements.
(f) Annual and periodic financial statements.
(g) AFS priority rules for consolidated financial statements.
(1) In general.
(2) Exceptions to use of separate AFS.
(i) Tax consolidated group member has only one consolidated financial statement that contains the financial results of all members of the tax consolidated group.
(ii) Tax consolidated group member has more than one consolidated financial statement that contains the financial results of all members of the tax consolidated group.
(iii) Tax consolidated group member has only one consolidated financial statement that contains its financial results and the financial results of some, but not all, members of the tax consolidated group.
(iv) Tax consolidated group member has more than one consolidated financial statement that contains its financial results and the financial results of some, but not all, members of the tax consolidated group.
(v) Members of an FPMG.
(h) Disregarded entities or branches.
(i) Examples.
(1) Example 1: No substantial non-tax purpose.
(2) Example 2: Substantial non-tax purpose.
(j) Applicability date.
(a) Overview.
(b) AFSI adjustment for mismatched years.
(1) In general.
(2) Examples.
(i) Example 1: Calendar-year taxpayer with fiscal annual financial accounting period.
(ii) Example 2: Fiscal year taxpayer with calendar-year financial accounting period.
(c) Applicability date.
(a) Overview.
(b) Definitions.
(1) Covered asset transaction.
(2) Section 338(g) transaction.
(3) Transfer.
(c) Adjustments to AFSI.
(1) Adjustments with respect to stock of a foreign corporation.
(2) Adjustments with respect to covered asset transactions.
(3) Adjustments with respect to section 338(g) transactions.
(4) Adjustments with respect to purchase accounting and push down accounting.
(d) Certain rules for determining CAMT basis.
(1) Covered asset transactions.
(2) Section 338(g) transaction.
(3) Transfers of stock of a foreign corporation involving a partnership.
(4) Purchase accounting and push down accounting.
(5) Stock of a foreign corporation.
(e) Stock in a foreign corporation owned by a partnership.
(f) AFSI adjustments when basis in foreign stock is determined under section 358.
(1) In general.
(i) Principal purpose rule.
(ii) Two-year rule.
(2) Hypothetical CAMT basis.
(g) AFSI adjustments when certain foreign stock is distributed by a partnership.
(1) In general.
(2) Related CAMT entity.
(h) Examples.
(1) Example 1: Dividend received from a foreign corporation.
(2) Example 2: Stock of a foreign corporation owned by a partnership.
(3) Example 3: Sale of stock of a foreign corporation.
(4) Example 4: Foreign corporation reported on equity method.
(5) Example 5: Section 351 transfer.
(6) Example 6: Section 351 transfer with boot.
(7) Example 7: Transfer subject to section 367(a).
(8) Example 8: Inbound liquidation subject to section 367(b).
(i) Applicability date.
(1) In general.
(2) Rule for transfers.
(a) Overview.
(b) In general.
(c) Applicable method.
(d) FSI amounts with respect to a partnership investment that are not disregarded under paragraph (c)(1) of this section.
(e) Distributive share amount.
(1) In general.
(2) Computing the distributive share percentage.
(3) Computing the modified FSI of the partnership.
(4) AFSI items that are separately stated.
(i) In general.
(ii) Adjustments to a partner's distributive share amount.
(iii) Adjustments to a partner's AFSI.
(5) Effect of equity method basis adjustments to a CAMT entity's FSI.
(6) Computing a partner's distributive share amount when the partnership's AFS is its Federal income tax return.
(i) In general.
(ii) Separately stated AFSI items.
(f) Computation in the case of tiered partnerships.
(g) Taxable year.
(h) Reporting and filing requirements for a CAMT entity that is a partner in a partnership.
(1) In general.
(2) Failure to obtain information.
(i) In general.
(ii) Required estimate.
(iii) Partnerships subject to subchapter C of chapter 63 of the Code.
(i) Reporting and filing requirements for partnerships in which a CAMT entity is a partner.
(1) Requirement to file information with the IRS and to furnish information to a CAMT entity.
(2) Special rules for tiered structures.
(i) Requirement to request information.
(ii) Requirement to furnish and file information.
(iii) Timing of requesting information.
(3) Timing of furnishing information.
(i) In general.
(ii) Late requests.
(iii) Partnership not required to furnish information to a CAMT entity until it has notice of a request.
(4) Manner of furnishing information.
(5) Recordkeeping requirement.
(6) Penalties.
(j) Limitation on allowance of negative distributive share amount.
(1) In general.
(2) Carryover of suspended negative distributive share amount.
(3) CAMT basis in a partnership investment.
(k) Examples.
(1) Example 1: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method.
(2) Example 2: Adjustment of AFSI with respect to a partnership investment accounted for using the hypothetical liquidation at book value under the equity method.
(3) Example 3: Adjustment of AFSI with respect to a partnership investment accounted for using the hypothetical liquidation at book value under the equity method and involving a loss on the investment.
(4) Example 4: Determining distributive share percentage for AFS non-partner.
(5) Example 5: Determining distributive share percentage for entity that treats itself as owning 100 percent of the equity in the partnership for AFS purposes because the CAMT entity treats all other partners in the partnership as AFS non-partners.
(6) Example 6: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method in a tiered partnership structure.
(7) Example 7: Adjustment of AFSI with respect to a partnership investment accounted for using the equity method with a basis adjustment under section 743(b) related to section 168 property.
(8) Example 8: Adjustment of AFSI with respect to a partnership investment accounted for using the fair value method.
(9) Example 9: Computation of CAMT basis in partnership investment.
(10) Example 10: Limitation of negative distributive share amount in excess of CAMT basis.
(l) Applicability dates.
(1) In general.
(2) Exceptions
(i) Paragraph (d).
(ii) Coordination with certain other provisions during prior years.
(iii) Applicability dates for rules described in paragraph (l)(2)(ii).
(a) Overview.
(b) Section 56A(c)(3) adjustment to AFSI.
(1) Aggregate adjustment.
(2) Tax reduction.
(3) Aggregate negative adjustment.
(4) Reduction for utilization of a CFC adjustment carryover.
(5) CFC adjustment carryover mechanics.
(6) Definition of CFC adjustment carryover.
(7) Tax consolidated groups.
(c) Computing the adjusted net income or loss of a controlled foreign corporation.
(1) In general.
(2) Adjustments relating to ownership of stock of a foreign corporation
(i) In general
(ii) Amounts relating to ownership of stock of a foreign corporation reflected in controlled foreign corporation's FSI.
(iii) Amounts relating to ownership of stock of a foreign corporation included for regular tax purposes.
(iv) Stock of a foreign corporation owned by a partnership.
(3) Controlled foreign corporations engaged in a U.S. trade or business.
(4) Foreign income tax expense.
(5) FSNOL carryovers.
(d) Definition of a CAMT excluded dividend.
(e) Examples.
(1) Example 1: Dividend received by a controlled foreign corporation from another foreign controlled corporation.
(2) Example 2: Sale of stock of lower-tier controlled foreign corporation.
(3) Example 3: Controlled foreign corporation held through a partnership.
(f) Applicability date.
(1) In general.
(2) Multiple United States shareholders with different taxable years.
(3) Transactions involving foreign stock.
(a) Overview.
(b) Adjusted financial statement income of foreign corporations.
(c) Applicability date.
(a) Overview.
(b) AFSI adjustments for applicable income taxes.
(1) In general.
(2) Definition of applicable income taxes.
(c) Applicable corporations that choose not to credit foreign income taxes.
(d) Requirements for an applicable income tax to be considered taken into account in an AFS.
(e) Examples.
(1) Example 1.
(2) Example 2.
(3) Example 3.
(f) Applicability date.
(a) Overview.
(b) Rules for determining the FSI and AFSI of a CAMT entity that owns a disregarded entity or branch.
(1) In general.
(2) Transactions disregarded.
(3) Certain disregarded entities or branches subject to the rules in § 1.56A-2(h).
(c) Applicability date.
(a) Overview.
(b) AFSI adjustments for cooperatives.
(c) Applicability date.
(a) Overview.
(b) Definitions.
(1) Alaska Native Corporation.
(2) ANCSA property.
(3) Specified payments.
(c) Cost recovery and depletion.
(d) Deduction for specified payments.
(e) Applicability date.
(a) Overview.
(b) Proceeds from certain credits excluded from AFSI.
(c) Treatment of transferee taxpayer.
(d) Recapture disregarded as expense in determining AFSI.
(e) Applicability date.
(a) Overview.
(b) Adjustments to AFSI for covered benefit plans.
(c) Covered benefit plan.
(1) General definition.
(2) Qualified defined benefit pension plan.
(3) Qualified foreign plan.
(4) Other defined benefit plan.
(d) Applicability date.
(a) Overview.
(b) AFSI adjustments for tax-exempt entities.
(c) Applicability date.
(a) Overview.
(b) Definitions.
(1) Covered book inventoriable depreciation.
(2) Covered book COGS depreciation.
(3) Covered book depreciation expense.
(4) Covered book expense.
(5) Deductible tax depreciation.
(6) Section 168 property.
(7) Tax COGS depreciation.
(8) Tax depreciation.
(9) Tax depreciation section 481(a) adjustment.
(10) Tax capitalization method change.
(11) Tax capitalization method change AFSI adjustment.
(c) Property to which section 168 applies.
(1) In general.
(2) Property to which section 168 applies includes only the portion of property for which a depreciation deduction is allowable under section 167.
(3) Deductible expenditures are not property to which section 168 applies.
(4) Property to which section 168 applies does not include property that is not depreciable under section 168 for regular tax purposes.
(5) Effect of election out of additional first year depreciation.
(6) Property placed in service in taxable years beginning before the CAMT effective date.
(d) AFSI adjustments for depreciation and other amounts with respect to section 168 property.
(1) In general.
(2) Special rules for section 168 property held by a partnership.
(i) In general.
(ii) Basis adjustment under section 743(b) of the Code.
(iii) Basis adjustment under section 734(b) of the Code.
(iv) Basis adjustment under § 1.1017-1(g)(2).
(3) Special rules for determining tax COGS depreciation and covered book COGS depreciation adjustments.
(i) In general.
(ii) Simplifying methods.
(4) Adjustment period for tax capitalization method change AFSI adjustments.
(5) Examples.
(i) Example 1: Tax COGS depreciation and covered book COGS depreciation adjustments under FIFO method.
(ii) Example 2: Tax COGS depreciation and covered book COGS depreciation adjustments under LIFO method.
(iii) Example 3: Tax COGS depreciation and covered book COGS depreciation adjustments under LIFO method.
(iv) Example 4: Net positive tax depreciation section 481(a) adjustment.
(v) Example 5: Change in method of accounting to treat the replacement of a portion of section 168 property as a deductible repair.
(vi) Example 6: Change in method of accounting to capitalize costs to section 168 property as required under section 263A.
(vii) Example 7: Deductible tax depreciation under section 174.
(viii) Example 8: Section 168 property treated as leased property for AFS purposes.
(ix) Example 9: Basis adjustment under section 743(b) to section 168 property.
(x) Example 10: Basis adjustment under section 734(b) to section 168 property.
(e) AFSI adjustments upon disposition of section 168 property.
(1) In general.
(2) Adjustments to the AFS basis of section 168 property.
(i) In general.
(ii) Special rules regarding adjustments to the AFS basis of section 168 property.
(A) Property placed in service prior to the effective date of CAMT.
(B) Property acquired in certain transactions to which section 168(i)(7) applies.
(C) Coordination with section 56A(c)(5).
(D) Determination of CAMT basis of section 168 property following a change in method of accounting for depreciation or a tax capitalization method change.
(E) Adjustments to the AFS basis of section 168 property include only the covered book amounts actually disregarded in determining AFSI.
(3) Special rules for section 168 property disposed of by a partnership.
(4) Treatment of amounts recognized in FSI upon the disposition of section 168 property.
(5) Determining the appropriate asset.
(6) Subsequent AFS dispositions.
(7) Intercompany transactions.
(8) Examples.
(i) Example 1: Disposition of section 168 property.
(ii) Example 2: Property acquired in a covered nonrecognition transaction.
(iii) Example 3: Property acquired in a covered recognition transaction.
(iv) Example 4: Property for which a tax credit was claimed.
(v) Example 5: Disposition of property that was subject to a tax capitalization method change and is not section 168 property at time of disposition.
(vi) Example 6: Disposition of property that was subject to a tax capitalization method change and is section 168 property at time of disposition.
(vii) Example 7: Installment sale under section 453.
(viii) Example 8: Like-kind exchange under section 1031.
(ix) Example 9: Replacement property received in a like-kind exchange.
(x) Example 10: Section 168 property disposed of by a partnership.
(xi) Example 11: Section 168 property disposed of by a partnership with a section 743(b) basis adjustment in place.
(f) Applicability date.
(a) Overview.
(b) Definitions.
(1) Covered book amortization expense.
(2) Covered book wireless spectrum expense.
(3) Deductible tax amortization.
(4) Qualified wireless spectrum.
(5) Tax amortization.
(6) Tax amortization section 481(a) adjustment.
(7) Tax capitalization method change for qualified wireless spectrum.
(8) Tax capitalization method change AFSI adjustment for qualified wireless spectrum.
(c) Qualified wireless spectrum.
(1) In general.
(2) Qualified wireless spectrum does not include wireless spectrum that is not depreciable under section 197 for regular tax purposes.
(d) AFSI adjustments for amortization and other amounts with respect to qualified wireless spectrum.
(1) In general.
(2) Special rules for qualified wireless spectrum held by a partnership.
(i) In general.
(ii) Basis adjustment under section 743(b) of the Code.
(iii) Basis adjustment under section 734(b) of the Code.
(iv) Basis adjustment under § 1.1017-1(g)(2).
(3) Adjustment period for tax capitalization method change AFSI adjustments for qualified wireless spectrum.
(e) AFSI adjustments upon disposition of qualified wireless spectrum.
(1) In general.
(2) Adjustments to the AFS basis of qualified wireless spectrum.
(i) In general.
(ii) Special rules regarding adjustments to the AFS basis of qualified wireless spectrum.
(A) Qualified wireless spectrum placed in service prior to the effective date of CAMT.
(B) Qualified wireless spectrum acquired in certain transactions to which section 197(f)(2) applies.
(C) Determination of CAMT basis of qualified wireless spectrum following a change in method of accounting for amortization or a tax capitalization method change for qualified wireless spectrum.
(D) Adjustments to the AFS basis of qualified wireless spectrum include only the covered book amounts actually disregarded in determining AFSI.
(3) Special rule for qualified wireless spectrum disposed of by a partnership.
(4) Treatment of amounts recognized in FSI upon the disposition of qualified wireless spectrum.
(5) Subsequent AFS dispositions.
(6) Intercompany transactions.
(7) Example.
(f) Applicability date.
(a) Overview.
(b) In general.
(c) Change in accounting principle.
(1) In general.
(2) Accounting principle change amount.
(i) In general.
(ii) Change in AFS under paragraph (c)(5) of this section.
(3) Adjustment spread period rule.
(i) Duplications.
(ii) Omissions.
(iii) Short periods.
(4) Acceleration of accounting principle change amount.
(5) Use of different priority AFSs in consecutive taxable years.
(6) Examples.
(i) Example 1: Adjustment spread period: duplicated income spread over 2 years.
(ii) Example 2: Adjustment spread period: duplicated income spread over 10 years.
(iii) Example 3: Adjustment spread period: duplications expected over twenty-year period.
(d) Restatement of a prior year's AFS.
(1) In general.
(i) Adjustments to AFSI.
(ii) Further adjustments to AFSI.
(2) Exception for amended return.
(3) Reconciliation of retained earnings in AFS.
(4) Example.
(e) Adjustment for amounts disclosed in an auditor's opinion.
(1) In general.
(2) Further adjustments to AFSI.
(f) No adjustment for timing differences.
(g) Applicability date.
(a) Overview.
(1) Scope.
(2) Exceptions.
(3) Cross-references.
(i) Corporate reorganizations and organizations.
(ii) Transactions within a tax consolidated group.
(iii) Deferral of loss from disposition between certain members of a CAMT-related group.
(iv) Certain arrangements disregarded or recharacterized.
(v) Clear reflection of income requirement.
(vi) AFSI and CAMT attribute rules regarding troubled corporations.
(vii) Financial statement net operating losses.
(viii) Minimum tax credits.
(ix) AFSI history.
(x) Certain stock owned by insurance companies.
(b) Definitions.
(1) Acquiror corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(2) B reorganization.
(3) CAMT current earnings.
(4) CAMT earnings.
(5) CAMT retained earnings.
(i) In general.
(ii) Timing of determination.
(6) Component transaction.
(7) Controlled corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(8) Corporate dissolution.
(9) Covered nonrecognition transaction.
(10) Covered recognition transaction.
(11) Covered transaction.
(12) Distributing corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(13) Distributing corporation shareholder or security holder.
(14) Distribution recipient.
(15) E reorganization.
(16) F reorganization.
(17) Liquidating corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(18) Liquidation recipient.
(19) Party.
(20) Property.
(21) Qualified property.
(22) Recapitalization corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(23) Recapitalizing corporation shareholder or security holder.
(24) Resulting corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(25) Section 351 exchange.
(26) Section 351 transferee.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(27) Section 351 transferor.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(28) Section 355 transaction.
(29) Target corporation.
(i) Covered nonrecognition transaction.
(ii) Covered recognition transaction.
(30) Target corporation shareholder or security holder.
(31) Transferor corporation.
(32) Transferor corporation shareholder or security holder.
(c) Operating rules for this section and § 1.56A-19.
(1) Treatment of stock.
(2) FSI resulting from stock investments.
(i) In general.
(ii) Exceptions.
(iii) Characterization of FSI resulting from stock investments.
(3) Purchase accounting and push down accounting for stock acquisitions.
(4) Purchase accounting and push down accounting for asset acquisitions.
(5) Determination of CAMT consequences of component transactions.
(i) Generally separate treatment.
(ii) Effect of other component transactions.
(6) CAMT stock basis transition rule.
(7) CAMT retained earnings following certain cross border transactions.
(i) Inbound liquidations and reorganizations.
(ii) Section 355 distributions.
(8) Examples.
(i) Example 1: Treatment of stock.
(ii) Example 2: FSI resulting from stock investments marked to market.
(iii) Example 3: FSI resulting from stock investments due to equity method annual inclusions.
(iv) Example 4: Remeasurement gain.
(v) Example 5: Purchase accounting and push down accounting.
(vi) Example 6: Identification of component transactions.
(vii) Example 7: Effect of component transaction on other component transactions.
(viii) Example 8: CAMT stock basis transition rule.
(ix) Example 9: CAMT retained earnings.
(d) CAMT consequences of certain non-liquidating stock and property distributions.
(1) Distributing corporation in covered nonrecognition transaction.
(2) Distributing corporation in covered recognition transaction.
(3) Section 355(c) distributions in covered recognition transactions.
(4) Distribution recipient.
(5) Examples.
(i) Example 1: Stock distribution.
(ii) Example 2: Property distribution.
(iii) Example 3: Redemption.
(iv) Example 4: Dividends received deduction.
(v) Example 5: Extraordinary dividend.
(e) Section 336(e) elections.
(1) Distributing corporation with regard to dispositions described in section 355(d)(2) or (e)(2).
(2) Target corporation with regard to dispositions described in section 355(d)(2) or (e)(2).
(3) Distributing corporation shareholder or security holder with regard to dispositions described in section 355(d)(2) or (e)(2).
(4) Distributing corporation with regard to distributions not described in section 355(d)(2) or (e)(2) for which a section 336(e) election is made.
(5) Target corporation with regard to distributions not described in section 355(d)(2) or (e)(2).
(6) New target corporation with regard to distributions not described in section 355(d)(2) or (e)(2).
(7) Example.
(f) CAMT consequences of certain liquidating distributions.
(1) Liquidating corporation in covered nonrecognition transaction.
(2) Liquidating corporation in covered recognition transaction.
(3) Component transactions of a liquidation consisting of covered recognition and covered nonrecognition transactions.
(4) Consequences to liquidation recipient in covered nonrecognition transaction.
(5) Consequences to liquidation recipient in covered recognition transaction.
(6) Examples.
(i) Example 1: Nonrecognition subsidiary liquidation.
(ii) Example 2: Component transactions.
(g) CAMT consequences of stock sales.
(1) Target corporation shareholder.
(i) In general.
(ii) Stock sales for which a section 336(e) or 338(h)(10) election is made.
(2) Target corporation.
(i) In general.
(ii) Stock sales for which a section 336(e), 338(g), or 338(h)(10) election is made.
(3) Acquiror corporation.
(4) New target corporation.
(5) Section 304 transactions.
(6) Examples.
(i) Example 1: Acquisition of stock of a target corporation.
(ii) Example 2: Covered recognition transaction stock sale: section 338(h)(10) election.
(iii) Example 3: Covered recognition transaction stock sale: section 336(e) election.
(h) CAMT consequences of asset sales.
(1) Target corporation.
(2) Acquiror corporation.
(3) Example.
(i) Applicability date.
(a) Overview.
(b) CAMT consequences of B reorganizations.
(1) Target corporation shareholder or security holder in covered nonrecognition transaction.
(2) Target corporation shareholder or security holder in covered recognition transaction.
(3) Acquiror corporation in covered nonrecognition transaction.
(4) Acquiror corporation in covered recognition transaction.
(i) Failure to qualify as B reorganization.
(ii) Failure to qualify under § 1.1032-2(b).
(5) Acquiror corporation parent in covered nonrecognition transaction.
(6) Acquiror corporation parent in covered recognition transaction.
(i) Use of old and cold parent stock with qualifying B reorganization.
(ii) Use of parent stock with transaction that does not qualify as a B reorganization.
(7) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered recognition transaction.
(c) CAMT consequences of certain acquisitive reorganizations.
(1) Target corporation in a covered nonrecognition transaction.
(i) Reorganization exchanges.
(ii) Section 361(c) distributions.
(2) Target corporation in covered recognition transaction.
(3) Acquiror corporation qualification for covered nonrecognition transaction.
(4) Acquiror corporation in covered recognition transaction.
(i) Failure to qualify as an asset reorganization.
(ii) Failure to qualify under § 1.1032-2(b).
(5) Acquiror corporation parent in covered nonrecognition transaction.
(6) Acquiror corporation parent in covered recognition transaction.
(i) Use of old and cold parent stock with qualifying acquisitive reorganization.
(ii) Use of parent stock in a transaction that does not qualify as an acquisitive reorganization.
(7) Target corporation shareholder or security holder in covered nonrecognition transaction.
(8) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered nonrecognition transaction with nonqualifying consideration.
(d) CAMT consequences of section 355 transactions.
(1) Distributing corporation in covered nonrecognition transactions.
(i) Controlled contribution.
(ii) Section 361(c) distributions and transfers.
(iii) Section 355(c) distributions.
(2) Distributing corporation in covered recognition transactions.
(i) Controlled contribution.
(ii) Section 361(c) distribution.
(3) Distributing corporation shareholder or security holder.
(4) Controlled corporation in covered nonrecognition transaction.
(5) Controlled corporation in covered recognition transaction.
(i) Qualification.
(ii) CAMT consequences.
(6) Examples.
(i) Example 1: Covered nonrecognition transaction to distributing corporation and controlled corporation.
(ii) Example 2: Distributing corporation boot-purge exception.
(iii) Example 3: Covered recognition transaction to distributing corporation.
(e) CAMT consequences of recapitalizations.
(1) Recapitalizing corporation in covered nonrecognition transaction.
(2) Component transactions consisting of covered nonrecognition transaction and corporate distributions.
(3) Recapitalizing corporation shareholder or security holder.
(4) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: E Reorganization and corporate distribution.
(f) CAMT consequences of F reorganizations.
(1) Transferor corporation in covered nonrecognition transaction.
(2) Component transactions consisting of covered nonrecognition transaction and corporate distributions.
(3) Resulting corporation.
(4) Transferor corporation shareholder or security holder.
(5) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Component transactions.
(g) CAMT consequences of section 351 exchanges.
(1) Component transactions consisting of covered recognition and covered nonrecognition transactions.
(2) Section 351 transferor in covered nonrecognition transaction.
(3) Section 351 transferor in covered recognition transaction.
(4) Section 351 transferee in covered nonrecognition transaction.
(i) Section 351 transferee's AFSI.
(ii) Section 351 transferee's CAMT basis in property.
(iii) Special CAMT basis rule.
(5) Section 351 transferee in covered recognition transaction.
(i) Section 351 transferee's AFSI.
(ii) Section 351 transferee's CAMT basis in property.
(iii) Special CAMT basis rule.
(iv) Section 351 transferee's CAMT retained earnings.
(6) Examples.
(i) Example 1: Covered nonrecognition transaction.
(ii) Example 2: Covered recognition transaction.
(iii) Example 3: Component transactions.
(iv) Example 4: Covered recognition transaction.
(h) Applicability date.
(a) Overview.
(1) In general.
(2) Scope of rules.
(b) General operating rules.
(c) Contributions of property.
(1) In general.
(2) Contribution of property with financial accounting built-in gain or loss.
(i) Deferred sale approach.
(ii) Inclusion of deferred sale gain or loss upon a decrease in contributor's distributive share percentage.
(iii) Inclusion of deferred sale gain or loss upon disposition of deferred sale property.
(iv) Inclusion of deferred sale gain upon an acceleration event described in § 1.721(c)-4(b).
(v) Tiered partnerships.
(3) Basis rules.
(i) Basis of property contributed to partnership.
(ii) Basis of partnership investment for contributed property.
(d) Distributions of property.
(1) Gain or loss recognized by partnership.
(i) In general.
(ii) Deferred distribution gain or loss approach.
(iii) Acceleration of deferred distribution gain or loss.
(2) Partner inclusions of deferred distribution gain or loss.
(i) Partners' allocable shares of deferred distribution gain or loss.
(ii) Acceleration of a partner's allocable share of deferred distribution gain or loss.
(iii) FSI resulting to a partner from a distribution of property or money.
(iv) Tiered partnerships.
(3) Basis rules.
(i) Basis of distributed property.
(ii) Basis of partner's investment in partnership.
(e) Liability allocation rules.
(1) General rule.
(2) Application of rules to contributions and distributions.
(f) Proportionate deferred sale approach for partial nonrecognition transactions under sections 721(a) and 731(b).
(g) Maintenance of books and records and reporting requirements.
(1) Information to be included in books and records.
(2) Reporting requirements.
(i) In general.
(ii) Form of reporting.
(h) Examples.
(1) Example 1: Contribution of property to an existing partnership with no deferred sale gain or loss.
(2) Example 2: Contribution of property to a new partnership with deferred sale gain.
(3) Example 3: Acceleration of deferred sale gain upon disposition of a portion of CAMT entity's partnership investment.
(4) Example 4: Partnership disposition of deferred sale property.
(5) Example 5: Part disguised sale of property to partnership and part deferred sale gain.
(6) Example 6: Contribution of encumbered property.
(7) Example 7: Current distribution of section 168 property to partner.
(8) Example 8: Acceleration of gain due to partnership dissolution.
(9) Example 9: Acceleration of gain due to liquidation of partner's interest.
(i) Applicability date.
(a) Overview.
(1) Scope.
(2) AFS consequences resulting from disposition of property.
(3) AFS consequences resulting from certain covered nonrecognition transactions.
(4) Disregarded entities.
(b) Definitions.
(1) CAMT attribute.
(2) Covered property.
(3) Discharge of indebtedness.
(i) In general.
(ii) Adjustments to AFS basis.
(iii) Scope of discharge of indebtedness.
(4) Federal financial assistance.
(5) Indebtedness.
(6) Insolvent.
(i) In general.
(ii) Timing of determination.
(7) Title 11 case.
(c) Discharge of indebtedness income.
(1) AFSI in title 11 cases.
(2) AFSI in cases of insolvency.
(3) Disregarded entities.
(i) In general.
(ii) Title 11 cases.
(iii) Insolvency.
(4) Attribute reduction.
(i) Overview.
(ii) Required attribute reduction amount.
(iii) Attribute reduction.
(iv) Timing and allocation of reductions.
(v) Order of reductions.
(5) Amount of attribute reduction.
(i) CAMT basis, FSNOLs, and CFC adjustment carryovers.
(ii) CAMT basis reduction limitation.
(iii) Election under section 108(b)(5).
(iv) CAMT foreign tax credits.
(6) Examples.
(i) Example 1: Bankruptcy emergence in a covered nonrecognition transaction.
(ii) Example 2: Bankruptcy emergence in a covered recognition transaction.
(iii) Example 3: Attribute reduction.
(iv) Example 4: Excluded income from the discharge of indebtedness of insolvent taxpayer.
(d) Fresh start accounting for emergence from bankruptcy.
(1) Scope.
(2) AFSI consequences resulting from emergence from bankruptcy.
(i) General rule.
(ii) Discharge of indebtedness.
(iii) Covered transactions.
(3) AFSI consequences of title 11 cases.
(i) Covered recognition transactions.
(ii) Covered nonrecognition transactions.
(4) Discharge of indebtedness.
(5) Disregarded entities.
(6) Example.
(e) Application to investments in partnerships.
(1) Scope.
(2) Discharge of indebtedness income of a partnership.
(i) Calculation of partnership's AFSI.
(ii) Exclusion from AFSI and attribute reduction at the partner level.
(iii) Discharge of indebtedness income separately stated to partners.
(3) Inclusion of partnership liabilities for purposes of determining insolvency.
(f) Federal financial assistance.
(1) In general.
(2) Example.
(g) Applicability date.
(a) Overview.
(b) Definitions.
(1) Covered insurance company.
(2) Covered investment pool.
(3) Covered obligations.
(4) Covered reinsurance agreement.
(5) Covered variable contract.
(6) Withheld assets.
(7) Withheld assets payable.
(8) Withheld assets receivable.
(c) AFSI adjustments for covered variable contracts.
(1) Non-application of certain provisions.
(i) In general.
(ii) Requirements.
(2) Example.
(d) AFSI adjustments for covered reinsurance agreements.
(1) In general.
(i) Ceding company.
(ii) Reinsurer.
(2) Effect of retrocession agreement.
(3) Fair value accounting.
(4) Examples.
(i) Example 1: Covered reinsurance transaction.
(ii) Example 2: Fair value accounting.
(e) Use of fresh start basis.
(1) Federal Home Loan Mortgage Corporation.
(2) Existing Blue Cross or Blue Shield organizations.
(3) Certain pension business entities.
(f) Applicability date.
(a) Overview.
(b) Definition of financial statement net operating loss.
(c) AFSI adjustments for the utilization of an FSNOL.
(d) FSNOL carryovers.
(1) In general.
(2) Example.
(e) Limitation on use of FSNOL carryovers following acquisitions.
(1) In general.
(i) Successor after stock acquisitions.
(ii) Tax consolidated groups.
(2) Successor transaction.
(3) Limitation.
(i) In general.
(ii) Separately tracked income.
(iii) Separation of predecessor business from related FSNOLs.
(iv) Integration of predecessor and acquiror businesses.
(v) Successor transaction involving multiple separately tracked businesses.
(4) Examples.
(i) Example 1: Acquisition of Target stock followed by contribution of assets.
(ii) Example 2: Acquisition of Target assets.
(iii) Example 3: Acquisition of multiple lines of business.
(iv) Example 4: Negative tracked register
(v) Example 5: Acquisition of subgroup
(vi) Example 6: Asset transfer to affiliate that is not a member of the transferor's tax consolidated group.
(f) Limitation of use of built-in losses following acquisitions.
(1) Scope.
(2) Operating rules.
(i) General rule.
(ii) Asset acquisition.
(iii) Association of built-in loss with separately tracked acquired business.
(iv) Ordering rule.
(v) Carryover of built-in loss not allowed in year of recognition.
(3) Built-in losses.
(i) Definition.
(ii) Timing rule.
(4) CAMT net unrealized built-in loss.
(i) Successor transaction results in a section 382 ownership change.
(ii) Successor transaction does not result in a section 382 ownership change.
(iii) Inapplicability of NUBIL limitation.
(iv) Successor transaction treated as ownership change.
(v) No consideration in excess of fair market value.
(5) Example: Determination of recognized built-in loss.
(g) Applicability date.
(a) Overview.
(b) Definitions.
(1) AFSI hedge.
(i) In general.
(ii) Exception for certain insurance hedges.
(2) AFSI subsequent adjustment date.
(i) In general.
(ii) Certain corporate and partnership transactions.
(A) Covered nonrecognition transactions.
(B) Covered recognition transactions and certain partnership transactions.
(3) Fair value measurement adjustment.
(4) Hedged item.
(5) Net investment hedge.
(c) Fair value measurement adjustments for an AFSI hedge or a hedged item.
(1) Scope.
(2) Treatment of fair value measurement adjustment for certain AFSI hedges or hedged items.
(3) Application to prior taxable years.
(d) Net investment hedge adjustments.
(e) Operative rules.
(1) Inclusion of certain taxable amounts in AFSI.
(2) Subsequent adjustments for AFSI hedges and hedged items.
(3) Subsequent adjustments for net investment hedges.
(f) Examples.
(1) Example 1: Fair value measurement adjustment for an AFSI hedge.
(2) Example 2: AFSI hedge marked to market for regular tax purposes.
(3) Example 3: Fair value measurement adjustment for AFSI hedge and hedged item.
(4) Example 4: Net investment hedge marked to market.
(5) Example 5: Inclusion of original issue discount (OID) in AFSI.
(6) Example 6: Subsequent adjustments for AFSI hedge.
(7) Example 7: Subsequent adjustments for AFSI hedge with negative carrying value.
(g) Applicability date.
(a) Overview.
(b) In general.
(c) Applicability date.
(a) Overview.
(b) Deferral of loss from dispositions between or among certain related entities.
(1) CAMT-related group.
(2) Required deferral.
(c) General anti-abuse rule.
(d) Clear reflection of income requirement.
(1) In general.
(2) Appropriate adjustments.
(3) Example: Transfer accounted for at historical cost for accounting purposes.
(e) Applicability date.
(a) Overview.
(b) In general.
(c) Applicability date.
(a)
(2)
(i) Whether the CAMT entity or any other CAMT entity is an applicable corporation under section 59(k); or
(ii) The tentative minimum tax under section 55(b)(2)(A) of the CAMT entity or any other CAMT entity.
(b)
(1)
(i) With respect to a corporate alternative minimum tax (CAMT) entity whose applicable financial statement (AFS) for the taxable year is not described in § 1.56A-2(c)(6), the CAMT entity's FSI for the taxable year, adjusted as provided in the section 56A regulations. The IRS may publish IRB guidance that permits CAMT entities to make other AFSI adjustments.
(ii) With respect to a CAMT entity whose AFS for the taxable year is described in § 1.56A-2(c)(6)—
(A) For a CAMT entity that is a controlled foreign corporation, the amount described in paragraph (b)(20)(ii) of this section for the taxable year, adjusted as provided in the section 56A regulations;
(B) For a CAMT entity that is a partnership, the partnership's items of income, gain, loss, and deduction that are reflected on the partnership's return of partnership income for the taxable year and taken into account in determining the taxable income of each partner (without adjustment); and
(C) For a CAMT entity other than a controlled foreign corporation or a partnership, the CAMT entity's taxable income for the taxable year (without adjustment).
(2)
(3)
(4)
(i) To eliminate the effect of transactions and investments between members of the financial statement group;
(ii) To report amounts that are not recorded in the separate books and records of one or more members of the financial statement group; and
(iii) To correct or otherwise adjust amounts that are reported in the separate books and records of one or more members of the financial statement group.
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(i) With respect to a CAMT entity other than a CAMT entity described in paragraph (b)(20)(ii) of this section for a taxable year, the net income or loss of the CAMT entity set forth on the income statement (sometimes referred to as the statement of earnings, the statement of operations, or the statement of profit and loss) included in the CAMT entity's AFS for the taxable year. FSI includes all the CAMT entity's items of income, expense, gain, and loss reflected in the net income or loss set forth on the income statement for the taxable year, including nonrecurring items and net income or loss from discontinued operations. FSI does not include amounts reflected elsewhere in the CAMT entity's AFS, including in equity accounts such as retained earnings and other comprehensive income (OCI).
(ii) With respect to a CAMT entity that is a controlled foreign corporation and whose AFS is the tax return under § 1.56A-2(c)(6), the amount determined under § 1.964-1(a)(1) for a taxable year without adjustment for § 1.964-1(a)(1)(iii).
(21)
(22)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
(33)
(34)
(35)
(36)
(37)
(38)
(39)
(40)
(41)
(42)
(ii)
(iii)
(iv)
(43)
(44)
(c)
(2)
(ii)
(3)
(i)
(ii)
(iii)
(A) AFS consolidation entries that eliminate the effect of transactions between the CAMT entity and another CAMT entity that is a member of the financial statement group for which the consolidated AFS is prepared are disregarded.
(B) AFS consolidation entries that eliminate any income, loss, expense, asset, liability, or other item of the CAMT entity with respect to its investment in another CAMT entity (for example, an interest in a partnership or stock in a corporation) that is a member of the financial statement group for which the consolidated AFS is prepared are disregarded.
(C) If a CAMT entity has an investment in a partnership or a domestic corporation that is a member of the CAMT entity's financial statement group for which the consolidated AFS is prepared, the income or loss reflected in the FSI of the CAMT entity with respect to the investment (after the application of paragraph (c)(3)(iii)(B) of this section) and any balance sheet accounts reflected in the CAMT entity's separate books and records with respect to the investment are determined as though the CAMT entity prepared a separate financial statement in which the investment was properly accounted for under the relevant accounting standards for investments in other entities (for example, the Parent-Entity Financial Statement accounting standards described in ASC 810-10-45-11), if the CAMT entity does not so account for the investment in the CAMT entity's separate books and records used to prepare the consolidated AFS.
(iv)
(v)
(4)
(ii)
(5)
(6)
(i)
(B)
(C)
(D)
(ii)
(B)
(d)
(2)
(3)
(ii)
(4)
(5)
(6)
(e)
(f)
(2)
(g)
(i) The identification of the corporation's AFS;
(ii) The determination of the corporation's FSI, including how its FSI (if determined under paragraph (c)(3) of this section) reconciles to consolidated FSI as required pursuant to paragraph (c)(3)(v) of this section;
(iii) The substantiation of any AFSI adjustments required by the section 56A regulations, including those required under § 1.56A-6 in determining the adjusted net income or loss of a CFC in which the corporation is a shareholder; and
(iv) The substantiation of AFS basis and CAMT basis.
(2)
(3)
(h)
(2)
(3)
(ii)
(i)
(a)
(b)
(c)
(1)
(i) A financial statement included with Form 10-K (or any successor form), or annual statement to shareholders, filed with the SEC;
(ii) Used for—
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) Filed with the Federal Government or any Federal agency, other than the SEC or the Internal Revenue Service (IRS);
(2)
(i) Filed by the CAMT entity with the SEC or with an agency of a foreign government that is equivalent to the SEC;
(ii) Used for—
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) Filed with the Federal Government, a Federal agency, a foreign government, or an agency of a foreign government, other than the SEC, the IRS, or an agency that is equivalent to the SEC or the IRS;
(3)
(i) Filed by the CAMT entity with the SEC or with an agency of a foreign government that is equivalent to the SEC;
(ii) Used for—
(A) Credit purposes;
(B) Reporting to shareholders, partners, or other proprietors, or to beneficiaries; or
(C) Any other substantial non-tax purpose; or
(iii) Filed with the Federal Government, a Federal agency, a foreign government, or an agency of a foreign government, other than the SEC, the IRS, or an agency that is equivalent to the SEC or the IRS;
(4)
(5)
(i) GAAP;
(ii) IFRS; or
(iii) Any other accepted accounting standards that are issued by an accounting standards board charged with developing accounting standards for one or more jurisdictions; or
(6)
(d)
(1) Certified by an independent financial statement auditor to present fairly the financial position and results of operations of a CAMT entity (or a financial statement group) in conformity with the relevant financial accounting standards (that is, an unqualified or unmodified clean opinion);
(2) Subject to a qualified or modified opinion by an independent financial statement auditor that the financial statement presents fairly the financial position and results of operations of a CAMT entity (or a financial statement group) in conformity with the relevant financial accounting standards, except for the effects of the matter to which the qualification or modification relates (that is, a qualified or modified except for opinion); or
(3) Subject to an adverse opinion by an independent financial statement auditor, but only if the auditor discloses the amount of the disagreement with the statement.
(e)
(f)
(g)
(2)
(A) A separate financial statement that is of equal or higher priority to that consolidated financial statement; or
(B) A consolidated financial statement that contains the financial results of some, but not all, members of the tax consolidated group, and that is of equal or higher priority to that consolidated financial statement.
(ii)
(A) A separate financial statement that is of equal or higher priority to that consolidated financial statement; or
(B) A consolidated financial statement that contains the financial results of some, but not all, members of the tax consolidated group, and that is of equal or higher priority to that consolidated financial statement.
(iii)
(iv)
(A) A separate financial statement that is of equal or higher priority to that consolidated financial statement; or
(B) A consolidated financial statement that contains its financial results and the financial results of fewer members of the tax consolidated group, and that is of equal or higher priority to that consolidated financial statement.
(v)
(h)
(i)
(1)
(ii)
(2)
(ii)
(j)
(a)
(b)
(2)
(i)
(B)
(C)
(ii)
(B)
(C)
(c)
(a)
(b)
(1)
(i) A component transaction (within the meaning of § 1.56A-18(b)(6)) in which one or more assets are—
(A) Transferred by a foreign corporation in a transfer to which section 311 of the Code applies;
(B) Transferred by a foreign corporation in a transfer that is part of a complete liquidation to which sections 332 and 337 of the Code apply;
(C) Transferred to a foreign corporation in a transfer to which section 351 or section 361 of the Code applies;
(D) Transferred by a foreign corporation in a transfer to which section 361 applies;
(E) Stock, or stock and securities, of a domestic corporation described in section 355(a)(1)(A) of the Code and transferred by a foreign corporation in a transfer to which section 355 applies; or
(F) Securities of a foreign corporation that is a party to a reorganization described in section 368(a)(1) and transferred in a transfer to which section 354 or 356 applies.
(ii) A component transaction (within the meaning of § 1.56A-18(b)(6)) in which one or more assets, at least one of which is stock of a foreign corporation, are—
(A) Transferred by a domestic corporation in a transfer to which section 311 applies;
(B) Transferred by a domestic corporation in a transfer that is part of a complete liquidation to which sections 332 and 337 apply;
(C) Transferred to a domestic corporation in a transfer to section 351 or section 361 applies;
(D) Transferred by a domestic corporation in a transfer to which section 361 applies;
(E) Stock, or stock and securities, of a foreign corporation described in section 355(a)(1)(A) and transferred by a domestic corporation in a transfer to which section 355 applies; or
(F) Securities of a domestic corporation that is a party to a reorganization described in section 368(a)(1) and transferred in a transfer to which section 354 or 356 applies, provided the securities are exchanged for stock or securities of a foreign corporation that is a party to the reorganization.
(2)
(3)
(c)
(i) Disregard any items of income, expense, gain, and loss resulting from ownership of stock of the foreign corporation, including any items that result from acquiring or transferring the stock, reflected in the CAMT entity's FSI; and
(ii) Include any items of income, deduction, gain, and loss for regular tax purposes resulting from ownership of stock of the foreign corporation, including any items that result from acquiring or transferring the stock, other than any items of income, deduction, gain, and loss resulting from the application of section 78, 250, 951, or 951A of the Code.
(2)
(i) Disregard any items of income, expense, gain, and loss with respect to the transferred asset resulting from the covered asset transaction reflected in the CAMT entity's FSI; and
(ii) Include any items of income, deduction, gain, and loss for regular tax purposes with respect to the transferred
(3)
(4)
(d)
(i) If the asset is transferred in a transaction described in section 311, the transferee's CAMT basis in the asset is determined in the manner described in section 301(d) of the Code;
(ii) If the asset is transferred in a transaction described in sections 332 and 337, the transferee's CAMT basis in the asset is determined in the manner described in section 334(b) of the Code, substituting the transferor's CAMT basis in the asset for the transferor's basis in the asset for regular tax purposes;
(iii) If the asset is transferred in a transaction described in section 351 or 361, then—
(A) If the transferor is a CAMT entity, the transferee's CAMT basis in the asset is determined in the manner described in section 362 of the Code, substituting the transferor's CAMT basis in the asset for the transferor's basis in the asset for regular tax purposes and substituting the amount of gain included in the transferor's AFSI for the amount of gain recognized to the transferor for regular tax purposes; or
(B) If the transferor is not a CAMT entity, the transferee's CAMT basis in the asset is equal to the transferee's basis in the asset for regular tax purposes;
(iv) If the asset transferred is stock or securities of a domestic corporation described in section 355(a)(1)(A) and the asset is transferred by a foreign corporation in a transaction to which section 355 applies, the transferee's CAMT basis in the transferred stock or securities of the domestic corporation is equal to the transferee's basis in such stock or securities for regular tax purposes;
(v) If the asset transferred is stock or securities of a foreign corporation described in section 355(a)(1)(A) and the asset is transferred by a domestic corporation in a transaction to which section 355 applies, the transferee's CAMT basis in the stock or securities of the domestic transferor corporation is determined by applying section 358 of the Code, substituting the transferee's CAMT basis in the stock or securities of the domestic corporation for the transferee's basis in the stock or securities of the domestic corporation for regular tax purposes; and
(vi) If the asset transferred is securities of a foreign corporation that is a party to a reorganization described in section 368(a)(1) and the asset received in exchange for the securities is not stock of a foreign corporation that is a party to the reorganization, the transferee's CAMT basis in the asset received is determined by applying section 358, substituting the transferee's CAMT basis in the securities of the foreign corporation for the transferee's basis in such securities for regular tax purposes.
(vii) If the asset transferred is securities of a domestic corporation that is a party to a reorganization described in section 368(a)(1) and the asset received in exchange for the securities is not stock of a foreign corporation that is a party to the reorganization, the transferee's CAMT basis in the asset received is determined by applying section 358, substituting the transferee's CAMT basis in the securities of the domestic corporation for the transferee's basis in such securities for regular tax purposes.
(2)
(3)
(4)
(5)
(e)
(f)
(i)
(ii)
(2)
(g)
(i) If both—
(A) The basis for regular tax purposes in the distributed foreign stock to the related CAMT entity distributee under section 732(b) of the Code exceeds the basis for regular tax purposes in the foreign stock to the distributing partnership immediately before the distribution (distributee step-up amount); and
(B) The distributee step-up amount is greater than the amount, if any, the distributing partnership is required to decrease its basis for regular tax purposes in any remaining foreign stock held by the distributing partnership immediately after the distribution under section 734(b)(2)(B) of the Code (partnership basis decrease amount); then
(ii) The distributing partnership must increase its modified FSI for the taxable year of the distribution by any excess of the distributee step-up amount over the partnership basis decrease amount.
(2)
(h)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(4)
(ii)
(5)
(ii)
(6)
(ii)
(7)
(ii)
(8)
(ii)
(i)
(2)
(a)
(b)
(c)
(1) First, except for the amounts described in paragraph (d) of this section, is adjusted to disregard any amount the CAMT entity reflects in its FSI with respect to its partnership investment for the taxable year (for example, changes in the fair value of the partnership investment that are reflected in the CAMT entity's FSI under the fair value method, or the CAMT entity's share of the partnership's earnings that are reflected in the CAMT entity's FSI under the equity method);
(2) Second, is adjusted to include the CAMT entity's distributive share amount for the taxable year as computed under paragraph (e) of this section (except for paragraph (e)(5) of this section), taking into account paragraphs (f), (g) and (j) of this section; and
(3) Third, to the extent applicable, is adjusted as required under paragraph (e)(5) of this section.
(d)
(e)
(i) The CAMT entity determining its distributive share percentage in accordance with paragraph (e)(2) of this section;
(ii) The partnership determining its modified FSI in accordance with paragraph (e)(3) of this section;
(iii) The CAMT entity multiplying its distributive share percentage by the modified FSI of the partnership; and
(iv) The CAMT entity adjusting the amount determined under paragraph (e)(1)(iii) of this section in accordance with paragraph (e)(4)(ii) of this section.
(2)
(i) In the case of a CAMT entity, other than a CAMT entity described in paragraph (e)(2)(ii), (iii), (iv) or (v) of this section, and a partnership that are members of the same financial statement group, or in the case of a CAMT entity that uses the equity method to account for its partnership investment, 100 percent of the partnership's FSI for the partnership's taxable year.
(ii) In the case of a CAMT entity that uses the fair value method to account for its partnership investment, the total change in the fair value of the partnership during the partnership's taxable year, as determined by the CAMT entity for purposes of determining the CAMT entity's share of the total change in its AFS.
(iii) In the case of a CAMT entity that treats its partnership investment as other than an equity investment for AFS purposes (for example, as debt) (AFS non-partner), 100 percent of the partnership's FSI for the partnership's taxable year plus the FSI amount included in the numerator for the CAMT entity under this paragraph (e)(2) for the taxable year.
(iv) In the case of a CAMT entity that treats itself as owning 100 percent of the equity in the partnership for AFS purposes because the CAMT entity treats all other partners in the partnership as AFS non-partners, 100 percent of the partnership's FSI for the partnership's taxable year plus the sum of any amounts reflected in the partnership's FSI that are treated as paid or accrued to the other partners for the partnership's taxable year.
(v) In the case of a CAMT entity that uses any other AFS method to account for its partnership investment, an amount determined under the principles of paragraphs (e)(2)(i) and (ii) of this section that is reasonable under the facts and circumstances and reflective of the proportionate amount of the partnership's FSI the CAMT entity is reporting for AFS purposes.
(3)
(4)
(ii)
(A) A CAMT entity partner's distributive share of the AFSI items described in §§ 1.56A-15(d)(2)(ii) and (iv) and 1.56A-16(d)(2)(ii) and (iv), which is equal to the CAMT entity partner's distributive share of the items for regular tax purposes for the taxable year;
(B) A CAMT entity partner's distributive share of the AFSI items described in §§ 1.56A-15(e)(3)(iii) and (iv) and 1.56A-16(e)(3)(iii) and (iv), as provided under §§ 1.56A-15(e)(3)(iii) and (iv) and 1.56A-16(e)(3)(iii) and (iv); and
(C) A CAMT entity partner's distributive share of the AFSI items described in § 1.56A-20(d)(1)(ii), which is equal to the CAMT entity partner's allocable share of the items as provided in § 1.56A-20(d)(2)(i) for the taxable year, taking into account any acceleration event described in § 1.56A-20(d)(1)(iii) and (d)(2)(ii).
(iii)
(A) The CAMT entity partner takes into account the AFSI items described in § 1.56A-4(c)(1)(ii) that are separately stated to the CAMT entity partner, as provided under § 1.56A-4(e);
(B) The CAMT entity partner takes into account the AFSI items described in § 1.56A-6(c)(2)(iii) that are separately stated to the CAMT entity partner, as provided under § 1.56A-6(c)(2)(iv);
(C) The CAMT entity partner takes into account the AFSI items described in § 1.56A-8(c) that are separately stated to the CAMT entity partner, as provided under § 1.56A-8(c); and
(D) The CAMT entity partner takes into account the AFSI item described in § 1.56A-21(e)(2)(iii) that is separately stated to the CAMT entity partner, as provided under § 1.56A-21(e)(2)(ii).
(5)
(6)
(ii)
(f)
(g)
(h)
(2)
(ii)
(iii)
(B)
(i)
(i) Information necessary to determine the denominator for the distributive share percentage under paragraph (e)(2) of this section;
(ii) The partnership's modified FSI as determined under paragraph (e)(3) of this section;
(iii) Information required for the CAMT entity to make the adjustments provided in paragraph (e)(4) of this section;
(iv) If the CAMT entity is a United States shareholder, information required for the CAMT entity to make the adjustments provided in § 1.56A-6(b); and
(v) If the CAMT entity is a controlled foreign corporation, information required for the United States shareholders of the controlled foreign corporation to make the adjustments provided in § 1.56A-6(b).
(2)
(ii)
(iii)
(A) The 30th day after the close of the taxable year of the partnership to which the information request relates; or
(B) 14 days after the date the UTP receives a request for the information from another UTP.
(3)
(ii)
(iii)
(A) The partnership has received a request in the manner described in paragraph (h)(1) of this section from the CAMT entity; or
(B) The partnership has an obligation to continue providing information to a CAMT entity partner under paragraph (h)(1) of this section due to a request made by the CAMT entity in a prior taxable year.
(4)
(5)
(6)
(j)
(2)
(3)
(i) Include any amounts reflected in the AFS basis of the CAMT entity's partnership investment that are not derived from, and included in, the partnership's FSI (for example, amounts described in paragraph (d) of this section);
(ii) Increase by the CAMT entity's distributive share amount included in its AFSI, if the distributive share amount is positive;
(iii) Decrease by the CAMT entity's distributive share amount included in its AFSI, if the distributive share amount is negative;
(iv) Increase or decrease, as appropriate, to take into account the treatment of contributions of property by the CAMT entity under § 1.56A-20(c)(3)(ii);
(v) Increase or decrease, as appropriate, to take into account any adjustments that are separately stated under paragraph (e)(4)(iii) of this section and made to the basis in the CAMT entity's partnership investment for regular tax purposes under section 705 of the Code;
(vi) Decrease to take into account any adjustments made to the basis in the CAMT entity's partnership investment for regular tax purposes under § 1.1017-1(g)(2) in accordance with § 1.56A-21(e);
(vii) Increase or decrease, as appropriate, to take into account any adjustments made to the basis in the CAMT entity's partnership investment for regular tax purposes under section 961(a) or (b) of the Code;
(viii) Decrease to take into account any adjustments made to the basis in the CAMT entity's partnership investment for regular tax purposes under section 50(c)(5) of the Code;
(ix) Exclude any FSI amortization disallowed in the calculation of the CAMT entity's AFSI under paragraph (e)(5) of this section;
(x) Increase to take into account any adjustments described in § 1.56A-21(e) that are separately stated to the CAMT entity under paragraph (e)(4)(iii) of this section;
(xi) Exclude any amounts that are included in the AFS basis of the CAMT entity's partnership investment as a result of a contribution of stock of a foreign corporation and increase to take into account any adjustments made to the basis in the CAMT entity's partnership investment for regular tax purposes under section 722 of the Code resulting from a contribution of stock of a foreign corporation; and
(xii) Include any amounts that are excluded from the AFS basis of the CAMT entity's partnership investment as a result of a non-liquidating distribution of stock of a foreign corporation and decrease to take into account any adjustments made to the basis of the CAMT entity's partnership investment for regular tax purposes under section 733 of the Code resulting from a non-liquidating distribution of stock of a foreign corporation.
(k)
(1)
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(2)
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(3)
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(4)
(ii)
(5
(ii)
(6)
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(iii)
(A)
(B)
(C)
(D)
(E)
(F)
(7)
(ii)
(A)
(B)
(8)
(B)
(C)
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(iii)
(A)
(B)
(C)
(D)
(E)
(F)
(9)
(ii)
(B)
(10)
(ii)
(B)
(C)
(l)
(2)
(ii)
(B)
(C)
(iii)
(A) Paragraph (l)(2)(ii)(A) of this section applies to taxable years of partnerships ending after September 13, 2024 and on or before [DATE OF PUBLICATION OF FINAL RULE IN THE
(B) Paragraph (l)(2)(ii)(B) of this section applies to taxable years of CAMT entities ending after September 13, 2024 and on or before [DATE OF PUBLICATION OF FINAL RULE IN THE
(C) Except as provided in paragraph (l)(2)(iii)(D) of this section, paragraph (l)(2)(ii)(C) of this section applies to taxable years of partnerships ending after September 13, 2024 and on or before [DATE OF PUBLICATION OF FINAL RULE IN THE
(D) When the items described in paragraph (l)(2)(ii)(C) of this section result from the occurrence of transfers (as defined in § 1.56A-4(b)(3)), paragraph (l)(2)(ii)(C) of this section applies to transfers occurring after September 13, 2024 and on or before [DATE OF PUBLICATION OF FINAL RULE IN THE
(a)
(b)
(2)
(3)
(4)
(5)
(6)
(7)
(c)
(2)
(ii)
(iii)
(B)
(iv)
(3)
(4)
(5)
(d)
(1) The recipient controlled foreign corporation's gross income under section 959(b) of the Code; or
(2) Both—
(i) The recipient controlled foreign corporation's foreign personal holding company income under section 954(c)(3) (relating to certain income received from related persons) or 954(c)(6) (relating to certain amounts received from related controlled foreign corporations) of the Code; and
(ii) The recipient controlled foreign corporation's gross tested income under § 1.951A-2(c)(1)(iv) (relating to dividends received from related persons).
(e)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(f)
(2)
(i) More than one CAMT entity that is a United States shareholder but not a domestic partnership owns (within the meaning of section 958(a)) stock in the controlled foreign corporation; and
(ii) At least one, but not all, of the United States shareholders referred to in paragraph (f)(2)(i) has a taxable year ending after September 13, 2024 and the controlled foreign corporation's taxable year that ends with or within such taxable year ends on or before September 13, 2024.
(3)
(a)
(b)
(c)
(a)
(b)
(2)
(c)
(d)
(1) Applicable income taxes are considered taken into account in an AFS of a CAMT entity if any journal entry has been recorded in the books and records used to determine an amount in the AFS of the CAMT entity for any year, or in another AFS that includes the CAMT entity, to reflect the taxes;
(2) Such applicable income taxes are considered taken into account in an AFS of a CAMT entity even if the taxes do not increase or decrease the CAMT entity's FSI at the time of the journal entry; and
(3) If applicable income taxes are taken into account in a partnership's AFS, they also are considered taken into account in any AFS of the partnership's partners.
(e)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(f)
(a)
(b)
(i) Directly owning the assets of the disregarded entity or branch;
(ii) Being directly liable for the liabilities of the disregarded entity or branch; and
(iii) Directly earning or incurring any income, expense, gain, loss, or other similar item of the disregarded entity or branch.
(2)
(i) Transactions between the disregarded entity or branch and the CAMT entity owner (or between disregarded entities or branches owned by the same CAMT entity owner) are disregarded; and
(ii) Any balance sheet account or income statement account that reflects the CAMT entity owner's investment in the disregarded entity or branch (or a disregarded entity's or branch's investment in another disregarded entity or branch that is ultimately owned by the same CAMT entity owner) is disregarded.
(3)
(c)
(a)
(b)
(c)
(a)
(b)
(1)
(2)
(3)
(c)
(1) Reduced by cost recovery and depletion attributable to ANCSA property (including cost recovery that occurs as part of the computation of gain or loss) upon the disposition of ANCSA property) to the extent of the amount recovered for regular tax purposes for the taxable year; and
(2) Adjusted to disregard any cost recovery and depletion attributable to ANCSA property (including cost recovery that occurs as part of the computation of gain or loss upon the disposition of ANCSA property) reflected in the FSI of the Alaska Native Corporation.
(d)
(1) Reduced by deductions for specified payments to the extent of the amount allowed as deduction for regular tax purposes for the taxable year; and
(2) Adjusted to disregard expenses or other FSI reductions reflected in the Alaska Native Corporation's FSI with respect to specified payments.
(e)
(a)
(b)
(1) Any amount treated as a payment against the tax imposed by subtitle A pursuant to an election under section 48D(d) or 6417;
(2) Any amount received from the transfer of an eligible credit, as defined in section 6418(f)(1)(A), that is not includible in the gross income of the CAMT entity by application of section 6418(b) or that is treated as tax exempt income under section 6418(c)(1)(A); and
(3) Any amount received pursuant to an election under section 48D(d)(2) or 6417(c) that is treated as tax exempt income under section 48D(d)(2)(A)(i)(III) or 6417(c)(1)(C).
(c)
(1) Any amount paid by the transferee taxpayer to the eligible taxpayer, as defined in section 6418(f)(2), as consideration for the transfer of the eligible credit, as defined in section 6418(f)(1)(A), provided that the amount is not otherwise disregarded under § 1.56A-8; and
(2) Any increase in the transferee taxpayer's FSI resulting from the utilization of the eligible credit, provided that the increase is not otherwise disregarded under § 1.56A-8.
(d)
(e)
(a)
(b)
(1) Adjusted to disregard any amount of income, cost, expense, gain, or loss that otherwise would be included on a CAMT entity's AFS in connection with any covered benefit plan;
(2) Increased by any amount of income in connection with any covered benefit plan that is included in gross income for the taxable year under any provision of chapter 1; and
(3) Reduced by deductions allowed for the taxable year under any provision of chapter 1 with respect to any covered benefit plan.
(c)
(2)
(i) A defined benefit plan for which the trust that is part of the plan is an employees' trust described in section 401(a) of the Code that is exempt from tax under section 501(a) of the Code; and
(ii) Not a multiemployer plan described in section 414(f) of the Code.
(3)
(4)
(d)
(a)
(b)
(c)
(a)
(b)
(1)
(i) Depreciation expense;
(ii) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of section 168 property occurs for regular tax purposes; or
(iii) Impairment loss reversal.
(2)
(i) Depreciation expense;
(ii) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of section 168 property occurs for regular tax purposes; or
(iii) Impairment loss reversal.
(3)
(i) Depreciation expense;
(ii) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition of section 168 property occurs for regular tax purposes; or
(iii) Impairment loss reversal.
(4)
(i) Reduces FSI; and
(ii) Is reflected in the unadjusted depreciable basis, as defined in § 1.168(b)-1(a)(3), of section 168 property for regular tax purposes.
(5)
(6)
(7)
(i) Tax depreciation that is capitalized to inventory under section 263A of the Code and is recovered as part of cost of goods sold in computing gross income; and
(ii) Tax depreciation that is capitalized under section 263A to the basis of property described in section 1221(a)(1) of the Code that is not inventory and is recovered as part of the computation of gain or loss from the sale or exchange of such property in computing taxable income.
(8)
(9)
(10)
(11)
(i) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change that were made with respect to taxable years beginning after December 31, 2019, and before the tax year of change; and
(ii) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change that would have been made with respect to taxable years beginning after December 31, 2019, and before the tax year of change, if the new method of accounting for the cost(s) had been applied for regular tax purposes in those taxable years.
(c)
(i) MACRS property, as defined in § 1.168(b)-1(a)(2), that is depreciable under section 168;
(ii) Computer software that is qualified property as defined in § 1.168(k)-1(b)(1) or 1.168(k)-2(b)(1), as applicable, and depreciable under section 168; and
(iii) Other property depreciable under section 168 that is—
(A) Qualified property as defined in § 1.168(k)-2(b)(1); and
(B) Described in § 1.168(k)-2(b)(2)(i)(E), (F), or (G).
(2)
(3)
(4)
(5)
(6)
(d)
(i) Reduced by tax COGS depreciation with respect to section 168 property, but only to the extent of the amount recovered—
(A) As part of cost of goods sold in computing gross income for the taxable year; or
(B) As part of the computation of gain or loss from the sale or exchange of non-inventory property described in section 1221(a)(1) that is included in taxable income, or deducted in computing taxable income, respectively, for the taxable year;
(ii) Reduced by deductible tax depreciation with respect to section 168 property, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year;
(iii) Adjusted to disregard covered book COGS depreciation, covered book depreciation expense, covered book expense, and amounts described in paragraph (e)(6) of this section with respect to section 168 property, including section 168 property placed in service for regular tax purposes in a taxable year subsequent to the taxable year the property is treated as placed in service for AFS purposes;
(iv) Reduced by any tax depreciation section 481(a) adjustment with respect to section 168 property that is negative, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year;
(v) Increased by any tax depreciation section 481(a) adjustment with respect to section 168 property that is positive, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year;
(vi) Increased or decreased, as appropriate, by any tax capitalization method change AFSI adjustment in accordance with paragraph (d)(4) of this section; and
(vii) Adjusted for other items as provided in IRB guidance the IRS may publish.
(2)
(ii)
(iii)
(iv)
(3)
(A) To apply the method(s) of accounting under section 263A that the CAMT entity uses for regular tax purposes (and, in the case of inventory property, the method(s) of accounting that the CAMT entity uses to identify and value inventories under sections 471 and 472 of the Code) to determine the tax COGS depreciation adjustments under paragraph (d)(1)(i) of this section; and
(B) To apply the method(s) of accounting the CAMT entity uses for FSI purposes to determine the covered book COGS depreciation adjustments under paragraph (d)(1)(iii) of this section.
(ii)
(A)
(B)
(C)
(4)
(5)
(i)
(B)
(C)
(D)
(E)
(F)
(G) A
(H)
(ii)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(iii)
(B)
(C)
(D)
(E)
(F)
(G)
(iv)
(B)
(v)
(B)
(C)
(D)
(vi)
(B)
(C)
(D)
(vii)
(B)
(viii)
(B)
(C)
(D)
(E)
(ix)
(B)
(C)
(x)
(B)
(C)
(e)
(2)
(A) Decreased by the full amount of tax depreciation with respect to such property as of the disposition date (regardless of whether any amount of tax depreciation was capitalized for regular tax purposes and not yet taken into account as a reduction to AFSI through an adjustment described in paragraph (d)(1)(i) or (ii) of this section as of the disposition date);
(B) Increased by the amount of any covered book expense with respect to such property;
(C) Increased by the amount of any covered book COGS depreciation and covered book depreciation expense that reduced the AFS basis of such property as of the disposition date, including covered book COGS depreciation and covered book depreciation expense with respect to AFS basis increases that are otherwise disregarded for AFSI and CAMT basis purposes (for example, AFS basis increases that are disregarded for AFSI and CAMT basis purposes under §§ 1.56A-18 and 1.56A-19);
(D) Decreased by any reductions to the CAMT basis of such property under § 1.56A-21(c)(4) and (5);
(E) Decreased by any amount allowed as a credit against tax imposed by subtitle A with respect to such property, but only to the extent of the amount that reduces the basis of such property for regular tax purposes; and
(F) Increased or decreased, as appropriate, by the amount of any adjustments to AFS basis that are disregarded for AFSI and CAMT basis purposes under other sections of the section 56A regulations with respect to such property (for example, AFS basis decreases that are disregarded for AFSI and CAMT basis purposes under § 1.56A-8 and AFS basis adjustments that are disregarded for AFSI and CAMT basis purposes under § 1.56A-18 or § 1.56A-19).
(ii)
(B)
(C)
(D)
(E)
(3)
(i) The adjustment under paragraph (e)(1) of this section with respect to the section 168 property is taken into account in determining the partnership's modified FSI under § 1.56A-5(e)(3); and
(ii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the section 168 property, the adjustment to the partnership's AFS basis in the section 168 property under paragraph (e)(2)(i)(A) of this section—
(A) Includes any tax depreciation (including any reduction in tax depreciation) with respect to a section 734(b) basis adjustment;
(B) Excludes any tax depreciation (including any reduction in tax depreciation) with respect to a section 743(b) basis adjustment; and
(C) Excludes any tax depreciation (including any reduction in tax depreciation) with respect to a basis adjustment under § 1.1017-1(g)(2).
(iii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the section 168 property, the adjustment to the partnership's AFS basis in the section 168 property under paragraph (e)(2)(i)(D) of this section excludes any basis adjustment under § 1.1017-1(g)(2), regardless of whether any partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6). However, if a partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6), the partner increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the section 168 property by the amount of any basis adjustment under § 1.1017-1(g)(2) with respect to the section 168 property that has not yet been taken into account for regular tax purposes.
(iv) If a partner has a basis adjustment under section 743(b) with respect to section 168 property held by a partnership that is disposed of by the partnership for regular tax purposes, the partner—
(A) Increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the section 168 property by an amount equal to the total amount of any tax depreciation or tax depreciation section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that decreased the partner's distributive share amount under § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition; and
(B) Decreases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the section 168 property by an amount equal to the total amount of any tax depreciation or tax depreciation section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that
(4)
(5)
(6)
(7)
(8)
(i)
(B)
(C)
(ii)
(B)
(C)
(D)
(E)
(F)
(iii)
(B)
(C)
(D)
(E)
(F)
(G)
(iv)
(B)
(C)
(v)
(B)
(C)
(vi)
(B)
(C)
(D)
(vii)
(B)
(viii)
(B)
(ix)
(B)
(x)
(B)
(C)
(xi)
(B)
(C)
(f)
(a)
(b)
(1)
(i) Amortization expense;
(ii) Other recovery of AFS basis (including from an impairment loss) that occurs prior to the taxable year in which the disposition occurs for regular tax purposes; or
(iii) Impairment loss reversal.
(2)
(i) Reduces FSI; and
(ii) Is reflected in the basis for depreciation, as defined in §§ 1.167(g)-1 and 1.197-2(f)(1)(ii) (without regard to any adjustments described in section 1016(a)(2) and (3) of the Code), of qualified wireless spectrum for regular tax purposes.
(3)
(4)
(5)
(6)
(7)
(8)
(i) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change for qualified wireless spectrum that were made with respect to taxable years beginning after December 31, 2019, and before the tax year of change; and
(ii) The cumulative amount of adjustments to AFSI under paragraph (d)(1) of this section with respect to the cost(s) subject to the tax capitalization method change for qualified wireless spectrum that would have been made with respect to taxable years beginning after December 31, 2019, and before the tax year of change, if the new method of accounting for the cost(s) had been applied for regular tax purposes in those taxable years.
(c)
(i) Used in the trade or business of a wireless telecommunications carrier;
(ii) An amortizable section 197 intangible under section 197(c)(1) and (d)(1)(D); and
(iii) Acquired after December 31, 2007, and before August 16, 2022.
(2)
(d)
(i) Reduced by deductible tax amortization with respect to qualified wireless spectrum, but only to the extent of the amount allowed as a deduction in computing taxable income for the taxable year;
(ii) Adjusted to disregard covered book amortization expense, covered book wireless spectrum expense, and amounts described in paragraph (e)(5) of this section with respect to qualified wireless spectrum, including qualified wireless spectrum placed in service for regular tax purposes in a taxable year subsequent to the taxable year the wireless spectrum is treated as placed in service for AFS purposes;
(iii) Reduced by any tax amortization section 481(a) adjustment with respect to qualified wireless spectrum that is negative, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year;
(iv) Increased by any tax amortization section 481(a) adjustment with respect to qualified wireless spectrum that is positive, but only to the extent of the amount of the adjustment that is taken into account in computing taxable income for the taxable year;
(v) Increased or decreased, as appropriate, by any tax capitalization method change AFSI adjustment for qualified wireless spectrum in accordance with paragraph (d)(3) of this section; and
(vi) Adjusted for other items as provided in IRB guidance the IRS may publish.
(2)
(ii)
(iii)
(iv)
(3)
(e)
(2)
(A) Decreased by the full amount of tax amortization with respect to such property as of the disposition date;
(B) Increased by the amount of any covered book wireless spectrum expense with respect to such property;
(C) Increased by the amount of any covered book amortization expense that reduced the AFS basis of such property as of the disposition date, including covered book amortization expense with respect to AFS basis increases that are otherwise disregarded for AFSI and CAMT basis purposes (for example, AFS basis increases that are disregarded for AFSI and CAMT basis purposes under §§ 1.56A-18 and 1.56A-19);
(D) Decreased by any reductions to the CAMT basis of such property under § 1.56A-21(c)(4) and (5); and
(E) Increased or decreased, as appropriate, by the amount of any adjustments to AFS basis that are disregarded for AFSI and CAMT basis purposes under other sections of the section 56A regulations with respect to such property (for example, AFS basis adjustments that are disregarded for AFSI and CAMT basis purposes under §§ 1.56A-18 and 1.56A-19).
(ii)
(B)
(C)
(D)
(3)
(i) The adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum is taken into account in determining the partnership's modified FSI under § 1.56A-5(e)(3); and
(ii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum, the adjustment to the partnership's AFS basis in the qualified wireless spectrum under paragraph (e)(2)(i)(A) of this section—
(A) Includes any curative allocation under § 1.704-3(c) or remedial item under § 1.704-3(d) that is treated as tax amortization, but excludes any other curative allocation or offsetting remedial income item;
(B) Includes any tax amortization (including any reduction in tax amortization) with respect to a section 734(b) adjustment;
(C) Excludes any tax amortization (including any reduction in tax amortization) with respect to a section 743(b) basis adjustment; and
(D) Excludes any tax amortization (including any reduction in tax amortization) with respect to a basis adjustment under § 1.1017-1(g)(2).
(iii) For purposes of determining the adjustment under paragraph (e)(1) of this section with respect to the qualified wireless spectrum, the adjustment to the partnership's AFS basis in the qualified wireless spectrum under paragraph (e)(2)(i)(D) of this section excludes any basis adjustment under § 1.1017-1(g)(2), regardless of whether any partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6). However, if a partner in the partnership is subject to the attribute reduction rules under § 1.56A-21(c)(5) and (6), the partner increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by the amount of any basis adjustment under § 1.1017-1(g)(2) with respect to the qualified wireless spectrum that has not yet been taken into account for regular tax purposes.
(iv) If a partner has a basis adjustment under section 743(b) in place with respect to qualified wireless spectrum held by a partnership that is disposed of by the partnership, the partner—
(A) Increases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by an amount equal to the total amount of any tax amortization or tax amortization section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that decreased the partner's distributive share amount under § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition; and
(B) Decreases its distributive share amount (under § 1.56A-5(e)(4)(ii)(B)) for the taxable year of the disposition of the qualified wireless spectrum by an amount equal to the total amount of any tax amortization or tax amortization section 481(a) adjustment(s) with respect to a section 743(b) basis adjustment that increased the partner's distributive share amount under § 1.56A-5(e)(1)(iv) and (e)(4)(ii)(A) for taxable years prior to the disposition.
(4)
(5)
(6)
(7)
(i)
(ii)
(iii)
(f)
(a)
(b)
(c)
(2)
(A) Disregard any portion of the cumulative retained earnings adjustment attributable to taxable years beginning on or before December 31, 2019; and
(B) Reflect the AFSI adjustments provided in other sections of the section 56A regulations to the extent the cumulative retained earnings adjustment is attributable to FSI items to which those AFSI adjustments apply.
(ii)
(A) Disregard any portion of the retained earnings difference attributable to taxable years beginning on or before December 31, 2019; and
(B) Reflect the AFSI adjustments provided in other sections of the section 56A regulations to the extent the retained earnings difference is attributable to FSI items to which those AFSI adjustments apply.
(3)
(B)
(ii)
(B)
(iii)
(4)
(5)
(6)
(i)
(B)
(ii)
(B)
(iii)
(B)
(d)
(ii)
(2)
(3)
(i) The beginning retained earnings reflected in the CAMT entity's AFS for the current taxable year is adjusted to be different than the ending retained earnings reflected in the CAMT entity's AFS for the preceding taxable year (for example, as a result of a prior period adjustment);
(ii) The difference described in paragraph (d)(3)(i) of this section is attributable to items that otherwise would be reflected in the CAMT entity's FSI under the relevant accounting standards used to prepare the CAMT entity's AFS; and
(iii) The CAMT entity is not otherwise subject to paragraph (c) or (d)(1) or (2) of this section.
(4)
(i)
(ii)
(e)
(2)
(f)
(g)
(a)
(2)
(i) Between members of the same tax consolidated group during any period that they are shareholders of other members of the same tax consolidated group (
(ii) That is a covered asset transaction (as defined in § 1.56A-4(b)(1)), a section 338(g) transaction (as defined in
(3)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(b)
(1)
(A) An
(B) A
(ii)
(2)
(3)
(4)
(5)
(A) The amount of earnings and profits (within the meaning of section 312 of the Code) of the CAMT entity as of the beginning of the first taxable year of the CAMT entity beginning after December 31, 2019 (even if negative); and
(B) The cumulative balance of the CAMT current earnings of the corporate CAMT entity, taking into account all taxable years of the corporate CAMT entity beginning after December 31, 2019 (that is, all subsequent taxable years).
(ii)
(6)
(7)
(ii)
(A) To a covered recognition transaction that qualifies as a section 355 transaction; and
(B) That is treated as a corporation the stock of which is distributed by another corporation on the AFS of that other corporation (for example, a
(8)
(i) The complete dissolution of a corporation pursuant to a plan reported on the original (but not a supplemented or an amended) Form 966,
(ii) A deemed dissolution (for example, pursuant to an election to be treated as a disregarded entity under § 301.7701-3 of this chapter).
(9)
(i) Qualifies for nonrecognition treatment for regular tax purposes, respectively, under section 305, 311(a),
(ii) Is not treated as resulting in the recognition of any amount of gain or loss for regular tax purposes solely with regard to that party; and
(iii) Is not treated as a covered recognition transaction under any provision of this section or § 1.56A-19.
(10)
(11)
(12)
(A) Distributes stock or stock rights of the corporation under section 311(a); or
(B) With regard to a section 355 transaction, distributes stock or securities of a controlled corporation under section 355(c) or distributes stock or securities, or money or other property, of a controlled corporation under section 361(c).
(ii)
(A) Distributes property in a distribution described in section 311(b);
(B) Distributes stock in a distribution described in section 336(e); or
(C) With regard to a section 355 transaction, is treated on the party's AFS as the corporation that distributes the stock or securities of another corporation (for example, a
(13)
(i) Stock or securities of a controlled corporation under section 355; or
(ii) Money or other property (in addition to stock or securities) of the controlled corporation under section 356 of the Code.
(14)
(i) A distribution of property described in section 301 of the Code;
(ii) A distribution in redemption of stock of the distributing corporation under section 302 of the Code; or
(iii) A distribution of stock or stock rights of the distributing corporation under section 305.
(15)
(16)
(17)
(ii)
(A) A complete liquidation to which section 336(a) applies; or
(B) Any other corporate dissolution.
(18)
(i) A complete liquidation under sections 331 and 336 of the Code, or sections 332 and 337, as appropriate; or
(ii) Any other corporate dissolution.
(19)
(i) An acquiror corporation;
(ii) An acquiror corporation shareholder;
(iii) A controlled corporation;
(iv) A distributing corporation;
(v) A distributing corporation shareholder or security holder;
(vi) A liquidating corporation;
(vii) A liquidation recipient;
(viii) A recapitalizing corporation;
(ix) A recapitalizing corporation shareholder or security holder;
(x) A resulting corporation;
(xi) A section 351 transferee;
(xii) A section 351 transferor;
(xiii) A target corporation;
(xiv) A target corporation shareholder or security holder;
(xv) A transferor corporation within the meaning of § 1.368-2(l)(1); and
(xvi) A transferor corporation shareholder or security holder.
(20)
(21)
(22)
(ii)
(23)
(i) Stock or securities of a recapitalizing corporation under section 354; or
(ii) Money or other property (in addition to stock or securities) of the recapitalizing corporation under section 301.
(24)
(ii)
(A) To a covered nonrecognition transaction that qualifies as an F reorganization; and
(B) That makes a distribution of property to a transferor corporation shareholder or security holder (
(25)
(26)
(ii)
(27)
(ii)
(A) Transfers property to a section 351 transferee in a transaction to which section 351 applies; and
(B) Receives from the section 351 transferee money or other property (in addition to stock of the section 351 transferee) under section 351(b).
(28)
(i) A series of transactions that qualify as a reorganization under sections 355(a) and 368(a)(1)(D) or (G), including a transfer of property by a distributing corporation to a controlled corporation and one or more distributions of controlled corporation stock or controlled corporation securities that are in pursuance of the plan of reorganization; or
(ii) A distribution of controlled corporation stock or controlled corporation securities that qualifies under section 355 (or so much of section 356 as relates to section 355) and that is not undertaken pursuant to a plan of reorganization.
(29)
(A) A target corporation within the meaning of § 1.368-2 (that is, a target corporation with regard to a series of one or more transactions that qualify as a reorganization under section 368(a)(1)(A) through (C) and (G)); or
(B) A transferor corporation within the meaning of § 1.368-2(l)(1).
(ii)
(30)
(i) Stock or securities of an acquiror corporation under section 354; or
(ii) Money or other property of the acquiror corporation under section 356 (in addition to stock or securities of the acquiror corporation).
(31)
(32)
(i) Stock or securities of a resulting corporation under section 354; or
(ii) Money or other property of the resulting corporation under section 301 or 302 (in addition to stock or securities of the acquiror corporation).
(c)
(i) The stock is treated as a directly held asset of the shareholder; and
(ii) The shareholder is not treated as directly holding the assets of the subsidiary.
(2)
(A) Disregards in computing the CAMT entity's AFSI any amount reflected in the CAMT entity's FSI that results from holding stock in the domestic corporation (for example, the FSI of a shareholder CAMT entity that otherwise would result from the application of the equity method or fair value method with regard to the shareholder CAMT entity's investment in stock of the subsidiary domestic corporation);
(B) Disregards any adjustment to AFS basis of the stock of that corporation on the CAMT entity's AFS, and instead adjusts CAMT basis in the stock as provided in this section or § 1.56A-19; and
(C) Disregards any adjustments to AFS retained earnings resulting from the ownership of that stock, and instead adjusts CAMT retained earnings as provided in this section or § 1.56A-19.
(ii)
(A) Amounts that result from a transaction described in paragraphs (d) through (h) of this section or in § 1.56A-19; or
(B) Gains or losses reflected in the CAMT entity's FSI that result from the remeasurement (to fair value) of its existing or remaining stock in a domestic corporation (that is, a subsidiary) when the CAMT entity acquires or disposes of some (but not all) stock in that subsidiary domestic corporation in a covered recognition transaction.
(iii)
(B)
(
(
(3)
(4)
(i) If the transaction is a covered recognition transaction, any purchase accounting adjustments reflected in a CAMT entity's AFS basis, balance sheet accounts, or FSI are regarded; and
(ii) If the transaction is a covered nonrecognition transaction, any purchase accounting adjustments reflected in a CAMT entity's AFS basis, balance sheet accounts, or FSI are disregarded.
(5)
(ii)
(6)
(7)
(ii)
(8)
(i)
(B)
(ii)
(B)
(iii)
(B)
(iv)
(B)
(v)
(B)
(vi)
(B)
(C)
(D)
(E)
(vii)
(B)
(C)
(D)
(E)
(viii)
(B)
(ix)
(B)
(d)
(i) Determines the distributing corporation's AFSI resulting from the distribution by—
(A) Disregarding any resulting gain or loss reflected in the distributing corporation's FSI; and
(B) Applying section 311(a) to the distribution (that is, no AFSI is recognized by the distributing corporation); and
(ii) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312 (by, for example, reference to CAMT basis).
(2)
(i) Determines the distributing corporation's AFSI resulting from the distribution by redetermining any gain or loss reflected in the distributing corporation's FSI by reference to the distributing corporation's CAMT basis (in lieu of AFS basis) in the distributed property; and
(ii) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution based on the distributing corporation's AFSI.
(3)
(i) Determines the distributing corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the distributing corporation's FSI by reference to the distributing corporation's CAMT basis in the property (in lieu of AFS basis); and
(ii) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution based on the distributing corporation's AFSI.
(4)
(i) Determines the distribution recipient's AFSI resulting from that distribution by—
(A) Disregarding any resulting gain or loss reflected in the distribution recipient's FSI;
(B) Applying the relevant sections of the Code (for example, sections 243, 301, 302, 305, 306, and 1059 of the Code); and
(C) Using the amount of the distribution (distribution amount) of property other than the distributing corporation stock reflected on the distribution recipient's AFS, taking into account (for purposes of the relevant section of the Code) the distribution recipient's CAMT basis in its distributing corporation stock;
(ii) Determines the characterization of the distribution amount of property other than the distributing corporation stock (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of earnings and profits) of the distributing corporation;
(iii) Determines the distribution recipient's CAMT basis in the stock of the distributing corporation resulting from the distribution by applying the relevant sections of the Code, using the distribution recipient's CAMT basis in the stock in lieu of regular tax basis;
(iv) Determines the distribution recipient's CAMT basis in the property received from the distributing corporation by applying the relevant sections of the Code, using CAMT basis in lieu of AFS basis; and
(v) Adjusts (to the extent applicable) the distribution recipient's CAMT current earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312 based on the distribution recipient's AFSI, as determined under paragraph (d)(4)(i) of this section.
(5)
(i)
(B)
(C)
(ii)
(B)
(C)
(iii)
(B)
(iv)
(B)
(v)
(B)
(e)
(i) Disregarding any resulting gain or loss reflected in the distributing corporation's FSI;
(ii) Applying section 336(e) to the distribution (that is, no AFSI is recognized by the distributing corporation); and
(iii) If stock of the target corporation (that is, the controlled corporation) is sold, exchanged, or distributed outside of the section 355 transaction but is described in § 1.336-2(b)(2)(iii), applying section 336(e) to the sale, exchange, or distribution (that is, no AFSI is recognized by the distributing corporation).
(2)
(i) Determines the target corporation's AFSI resulting from the deemed sale under section 336(e) by redetermining any resulting gain or loss reflected in the target corporation's FSI as being equal to the gain or loss that would result for regular tax purposes, determined by using the CAMT basis in the target corporation's assets rather than the basis in the target corporation's assets for regular tax purposes; and
(ii) Determines the target corporation's CAMT basis in the property received in the deemed purchase under section 336(e) to be equal to the target corporation's regular tax basis in that property as a result of that deemed purchase.
(3)
(i) Determines the distributing corporation shareholder's or security holder's AFSI resulting from the distribution by—
(A) Disregarding any resulting gain or loss reflected in the distributing corporation shareholder's or security holder's FSI and applying the relevant sections of the Code; and
(B) Using the distribution amount of the property other than distributing corporation stock reflected on the AFS of the distributing corporation shareholder or security holder, taking into account (for purposes of the relevant section of the Code) the CAMT basis of the distributing corporation shareholder or security holder in its distributing corporation stock;
(ii) Determines the characterization of the distribution of the property other than distributing corporation stock (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of earnings and profits) of the distributing corporation;
(iii) Determines the distributing corporation shareholder's or security holder's CAMT basis in the stock of the distributing corporation resulting from the distribution by applying the relevant section of the Code, using the CAMT basis of the distributing corporation shareholder or security holder in the stock (in lieu of basis for regular tax purposes);
(iv) Determines the distributing corporation shareholder's or security holder's CAMT basis in the property received from the distributing corporation by applying the relevant section of the Code, using CAMT basis (in lieu of AFS basis); and
(v) Adjusts the distributing corporation shareholder's or security holder's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312 (taking into account CAMT basis).
(4)
(i) Disregarding any resulting gain or loss reflected in the distributing corporation's FSI; and
(ii) Applying section 336(e) to the distribution (that is, no AFSI is recognized by the distributing corporation).
(5)
(6)
(7)
(i)
(ii)
(f)
(i) Determines the liquidating corporation's AFSI resulting from the liquidation by—
(A) Disregarding any resulting gain or loss reflected in the liquidating corporation's FSI; and
(B) Applying section 337(a) to the one or more liquidating distributions composing the liquidation (that is, no AFSI is recognized by the liquidating corporation); and
(ii) Adjusts the liquidating corporation's CAMT retained earnings (in lieu of AFS retained earnings) resulting from the liquidation by applying section 312 based on the liquidating corporation's AFSI, as determined under paragraph (f)(1)(i) of this section.
(2)
(i) Determines the liquidating corporation's AFSI, if any, resulting from the one or more liquidating distributions composing the liquidation or corporate dissolution by redetermining any resulting gain or loss reflected in the liquidating corporation's FSI by reference to the CAMT basis in the liquidating corporation's liquidated property (in lieu of AFS basis); and
(ii) Adjusts the liquidating corporation's CAMT retained earnings (in lieu of AFS retained earnings) based on the liquidating corporation's AFSI, as determined under paragraph (f)(2)(i) of this section.
(3)
(i) Each component transaction that is a covered nonrecognition transaction to the liquidating corporation; and
(ii) Each component transaction that is a covered recognition transaction to the liquidating corporation.
(4)
(i) Determines the liquidation recipient's AFSI resulting from the one or more liquidating distributions received by the liquidation recipient by—
(A) Disregarding any resulting gain or loss reflected in the liquidation recipient's FSI; and
(B) Applying section 332 to the one or more liquidating distributions received by the liquidation recipient (that is, no AFSI is recognized by the liquidation recipient);
(ii) Determines the liquidation recipient's CAMT basis in the property received from the liquidating corporation by applying section 334(b), using the CAMT basis of the property received by the liquidation recipient (in lieu of basis for regular tax purposes);
(iii) Adjusts the liquidation recipient's CAMT retained earnings (in lieu of AFS retained earnings) resulting from the one or more liquidating distributions received by the liquidation recipient by applying sections 381(c)(2) and 312; and
(iv) Applying section 381 to the liquidating corporation's other attributes (that is, the liquidation recipient succeeds to the liquidating corporation's other attributes).
(5)
(i) Determines the liquidation recipient's AFSI resulting from the one or more liquidating distributions by redetermining any resulting gain or loss reflected in the liquidation recipient's FSI by reference to the liquidation recipient's CAMT basis in the liquidation recipient's stock in the liquidating corporation (in lieu of AFS basis);
(ii) Determines the liquidation recipient's CAMT basis in the property received by the liquidation recipient to be equal to the liquidation recipient's AFS basis in that property; and
(iii) Adjusts the liquidation recipient's CAMT earnings (in lieu of earnings and profits) based on the liquidation recipient's AFSI, as determined under paragraph (f)(5)(i) of this section.
(6)
(i)
(B)
(C)
(ii)
(B)
(C)
(D)
(g)
(A) Determines the target corporation shareholder's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the target corporation shareholder's FSI by reference to the target corporation shareholder's CAMT basis (in lieu of AFS basis) of the transferred stock;
(B) Determines the target corporation shareholder's CAMT basis in the property received from the acquiror corporation to be equal to the target corporation shareholder's AFS basis in that property; and
(C) Adjusts (to the extent applicable) the target corporation shareholder's CAMT current earnings (in lieu of AFS retained earnings) based on the target corporation shareholder's AFSI, as determined under paragraph (g)(1)(i)(A) of this section.
(ii)
(A) Paragraph (g)(1)(i) of this section does not apply to the target corporation shareholder, and the transfer of target corporation stock by the target corporation shareholder is disregarded; and
(B) The target corporation shareholder adjusts (to the extent applicable) the target corporation shareholder's CAMT current earnings (in lieu of AFS retained earnings) to take into account the deemed liquidation of the target corporation under section 336(e) or 338(h)(10) (as appropriate).
(2)
(ii)
(3)
(i) Determines the acquiror corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the acquiror corporation's FSI by reference to the acquiror corporation's CAMT basis (in lieu of AFS basis) in the acquiror corporation's transferred property;
(ii) Determines the acquiror corporation's CAMT basis in the target corporation stock received from the target corporation shareholder to be equal to the acquiror corporation's AFS basis in that property; and
(iii) Adjusts (to the extent applicable) the acquiror corporation's CAMT current earnings (in lieu of AFS retained earnings) based on the acquiror corporation's AFSI, as determined under paragraph (g)(3)(i) of this section.
(4)
(5)
(6)
(i)
(B)
(ii)
(B)
(iii)
(B)
(h)
(i) Determines the target corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the target corporation's FSI by reference to the target corporation's CAMT basis (in lieu of AFS basis) in the target corporation's transferred property;
(ii) Determines the target corporation's CAMT basis in the property received from the acquiror corporation to be equal to the target corporation's AFS basis in that property; and
(iii) Adjusts (to the extent applicable) the target corporation's CAMT current earnings (in lieu of AFS retained earnings) based on the target corporation's AFSI, as determined under paragraph (h)(1)(i) of this section.
(2)
(i) Determines the acquiror corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the acquiror corporation's FSI by reference to the acquiror corporation's CAMT basis (in lieu of AFS basis) in the acquiror corporation's transferred property;
(ii) Determines the acquiror corporation's CAMT basis in the property received from the target corporation to be equal to the acquiror corporation's AFS basis in that property; and
(iii) Adjusts (to the extent applicable) the acquiror corporation's CAMT current earnings (in lieu of AFS retained earnings) based on the acquiror corporation's AFSI, as determined under paragraph (h)(2)(i) of this section.
(3)
(i)
(ii)
(B)
(i)
(a)
(b)
(i) Determines the target corporation shareholder's or security holder's AFSI resulting from the transfer by—
(A) Disregarding any resulting gain or loss reflected in the target corporation shareholder's or security holder's FSI; and
(B) Applying section 354 to the transfer (that is, no AFSI is recognized by the target corporation shareholder or security holder);
(ii) Determines the target corporation shareholder's or security holder's CAMT basis in the stock received from the acquiror corporation by applying section 358 of the Code using the CAMT basis (in lieu of AFS basis) of the stock or securities transferred by the target corporation shareholder or security holder to the acquiror corporation; and
(iii) Adjusts the target corporation shareholder's or security holder's CAMT current earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312 of the Code.
(2)
(3)
(i) Determines the acquiror corporation's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in the acquiror corporation's FSI; and
(B) Applying section 1032(a), or section 1032(a) and § 1.1032-2(b) to the transfer (that is, no AFSI is recognized by the acquiror corporation);
(ii) Determines the acquiror corporation's CAMT basis in the stock received from a target corporation shareholder by applying section 362 of the Code using the CAMT basis (in lieu of AFS basis) of that stock in the hands of the target corporation shareholder; and
(iii) Adjusts the acquiror corporation's CAMT retained earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(4)
(ii)
(5)
(6)
(ii)
(7)
(i)
(B)
(ii)
(c)
(A) Determines the target corporation's AFSI resulting from the transfer by disregarding any resulting gain or loss reflected in the target corporation's FSI and applying section 361(a) and (b) to the transfer (that is, no AFSI is recognized by the target corporation);
(B) Determines the target corporation's CAMT basis in the property received from the acquiror corporation by applying section 358 using the CAMT basis (in lieu of AFS basis) of the property transferred by the target corporation to the acquiror corporation; and
(C) Adjusts the target corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(ii)
(A) Disregarding any resulting gain or loss reflected in the target corporation's FSI; and
(B) Applying section 361(c) to the distribution (that is, no AFSI is recognized by the target corporation).
(2)
(i) Determines the target corporation's AFSI resulting from the distribution or transfer by redetermining any resulting gain or loss reflected in the target corporation's FSI by reference to its CAMT basis in the distributed or transferred property (in lieu of AFS basis); and
(ii) Adjusts the target corporation's CAMT earnings (in lieu of AFS retained earnings) based on the target corporation's AFSI, as determined under paragraph (c)(1)(ii)(A) of this section.
(3)
(i) Determines the acquiror corporation's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in the acquiror corporation's FSI; and
(B) Applying section 1032(a), or section 1032(a) and § 1.1032-2(b), to the transfer (that is, no AFSI is recognized by the acquiror corporation);
(ii) Determines the acquiror corporation's CAMT basis in the property received from the target corporation by applying section 362 using the CAMT basis (in lieu of AFS basis) of that property;
(iii) Adjusts the acquiror corporation's CAMT retained earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying sections 381(c)(2) and 312 of the Code; and
(iv) Applies section 381 to the target corporation's other attributes (that is, the acquiror corporation succeeds to the target corporation's other attributes).
(4)
(ii)
(5)
(6)
(ii)
(7)
(i) Determines the target corporation shareholder or security holder's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in its FSI;
(B) Applying the relevant section of the Code (section 354 or 356 of the Code); and
(C) Using the distribution amount reflected on its AFS, taking into account (for purposes of the relevant section of the Code) the CAMT basis in its target corporation stock;
(ii) Determines the characterization of the distribution of property other than the acquiring corporation stock (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of earnings and profits) of the target corporation;
(iii) Determines its CAMT basis in the stock or securities of the acquiring corporation resulting from the distribution by applying the relevant section of the Code using the target corporation shareholder's or security holder's CAMT basis in the stock (in lieu of basis for regular tax purposes);
(iv) Determines its CAMT basis in the property received from the target corporation by applying the relevant section of the Code, using CAMT basis in lieu of AFS basis; and
(v) Adjusts (to the extent applicable) the target corporation shareholder's or security holder's CAMT current earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312 based on its AFSI, as determined under paragraph (c)(4)(i) of this section.
(8)
(i)
(B)
(ii)
(B)
(d)
(A) Determines the distributing corporation's AFSI resulting from the one or more transfers by disregarding any resulting gain or loss reflected in its FSI and applying sections 355 and 361, respectively (that is, no AFSI is recognized by the distributing corporation);
(B) Determines the distributing corporation's CAMT basis in the property received from the controlled corporation by applying section 358 using the CAMT basis (in lieu of AFS basis) of the property transferred by the distributing corporation to the controlled corporation; and
(C) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(ii)
(iii)
(A) Determines the distributing corporation's AFSI resulting from the distribution by disregarding any resulting gain or loss reflected in the distributing corporation's FSI and applying section 355(c) (that is, no AFSI is recognized by the distributing corporation); and
(B) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312.
(2)
(A) Determines the distributing corporation's AFSI resulting from the one or more transfers by redetermining any resulting gain or loss reflected in its FSI by using CAMT basis in lieu of AFS basis;
(B) Determines the distributing corporation's CAMT basis in the property received from the controlled corporation to be equal to the distributing corporation's AFS basis in that property; and
(C) Adjusts the distributing corporation's CAMT retained earnings (in lieu of AFS retained earnings) based on the distributing corporation's AFSI, as determined under paragraph (d)(2)(i)(A) of this section.
(ii)
(A) Determines the distributing corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the distributing corporation's FSI by reference to its CAMT basis in the distributed or transferred property (in lieu of AFS basis); and
(B) Adjusts the distributing corporation's CAMT earnings (in lieu of AFS retained earnings) based on the distributing corporation's AFSI, as determined under paragraph (d)(2)(ii)(A) of this section.
(3)
(i) Determines the distributing corporation shareholder's or security holder's AFSI resulting from the distribution by—
(A) Disregarding any resulting gain or loss reflected in the distributing corporation shareholder's or security holder's FSI;
(B) Applying the relevant section of the Code; and
(C) Using the distribution amount of the property other than distributing corporation stock reflected in the AFS of the distributing corporation shareholder or security holder, taking into account (for purposes of the relevant section of the Code) the CAMT basis of the distributing corporation shareholder or security holder in its distributing corporation stock;
(ii) Determines the characterization of the distribution of the property other than distributing corporation stock (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of earnings and profits) of the distributing corporation;
(iii) Determines the distributing corporation shareholder's or security holder's CAMT basis in the stock of the distributing corporation resulting from the distribution by applying the relevant section of the Code, using the CAMT basis of the distributing corporation shareholder or security holder in the stock (in lieu of basis for regular tax purposes);
(iv) Determines the distributing corporation shareholder's or security holder's CAMT basis in the property received from the distributing corporation by applying the relevant section of the Code, using CAMT basis (in lieu of AFS basis); and
(v) Adjusts the distributing corporation shareholder's or security holder's CAMT earnings (in lieu of AFS retained earnings) resulting from the distribution by applying section 312 based on its AFSI, as determined under paragraph (d)(3)(i) of this section.
(4)
(i) Determines the controlled corporation's AFSI resulting from the transfer by—
(A) Disregarding any resulting gain or loss reflected in the controlled corporation's FSI; and
(B) Applying section 1032(a) to the transfer (that is, no AFSI is recognized by the controlled corporation);
(ii) Determines the controlled corporation's CAMT basis in the
(iii) Adjusts the controlled corporation's CAMT current earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(5)
(B)
(ii)
(A) Determines the controlled corporation's AFSI resulting from the covered recognition transaction by redetermining any resulting gain or loss reflected in the controlled corporation's FSI by reference to the controlled corporation's CAMT basis (in lieu of AFS basis);
(B) Determines the controlled corporation's CAMT basis in the property received from the distributing corporation to be equal to the controlled corporation's AFS basis in that property; and
(C) Adjusts the controlled corporation's CAMT earnings (in lieu of AFS retained earnings) based on the controlled corporation's AFSI, as determined under paragraph (d)(5)(ii)(A) of this section.
(6)
(i)
(B)
(C)
(D)
(ii)
(B)
(iii)
(B)
(C)
(D)
(e)
(i) Determines the recapitalizing corporation's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in the recapitalizing corporation's FSI; and
(B) Applying section 1032(a) or 1036 of the Code, as appropriate (that is, no AFSI is recognized by the recapitalizing corporation); and
(ii) Adjusts the recapitalizing corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(2)
(i) Each component transaction that qualifies as a covered nonrecognition transaction; and
(ii) Each component transaction that is treated as a distribution of property by the recapitalizing corporation to a recapitalizing corporation shareholder or security holder.
(3)
(i) Determines the recapitalizing corporation shareholder's or security holder's AFSI resulting from the covered transaction by—
(A) Disregarding any resulting gain or loss reflected in its FSI;
(B) Applying the relevant section of the Code; and
(C) Using the distribution amount reflected on its AFS, taking into account (for purposes of the relevant section of the Code) the CAMT basis in its recapitalizing corporation stock;
(ii) Determines the characterization of any distribution (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of earnings and profits) of the recapitalizing corporation;
(iii) Determines its CAMT basis in the stock of the recapitalizing corporation resulting from the exchange by applying the relevant section of the Code using its CAMT basis in the stock (in lieu of basis for regular tax purposes);
(iv) Determines its CAMT basis in the property received from the recapitalizing corporation by applying the relevant section of the Code, using CAMT basis (in lieu of AFS basis); and
(v) Adjusts (to the extent applicable) its CAMT earnings (in lieu of AFS retained earnings) resulting from the exchange by applying section 312 based on its AFSI, as determined under paragraph (e)(3)(i) of this section.
(4)
(i)
(B)
(ii)
(B)
(f)
(i) Determines the transferor corporation's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in the transferor corporation's FSI; and
(B) Applying section 361 to the transfer (that is, no AFSI is recognized by the transferor corporation);
(ii) Determines the transferor corporation's CAMT basis in any property received from the resulting corporation by applying section 358 using the CAMT basis (in lieu of AFS basis) of the property transferred by the transferor corporation to the resulting corporation; and
(iii) Adjusts the transferor corporation's CAMT earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying section 312.
(2)
(i) Each component transaction that qualifies as a covered nonrecognition transaction; and
(ii) Each component transaction that is treated as a distribution of property by the transferor corporation to a transferor corporation shareholder or security holder.
(3)
(i) Determines the resulting corporation's AFSI resulting from the covered nonrecognition transaction by—
(A) Disregarding any resulting gain or loss reflected in the resulting corporation's FSI; and
(B) Applying section 1032(a) to the transfer (that is, no AFSI is recognized by the resulting corporation);
(ii) Determines the resulting corporation's CAMT basis in the property received from the transferor corporation by applying section 362 using the CAMT basis (in lieu of AFS basis) of that property; and
(iii) Adjusts the resulting corporation's CAMT retained earnings (in lieu of AFS retained earnings) resulting from the covered nonrecognition transaction by applying sections 381(c)(2) and 312.
(4)
(i) Determines the transferor corporation shareholder's or security holder's AFSI resulting from the covered transaction by—
(A) Disregarding any resulting gain or loss reflected in its FSI;
(B) Applying the relevant provision of the Code; and
(C) Using the distribution amount reflected on its AFS, taking into account (for purposes of the relevant section of the Code) the transferor corporation shareholder's or security holder's CAMT basis in its transferor corporation stock;
(ii) Determines the characterization of any distribution (to the extent applicable) by applying the relevant section of the Code based on the CAMT earnings (in lieu of AFS earnings and profits) of the transferor corporation;
(iii) Determines the transferor corporation shareholder's or security holder's CAMT basis in the stock of the resulting corporation resulting from the exchange by applying the relevant section of the Code using the transferor corporation shareholder's or security holder's CAMT basis in the stock (in lieu of basis for regular tax purposes);
(iv) Determines the transferor corporation shareholder's or security holder's CAMT basis in the property received by applying the relevant section of the Code, using CAMT basis in lieu of AFS basis; and
(v) Adjusts (to the extent applicable) its CAMT earnings (in lieu of AFS retained earnings) resulting from the exchange by applying section 312 based on its AFSI, as determined under paragraph (f)(4)(i) of this section.
(5)
(i)
(B)
(ii)
(B)
(g)
(i) Each component transaction in which the section 351 transferee transfers solely stock (including nonqualified preferred stock described in section 351(g)(2)) to a section 351 transferor (that is, a covered nonrecognition transaction with respect to the section 351 transferee); and
(ii) Each component transaction in which the section 351 transferee transfers money or other property in addition to its stock to a section 351 transferor (that is, a covered recognition transaction with respect to the section 351 transferee).
(2)
(i) Determines the section 351 transferor's AFSI resulting from the transfer by—
(A) Disregarding any resulting gain or loss reflected in the section 351 transferor's FSI; and
(B) Applying section 351 to the transfer (that is, no AFSI is recognized by the section 351 transferor); and
(ii) Determines the section 351 transferor's CAMT basis in the stock received from the section 351 transferee by applying section 358 using the CAMT basis (in lieu of AFS basis) of the property transferred by the section 351 transferor to the section 351 transferee.
(3)
(i) Determines the section 351 transferor's AFSI resulting from the transfer by redetermining any resulting gain or loss, if any, reflected in its FSI by reference to its CAMT basis in the transferred property (in lieu of AFS basis);
(ii) Determines the section 351 transferor's CAMT basis in the property received from the section 351 transferee to be equal to the section 351 transferor's AFS basis in that property; and
(iii) Adjusts the section 351 transferor's CAMT retained earnings (in lieu of AFS retained earnings) based on the section 351 transferor's AFSI, as determined under paragraph (g)(3)(i) of this section.
(4)
(i)
(A) Disregarding any resulting gain or loss reflected in the section 351 transferee's FSI; and
(B) Applying section 1032(a) to the transfer (that is, no AFSI is recognized by the section 351 transferee).
(ii)
(iii)
(A) The section 351 transferor is not an applicable corporation and its AFSI otherwise is not required to be taken into account under the section 56A regulations by any applicable corporation for the taxable year in which qualification of the component transaction as a covered recognition transaction with respect to the section 351 transferor otherwise would be determined under the section 56A regulations,
(B) The section 351 transferee solely transfers its stock to that section 351 transferor, and
(C) The fair market value of nonqualified preferred stock (as defined in section 351(g)(2)) described in paragraph (g)(4)(iii)(B) of this section is 10 percent or less of the aggregate fair market value of the stock described in paragraph (g)(4)(iii)(B) of this section transferred by the section 351 transferee to the section 351 transferor in the section 351 exchange.
(5)
(i)
(ii)
(iii)
(A) The section 351 transferor is not an applicable corporation and its AFSI otherwise is not required to be taken into account under the section 56A regulations by any applicable corporation for the taxable year in which qualification of the component transaction as a covered recognition transaction with respect to the section 351 transferee otherwise would be determined under the section 56A regulations,
(B) The section 351 transferee transfers its stock and money or other property to that section 351 transferor, and
(C) The amount of money and fair market value of other property described in paragraph (g)(5)(iii)(B) of this section is 10 percent or less of the sum of the money and the aggregate fair market value of the stock and other property described in paragraph (g)(5)(iii)(B) of this section transferred by the section 351 transferee to the section 351 transferor in the section 351 exchange.
(iv)
(6)
(i)
(B)
(ii)
(B)
(iii)
(B)
(iv)
(B)
(h)
(a)
(2)
(b)
(c)
(2)
(A) The amount of
(B) The applicable recovery period for deferred sale property that is section 168 property (as defined in § 1.56A-15(b)(6)) or qualified wireless spectrum (as defined in § 1.56A-16(b)(4)) and that is placed in service by the contributor in a taxable year prior to the taxable year in which the property becomes deferred sale property is the full recovery period that was assigned to the property by the contributor in the taxable year such property was placed in service for purposes of depreciating or amortizing the property for regular tax purposes;
(C) The applicable recovery period for deferred sale property that is section 168 property or qualified wireless spectrum and that is either placed in service and contributed to a partnership in the same taxable year or is contributed and placed in service by the partnership in the same taxable year as the contribution, is the recovery period used by the partnership to depreciate or amortize the deferred sale property for regular tax purposes;
(D) The applicable recovery period for deferred sale property subject to depreciation or amortization for AFS purposes that is not section 168 property or qualified wireless spectrum in the hands of the contributor or the partnership is the recovery period used by the partnership to depreciate or amortize the deferred sale property for AFS purposes;
(E) If the deferred sale property that is section 168 property or qualified wireless spectrum has not been placed in service in the same taxable year it is contributed to the partnership, but is placed in service by the partnership in the immediately subsequent taxable year and thus subject to depreciation in that subsequent taxable year, the applicable recovery period is the recovery period for regular tax purposes that is used by the partnership for the deferred sale property in the immediately subsequent taxable year, and the inclusion of the deferred sale gain or loss by the contributor begins on the first day of the first month of that subsequent taxable year; and
(F) The applicable recovery period for deferred sale property that is not described in paragraphs (c)(2)(i)(B) through (E) of this section is 15 years.
(ii)
(B)
(C)
(D)
(iii)
(iv)
(v)
(3)
(ii)
(A) On the last day of each taxable year during the applicable recovery period by an amount equal to the deferred sale gain or loss, respectively, required to be included in AFSI in each taxable year in accordance with paragraph (c)(2)(i) of this section (without duplication of any increases or decreases to CAMT basis under paragraph (c)(3)(ii)(B) of this section); or
(B) Immediately prior to an event causing all or a portion of the deferred sale gain to be accelerated into AFSI in accordance with paragraph (c)(2)(ii) of this section, by an amount equal to the sum of the deferred sale gain or loss that accrued in accordance with paragraph (c)(2)(i) of this section prior to the event and the amount required to be included in AFSI under paragraph (c)(2)(ii) of this section.
(d)
(ii)
(A) The amount of
(B) The applicable recovery period for deferred distribution property that is section 168 property (as defined in § 1.56A-15(b)(6)) or qualified wireless spectrum (as defined in § 1.56A-16(b)(4)) and that is placed in service by the partnership in a taxable year prior to the taxable year in which the property becomes deferred distribution property is the full recovery period that was assigned to the property by the partnership in the taxable year such property was placed in service for purposes of depreciating or amortizing the property for regular tax purposes;
(C) The applicable recovery period for deferred distribution property that is section 168 property or qualified wireless spectrum and that is either placed in service by a partnership and distributed by the partnership to a partner in the same taxable year or is distributed by the partnership to a partner and placed in service by the partner in the same taxable year as the distribution is the recovery period used by the partner to depreciate or amortize the deferred sale property for the taxable year of the distribution for regular tax purposes;
(D) The applicable recovery period for deferred distribution property subject to depreciation or amortization for AFS purposes that is not section 168 property or qualified wireless spectrum is the recovery period that was used by the partnership to depreciate or amortize the deferred sale property for AFS purposes;
(E) If the deferred distribution property that is section 168 property or qualified wireless spectrum has not been placed in service in the same taxable year it is distributed to the partner, but is placed in service by the partner in the immediately subsequent taxable year and thus subject to depreciation in that subsequent taxable year, the applicable recovery period is the recovery period for regular tax purposes that is used by the partner for the deferred distribution property in the immediately subsequent taxable year, and the inclusion of the deferred sale gain or loss by the partnership begins on the first day of the first month of that subsequent taxable year; and
(F) The applicable recovery period for deferred distribution property that is not described in paragraphs (d)(1)(ii)(B) through (E) of this section is 15 years.
(iii)
(A) A termination of the partnership under section 708(b)(1) of the Code as a result of a dissolution or liquidation;
(B) A sale or exchange of all or substantially all of the partnership's assets; or
(C) A merger or consolidation of the partnership with one or more partnerships in which the partnership is not the resulting partnership for regular tax purposes (as determined under § 1.708-1(c)).
(2)
(ii)
(iii)
(A) Money distributed in the same transaction as property is treated as reducing CAMT basis, if applicable under § 1.56A-5(j)(3)(i), prior to any distribution of property;
(B) Stock in a foreign corporation distributed in the same transaction is treated as reducing CAMT basis under § 1.56A-5(j)(3)(xii) prior to any distribution of property other than stock in a foreign corporation; and
(C) Principles similar to § 1.731-1(a)(1)(ii) apply for purposes of calculating the effect of the distribution on AFSI.
(iv)
(3)
(ii)
(A) At the end of each taxable year during the applicable recovery period by the amount required to be included in the partner's distributive share amount in each taxable year in accordance with paragraph (d)(1)(ii) of this section; and
(B) Immediately prior to an acceleration event specified in paragraph (d)(1)(iii) or (d)(2)(ii) of this section by the amount of deferred distribution gain or loss not previously included in the partner's distributive share amount in accordance with paragraph (d)(1)(ii) of this section.
(e)
(2)
(f)
(g)
(i) The recovery periods used to depreciate deferred sale property and deferred distribution property for regular tax purposes;
(ii) The properties contributed to the partnership that had a built-in gain or loss at the time of contribution and the amount of the built-in gain or loss with respect to each property for AFSI purposes;
(iii) The CAMT basis of any property contributed to or distributed from the partnership; and
(iv) The amount of deferred distribution gain or loss to be allocated among, and included in the distributive share amounts of, the partners of the partnership.
(2)
(A) The recovery periods used to depreciate deferred sale property;
(B) The date on which the partnership sold, distributed, or otherwise disposed of deferred sale property;
(C) The date on which an acceleration event described in § 1.721(c)-4(b) occurred; and
(D) The amount of deferred distribution gain or loss resulting from a distribution of property that is included in the CAMT entity partner's distributive share amount under paragraph (d) of this section.
(ii)
(h)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(B)
(4)
(ii)
(5)
(ii)
(iii)
(B)
(C)
(6)
(ii)
(B)
(C)
(7)
(ii)
(iii)
(8)
(ii)
(9)
(ii)
(i)
(a)
(2)
(3)
(4)
(b)
(1)
(i) CAMT basis;
(ii) CAMT foreign tax credits;
(iii) CFC adjustment carryovers (as defined in § 1.56A-6(b)(6)); and
(iv) FSNOLs.
(2)
(3)
(ii)
(iii)
(A) To the extent incurring that indebtedness previously has resulted in a reduction in the FSI of the CAMT entity;
(B) That results from the satisfaction of a nonrecourse debt of the CAMT entity with the property that secures that debt; or
(C) That results from the satisfaction of recourse debt of the CAMT entity with property to the extent the aggregate fair market value of the property exceeds the aggregate CAMT basis of that property.
(4)
(5)
(i) For which the CAMT entity is liable; or
(ii) Subject to which the CAMT entity holds property (
(6)
(ii)
(7)
(c)
(i) For purposes of determining the AFSI of the CAMT entity, the CAMT entity disregards the total amount of income that is reflected in the FSI of the CAMT entity resulting solely from the discharge of indebtedness of the CAMT entity; and
(ii) The CAMT entity applies the attribute reduction rules described in paragraphs (c)(4) and (5) of this section to the CAMT entity's CAMT attributes.
(2)
(i) For purposes of determining the AFSI of the CAMT entity, the CAMT entity disregards the income reflected in the FSI of the CAMT entity resulting solely from the discharge of indebtedness by an amount equal to the lesser of the amount of the discharge of indebtedness and the amount by which the CAMT entity is insolvent; and
(ii) The CAMT entity applies the attribute reduction rules in paragraph (c)(4) of this section to the CAMT entity's CAMT attributes.
(3)
(ii)
(iii)
(4)
(ii)
(B)
(iii)
(A) CAMT basis of covered property, but only to the extent the basis of the covered property is reduced by the CAMT entity under section 108 for regular tax purposes.
(B) FSNOLs.
(C) CFC adjustment carryovers.
(D) CAMT basis of property (other than covered property) that is depreciated or amortized for AFS purposes.
(E) CAMT basis of property (other than covered property) that is not depreciated or amortized for AFS purposes.
(F) CAMT foreign tax credits.
(G) Any remaining CAMT basis of covered property.
(iv)
(B)
(C)
(v)
(B)
(5)
(A) A dollar of CAMT basis;
(B) A dollar of FSNOL; or
(C) A dollar of CFC adjustment carryover.
(ii)
(A) The aggregate CAMT basis and money of the CAMT entity immediately after the discharge of indebtedness of the CAMT entity, less the amount of basis reduced under paragraph (c)(4)(iii)(A) of this section; over
(B) The aggregate amount of liabilities reflected on the AFS of the CAMT entity immediately after the discharge of indebtedness of the CAMT entity.
(iii)
(iv)
(A) One dollar of the CAMT foreign tax credit; multiplied by
(B) The percentage specified in section 55(b)(2)(A)(i).
(6)
(i)
(B)
(ii)
(B)
(iii)
(B)
(C)
(iv)
(B)
(d)
(2)
(A) Disregarding any resulting gain or loss that is reflected in the FSI of the CAMT entity;
(B) Determining the CAMT basis of any assets of the CAMT entity by disregarding any adjustment to the AFS basis of those assets resulting from the emergence from bankruptcy; and
(C) Adjusting the CAMT entity's CAMT earnings (in lieu of AFS retained earnings) resulting from the CAMT entity's emergence from bankruptcy by applying section 312 of the Code.
(ii)
(iii)
(3)
(ii)
(B)
(4)
(5)
(6)
(i)
(ii)
(e)
(2)
(ii)
(B)
(iii)
(3)
(f)
(2)
(i)
(ii)
(g)
(a)
(b)
(1)
(i) A company subject to tax under subchapter L of the Code; or
(ii) A foreign company that is subject to regulation as an insurance (or reinsurance) company by its home country and is licensed, authorized, or regulated by the applicable insurance regulatory body for its home country to sell insurance, reinsurance, or annuity contracts.
(2)
(3)
(4)
(5)
(i) That is issued by a covered insurance company;
(ii) That is regulated as a life insurance or annuity contract in the jurisdiction in which it is issued; and
(iii) For which the amount of the covered insurance company's obligations to the contract holder depends in whole or in part (by law, regulation, or the terms of the contract) on the value of the assets that are designated to support the contract.
(6)
(7)
(i) The ceding company's obligation to the reinsurer under a covered reinsurance agreement with respect to the withheld assets; and
(ii) Changes in the value of the withheld assets.
(8)
(i) The reinsurer's right against the ceding company under a covered reinsurance agreement with respect to the withheld assets; and
(ii) Changes in the value of the withheld assets.
(c)
(ii)
(A) A covered insurance company issues or reinsures covered variable contracts;
(B) Amounts reflected in the FSI of the covered insurance company with respect to covered investment pool assets result in a change in the amount of the obligations to the holders of the related covered variable contracts by reason of law, regulation, or the terms of one or more such covered variable contracts; and
(C) The change in the amount of the obligations results in a change in the amount of the covered obligations of the covered insurance company.
(2)
(i)
(ii)
(d)
(i)
(A) The changes in the amount of the withheld assets payable correspond to the ceding company's unrealized gains and losses in the withheld assets; and
(B) The unrealized gains and losses in the withheld assets are not included in the ceding company's AFSI (determined without regard to this section but after giving effect to all other sections in the section 56A regulations except for § 1.56A-23).
(ii)
(2)
(3)
(i) The covered insurance company elects for AFS purposes to account for the covered reinsurance agreement at fair value in its FSI; or
(ii) The covered insurance company accounts for both of the following items at fair value in its FSI—
(A) The changes in the withheld assets payable that correspond to the unrealized gains and losses in the withheld assets (for the ceding company) or the withheld assets receivable that correspond to the unrealized gains and losses in the withheld assets (for the reinsurer); and
(B) The covered reinsurance agreement.
(4)
(i)
(B)
(ii)
(B)
(e)
(1)
(2)
(3)
(f)
(a)
(b)
(c)
(1) The aggregate amount of FSNOL carryovers to the taxable year (as determined under paragraph (d) of this section); or
(2) 80 percent of the AFSI of the corporation for the taxable year (determined after application of the section 56A regulations and without regard to this section).
(d)
(2)
(i)
(ii)
(e)
(i)
(ii)
(2)
(i) A transaction described under section 381(a) of the Code; or
(ii) The acquisition of stock of a corporation in a transaction—
(A) That constitutes an ownership change within the meaning of § 1.59-2(f); or
(B) In which the predecessor corporation joins a tax consolidated group.
(3)
(A) Only if the business that generated the acquired FSNOLs (predecessor
(B) Only to the extent of the amount of AFSI generated by the separately tracked business after the successor transaction (separately tracked income), subject to the limitation in section 56A(d) and paragraph (e)(3)(ii)(E) of this section.
(ii)
(A)
(B)
(C)
(D)
(E)
(F)
(iii)
(B)
(iv)
(A) Only to the extent of the AFSI of the predecessor business that would have been separately tracked under paragraph (e)(3)(ii) of this section if the predecessor business had remained a separately tracked business; and
(B) Only if the successor generates and maintains pro forma income statements supporting any use of the acquired FSNOLs under this paragraph (e)(3)(iv).
(v)
(B)
(4)
(i)
(B)
(ii)
(B)
(C)
(iii)
(B)
(iv)
(v)
(vi)
(B)
(f)
(2)
(ii)
(iii)
(iv)
(v)
(3)
(A) The asset at issue was not held by the predecessor corporation immediately before the successor transaction; or
(B) The loss exceeds the built-in loss in the asset, measured as of the date of the successor transaction, taking into account the CAMT basis of any relevant property.
(ii)
(4)
(ii)
(A) The CAMT basis of property; and
(B) Income, expenses, gains, and losses for AFSI purposes that are attributable to periods before the successor transaction.
(iii)
(iv)
(v)
(5)
(i)
(ii)
(iii)
(g)
(a)
(b)
(1)
(A) Is entered into as a hedging transaction, as defined in § 1.1221-2(b) (whether or not the character of gain or loss from the transaction is determined under § 1.1221-2), a § 1.1275-6 hedge that is part of an integrated transaction subject to § 1.1275-6, a section 1256(e) hedging transaction, a section 988(d) hedging transaction that is part of a
(B) Is a hedge that qualifies for, and is properly treated by the CAMT entity as subject to, hedge accounting (for example, under Accounting Standards Codification paragraph 815-20-25-1 or IFRS 9 Chapter 6) and reported on a CAMT entity's AFS; or
(C) Is described in both paragraphs (b)(1)(i)(A) and (B) of this section.
(ii)
(A) The obligations of the covered insurance company to holders of life insurance or annuity contracts; or
(B) The obligations of the covered insurance company to another covered insurance company with respect to obligations to holders of life insurance or annuity contracts.
(2)
(A) An AFSI hedge or a hedged item (as applicable) subject to paragraph (c)(2) of this section matures or is sold, disposed of, or otherwise terminated;
(B) An AFSI hedge or a hedged item (as applicable) that corresponds to the hedged item or the AFSI hedge subject to paragraph (c)(2) of this section matures or is sold, disposed of, or otherwise terminated; or
(C) An asset or liability ceases to constitute an AFSI hedge or hedged item (as applicable) subject to paragraph (c)(2) of this section.
(ii)
(B)
(3)
(4)
(5)
(c)
(2)
(i) Has a fair value measurement adjustment described in paragraph (c)(1) of this section with respect to an AFSI hedge but not the hedged item, and marks to market neither the AFSI hedge nor the hedged item for regular tax purposes; or
(ii) Has a fair value measurement adjustment described in paragraph (c)(1) of this section with respect to a hedged item but not the AFSI hedge, and marks to market neither the hedged item nor the AFSI hedge for regular tax purposes.
(3)
(d)
(e)
(2)
(i) In the taxable year of an AFSI subsequent adjustment date, the CAMT entity includes in AFSI the cumulative fair value measurement adjustments previously disregarded in determining AFSI under paragraph (c)(2) of this section, net of any amounts included in AFSI under paragraph (e)(1) of this section. In the case of multiple AFSI hedges with respect to a single hedged item, the preceding sentence applies only to the AFSI hedge for which there was an AFSI subsequent adjustment date.
(ii) Following an event described in paragraph (b)(2)(i)(B) or (C) of this section, the CAMT entity uses the AFS basis of the AFSI hedge or hedged item that was subject to paragraph (c)(2) of this section immediately following the AFSI subsequent adjustment date as the CAMT basis in order to determine any further recognized gain or loss included in AFSI with respect to the AFSI hedge or hedged item.
(3)
(f)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(4)
(ii)
(5)
(ii)
(6)
(ii)
(7)
(ii)
(g)
(a)
(b)
(c)
(a)
(b)
(2)
(c)
(d)
(2)
(3)
(i)
(ii)
(e)
(a)
(b)
(c)
(a)
(b)
(1)
(i) Are prior to such taxable year; and
(ii) End after December 31, 2021.
(2)
(3)
(4)
(5)
(6)
(7)
(i) In the case of a parent-subsidiary controlled group (as defined in paragraph (e)(1)(ii) of this section), the common parent of such group as described in paragraph (e)(1)(ii) of this section;
(ii) In the case of a brother-sister controlled group (as defined in paragraph (e)(1)(iii) of this section), the collective group of persons described in paragraph (e)(1)(iii) of this section that satisfy the ownership requirements under paragraphs (e)(1)(iii)(A) and (B) of this section with respect to each corporation that is a member of the brother-sister controlled group;
(iii) In the case of a combined group, as defined in paragraph (e)(1)(iv) of this section, either the common parent of the relevant parent-subsidiary controlled group or the collective group of persons described in paragraph (b)(7)(ii) of this section with respect to the relevant brother-sister controlled group, as applicable;
(iv) In the case of parent-subsidiary group under common control, as defined in § 1.52-1(c), the common parent organization of such group as described in § 1.52-1(c);
(v) In the case of a brother-sister group under common control, as defined in § 1.52-1(d), the collective group of persons described in § 1.52-1(d) that
(vi) In the case of a combined group under common control, as defined in § 1.52-1(e), either the common parent organization of the relevant parent-subsidiary group under common control or the collective group of persons described in paragraph (b)(7)(v) of this section with respect to the relevant brother-sister group under common control, as applicable; or
(vii) In the case of an FPMG, the FPMG common parent, as defined in § 1.59-3(b)(9).
(c)
(ii)
(B)
(C)
(D)
(2)
(A) The average annual AFSI of the FPMG corporation (as determined under paragraph (c)(2)(ii) of this section) for the 3-taxable-year period ending with such taxable year exceeds $1,000,000,000; and
(B) The average annual AFSI of the FPMG corporation (as determined under paragraph (c)(2)(iii) of this section) for the 3-taxable-year period ending with such taxable year is $100,000,000 or more.
(ii)
(B)
(C)
(D)
(E)
(F)
(
(
(iii)
(B)
(C)
(D)
(d)
(2)
(ii)
(3)
(e)
(1)
(A) A parent-subsidiary controlled group, as defined in paragraph (e)(1)(ii) of this section;
(B) A brother-sister controlled group, as defined in paragraph (e)(1)(iii) of this section; or
(C) A combined group, as defined in paragraph (e)(1)(iv) of this section.
(ii)
(A) Stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each of the corporations, except the parent corporation, is owned (directly and with the application of section 1563(e)(1), (2), and (3), relating to options, partnerships, and estates or trusts, respectively) by one or more of the other corporations; and
(B) The common parent owns (directly and with the application of section 1563(e)(1), (2), and (3)) stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of at least one of the other corporations, excluding, in computing the voting power or value, stock owned directly by the other corporations.
(iii)
(A)
(B)
(iv)
(A) Each corporation is a member of either a parent-subsidiary controlled group of corporations or brother-sister controlled group of corporations; and
(B) At least one corporation is the common parent of a parent-subsidiary controlled group and also a member of a brother-sister controlled group.
(2)
(ii)
(A) A parent-subsidiary group under common control, as defined in § 1.52-1(c);
(B) A brother-sister group under common control, as defined in § 1.52-1(d); or
(C) A combined group under common control, as defined in § 1.52-1(e).
(3)
(4)
(5)
(i)
(ii)
(f)
(2)
(A) The corporation is not a test group parent (as defined in paragraph (b)(6) of this section);
(B) The corporation is treated as related to a test group parent under the relevant relationship criteria as of the first day of the taxable year; and
(C) As a result of a transaction (or series of related transactions) the corporation and the test group parent no longer satisfy the relevant relationship criteria as of the last day of the taxable year.
(ii)
(iii)
(iv)
(3)
(i)
(B)
(C)
(D)
(E)
(ii)
(B)
(C)
(D)
(g)
(2)
(i) The average annual AFSI test in paragraphs (c)(1)(i) and (c)(2)(i)(A) of this section, as applicable, is applied by substituting
(ii) The average annual AFSI test in paragraph (c)(2)(i)(B) of this section, as applicable, is applied by substituting
(iii) The rules for determining AFSI under paragraphs (c)(1)(ii)(B), (c)(2)(ii)(B), and (c)(2)(iii)(B) of this section are disregarded and AFSI is instead determined by—
(A) Determining FSI by treating those members of the test group whose financial results are reflected on the same AFS as a single CAMT entity for purposes of § 1.56A-1(c)(3) and (4) (that is, AFS consolidation entries between the members of the test group are not disregarded); and
(B) Making no AFSI adjustments other than the AFSI adjustment in § 1.56A-8(b) and, solely for purposes of paragraph (c)(2)(i)(B) of this section, the AFSI adjustment in § 1.56A-7.
(iv) For a corporation that has an AFS that covers a period (AFS year) that differs from its taxable year—
(A) Paragraphs (c)(1)(i) and (c)(2)(i) of this section are applied by substituting
(B) Paragraphs (c)(1)(ii)(B), (c)(2)(ii)(B), (c)(2)(iii)(B), and (d) of this section are applied by substituting
(3)
(i)
(B)
(ii)
(B)
(4)
(h)
(i) Experiences a change in ownership, as described in paragraph (f)(2)(i) of this section, provided that if the corporation is described in paragraph (f)(2)(iii) of this section, the corporation experiences a change in ownership with respect to all test group parents it was related to under the relevant relationship criteria as of the first day of the taxable year; or
(ii) Satisfies the termination test described in paragraph (h)(2) of this section.
(2)
(3)
(ii)
(i)
(j)
(k)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(c)
(1) At least one of the entities is a domestic corporation and at least one of the entities is a foreign corporation;
(2) The entities are included in the same applicable financial statement for that taxable year; and
(3) One of the entities is an FPMG common parent.
(d)
(e)
(1) The ultimate parent directly or indirectly owns (other than through a domestic corporation, excluding a deemed domestic corporation) a foreign trade or business (as defined in § 1.989(a)-1(c)); or
(2) The ultimate parent directly or indirectly owns (other than through a domestic corporation, excluding a deemed domestic corporation) any equity interest in a foreign corporation and the ultimate parent has a controlling interest (including through a domestic corporation) in such foreign corporation.
(f)
(2)
(i) A deemed domestic corporation if either—
(A) The upper-tier entity is the foreign corporation; or
(B) The upper-tier entity has a controlling interest in the foreign corporation;
(ii) Any entity if—
(A) The entity and the upper-tier entity are in the same section 52 group;
(B) The upper-tier entity directly or indirectly (through one or more CAMT entities) owns an interest in the entity; and
(C) The upper-tier entity is a member of an FPMG without regard to this paragraph (f)(2)(ii); or
(iii) Any entity in which the upper-tier entity would be treated as having a controlling interest but for the fact that the entity is (or would be) excluded from the upper-tier entity's consolidated financial statement under the applicable financial accounting standard—
(A) Based on size or materiality;
(B) Because the entity is held for sale;
(C) Because the entity or business of the entity is winding down, liquidating, or otherwise ceasing operations or being terminated or disposed of; or
(D) Because the entity is permitted but not required to be excluded under the applicable financial accounting standard from a consolidated financial statement of the upper-tier entity, regardless of whether or not a consolidated financial statement is (or is required to be) prepared.
(3)
(g)
(2)
(ii)
(iii)
(B)
(
(
(3)
(4)
(h)
(i)
(j)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(4)
(ii)
(B)
(5)
(ii)
(k)
(a)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(c)
(1) The lesser of—
(i) The aggregate of the applicable corporation's pro rata shares of taxes of controlled foreign corporations, as determined under paragraph (d) of this section; or
(ii) The product of the amount of the adjustment under § 1.56A-6(b)(1) and the percentage specified in section 55(b)(2)(A)(i) of the Code; and
(2) The amount of eligible taxes paid, within the meaning of § 1.901-2(g)(5), by the applicable corporation during the taxable year, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the applicable corporation's AFS.
(d)
(2)
(3)
(i) The amount of eligible current year taxes, as defined in § 1.960-1(b)(5), deemed paid by the applicable corporation under § 1.960-2(b) for the taxable year of the applicable corporation, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the AFS of the controlled foreign corporation or the applicable corporation;
(ii) The aggregate of the applicable corporation's proportionate share of eligible current year taxes, as defined in § 1.960-1(b)(5), of the controlled foreign corporation for each tested income group within each section 904 category of the controlled foreign corporation, as determined under § 1.960-2(c)(5) for the taxable year of the applicable corporation, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the AFS of the controlled foreign corporation or applicable corporation;
(iii) Solely with respect to any subpart F income group and tested income group within a section 904 category of the controlled foreign corporation for which the denominator of the applicable corporation's proportionate share fraction (as described in § 1.960-2(b)(3)(i) and (c)(5), respectively) is zero or less than zero, the aggregate amount of eligible current year taxes of the controlled foreign corporation for each such income group within each section 904 category of the controlled foreign corporation, for the controlled foreign corporation's taxable year that ends with or within the taxable year of the applicable corporation, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the AFS of the controlled foreign corporation or applicable corporation, multiplied by the pro rata share percentage, as defined in paragraph (b)(3) of this section, for such taxable year of the controlled foreign corporation; and
(iv) The aggregate amount of eligible current year taxes, as defined in § 1.960-1(b)(5), of the controlled foreign corporation for each residual income group, as defined in § 1.960-1(d)(2)(ii)(D), of the controlled foreign corporation, for the controlled foreign corporation's taxable year that ends with or within the taxable year of the applicable corporation, to the extent the taxes have been taken into account, within the meaning of § 1.56A-8(d), on the AFS of the controlled foreign corporation or applicable corporation, multiplied by the pro rata share percentage, as defined in paragraph (b)(3) of this section, for such taxable year of the controlled foreign corporation.
(e)
(2)
(i) The amount of unused CFC taxes that are carried to the taxable year under paragraph (e)(1) of this section; or
(ii) The excess (if any) of the amount described in paragraph (c)(1)(ii) of this section for the taxable year over the amount described in paragraph (c)(1)(i) of this section for the taxable year.
(3)
(f)
(g)
(h)
(i)
(1)
(ii)
(2)
(ii)
(3)
(ii)
(j)
The addition and revision read as follows:
(a) * * *
(10) The alternative minimum tax imposed by section 55(a).
(d)
(2)
(a)
(b)
(i)
(ii)
(2)
(3)
(4)
(i) Applying all unused credits that can be carried to such prior year in the order of the taxable years in which such unused credits arose, beginning with the taxable year which ends earliest; and
(ii) Applying all such unused credits that can be carried to such prior year from taxable years ending on the same date on a pro rata basis.
(5)
(i) The group's consolidated regular tax liability for such consolidated return year reduced by the sum of the credits allowable under subparts B, D, E, and F of part IV of subchapter A of chapter 1 of the Code, increased by the amount of tax imposed under section 59A of the Code for the consolidated return year; over
(ii) The group's consolidated tentative minimum tax for the consolidated return year.
(c)
(i) The aggregate for all consolidated return years of the member's contributions to the consolidated section 53(c) limitation for each consolidated return year (determined under paragraph (c)(2) of this section); reduced by
(ii) The aggregate of consolidated MTCs attributable to the member (determined in the manner provided in § 1.1502-56A(j)) that are absorbed in all consolidated return years (whether or not absorbed by the member).
(2)
(ii)
(iii)
(iv)
(v)
(d)
(2)
(3)
(4)
(i)
(ii)
(e)
(a)
(2)
(b)
(1)
(2)
(3)
(4)
(5)
(ii)
(6)
(7)
(8)
(9)
(10)
(11)
(c)
(1)
(2)
(i) Disregarding each AFS consolidation entry regarding—
(A) A transaction between a member and a non-member;
(B) A member's investment in a non-member; and
(C) A non-member's investment in a member.
(ii) Taking into account each AFS consolidation entry regarding—
(A) A transaction between members; and
(B) A member's investment in another member.
(3)
(i)
(A) Each member that was a party to the transaction, that continued to exist after the transaction, and that had effects from that transaction (or the member's successor in a section 381(a) transaction) continues to be a member of that tax consolidated group at the end of the group's taxable year; and
(B) All property that is the subject of the transaction continues to be held by the tax consolidated group at the end of the group's taxable year.
(ii)
(A)
(B)
(C)
(D)
(iii)
(A)
(B)
(4)
(5)
(i)
(B)
(C)
(D)
(ii)
(B)
(C)
(D)
(iii)
(d)
(2)
(i) Applying the rules that otherwise apply to the sale or exchange under the section 56A regulations; and
(ii) Using the CAMT basis (as determined under paragraph (d)(3) of this section).
(3)
(A) The regular tax basis of the subsidiary member stock in the hands of the shareholder member on the first day of the shareholder member's first taxable year beginning after December 31, 2019 (
(B) Any adjustments described in § 1.56A-18(c)(2); and
(C) Any adjustments described in paragraph (d)(3)(iii) of this section.
(ii)
(A) The CAMT basis of the subsidiary member stock immediately after the acquisition of that stock;
(B) Any adjustments described in § 1.56A-18(c)(2); and
(C) Any adjustments described in paragraph (d)(3)(iii) of this section.
(iii)
(B)
(e)
(2)
(3)
(4)
(i)
(B)
(ii)
(B)
(iii)
(B)
(f)
(2)
(i) Any consolidated FSNOL of the tax consolidated group; and
(ii) Any FSNOLs of the members of the group arising in the respective separate return years (as defined in § 1.1502-1(e)) of those members (to the extent available for use under § 1.56A-23 and this section).
(3)
(ii)
(A) The aggregate amount of FSNOLs carried to that consolidated return year; or
(B) The amount determined by multiplying 80 percent by the consolidated AFSI for the group for that year, computed without regard to the FSNOL deduction allowable under section 56A(d).
(4)
(ii)
(iii)
(iv)
(5)
(ii)
(B)
(C)
(iii)
(iv)
(B)
(C)
(D)
(6)
(i)
(ii)
(iii)
(g)
(h)
(2)
(i) Any consolidated CFC adjustment carryovers of the tax consolidated group; and
(ii) Any CFC adjustment carryovers of the members of the group arising in the respective separate return years (as defined in § 1.1502-1(e)) of those members to the extent available for use under § 1.56A-6 and this section.
(3)
(4)
(ii)
(iii)
(5)
(6)
(i)
(B)
(C)
(ii)
(B)
(i)
(2)
(i) Any unused CFC taxes of the tax consolidated group to the extent available for use under § 1.59-4(e); and
(ii) Any unused CFC taxes of members of the group arising in the respective separate return years (as defined in § 1.1502-1(e)) of those members (or predecessors of those members within the meaning of § 1.1502-1(f)(4)) to the extent available for use under § 1.59-4(e).
(3)
(i) The product of the § 1.56A-6(b)(1) adjustment generated by the member and the percentage specified in section 55(b)(2)(A)(i) for the consolidated return year; over
(ii) The aggregate of the member's pro rata shares of taxes of controlled foreign corporations with regard to which it is a United States shareholder, as determined under § 1.59-4(d), for the consolidated return year.
(4)
(ii)
(5)
(A) All unused CFC taxes of the departing member arising in all separate return years of the departing member that have not been absorbed by the tax consolidated group; and
(B) The portion of the consolidated unused CFC taxes for each consolidated return year of which the departing member was a member of the group that have not been absorbed by the group multiplied by a fraction, the numerator of which is the amount of CFC taxes described in § 1.59-4(c)(1)(i) of the member for the year, and the denominator of which is the amount of CFC taxes described in § 1.59-4(c)(1)(i) of the group for the year.
(ii)
(iii)
(iv)
(v)
(A)
(B)
(j)
(2)
(3)
(i)
(ii)
(4)
(k)
(2)
(l)
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
Cboe C2 Exchange, Inc. (the “Exchange” or “C2”) proposes to amend its fee schedule entitled “Consolidated Audit Trail Funding Fees”
The text of the proposed rule change is also available on the Exchange's website (
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required the self-regulatory organizations (“SROs”) to submit a national market system (“NMS”) plan to create, implement and maintain a consolidated audit trail that would capture customer and order event information for orders in NMS securities across all markets, from the time of order inception through routing, cancellation, modification or execution.
The CAT Funding Model provides a framework for the recovery of the costs to create, develop and maintain the CAT, including providing a method for allocating costs to fund the CAT among Participants and Industry Members. The CAT Funding Model establishes two categories of fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry Members to recover a portion of historical CAT costs previously paid by the Participants (“Historical CAT Assessment” fees); and (2) CAT fees assessed by CAT LLC and payable by Participants and Industry Members to fund prospective CAT costs (“Prospective CAT Costs” fees).
Under the CAT Funding Model, “[t]he Operating Committee will establish one or more fees (each a `Historical CAT Assessment') to be payable by Industry Members with regard to CAT costs previously paid by the Participants (`Past CAT Costs').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed to contribute toward the recovery of two-thirds of the Historical CAT Costs. Because the Participants previously have paid Past CAT Costs via loans to the Company, the Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs will be paid by the cancellation of loans made by the Participants to the Company on a pro rata basis based on the outstanding loan amounts due under the loans, instead of through the payment of a CAT fee.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail below) Historical CAT Assessment 1 to recover certain historical CAT costs incurred prior to January 1, 2022, in accordance with the CAT Funding Model. To implement this fee on behalf of CAT LLC, the CAT NMS Plan requires the Participants to “file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees shall be labeled as `Consolidated Audit Trail Funding Fees.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange:
The Operating Committee determined the Historical Fee Rate to be used in calculating Historical CAT Assessment 1 (“Historical Fee Rate 1”) by dividing the Historical CAT Costs for Historical CAT Assessment 1 (“Historical CAT Costs 1”) by the projected total executed share volume of all transactions in Eligible Securities for the Historical Recovery Period for Historical CAT Assessment 1 (“Historical Recovery Period 1”), as discussed in detail below. Based on this calculation, the Operating Committee has determined that Historical Fee Rate 1 would be $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
Under the CAT NMS Plan, for purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (1) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (2) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Options (
The CAT NMS Plan states that “[t]he Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment.”
The following describes in detail Historical CAT Costs 1 with regard to four separate historical time periods as well as Past CAT Costs excluded from Historical CAT Costs 1 (“Excluded Costs”). The following cost details are provided in accordance with the requirement in the CAT NMS Plan to provide in the fee filing “a brief description of the amount and type of Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs.”
Historical CAT Costs 1 would include costs incurred by CAT prior to June 22, 2020 (“Pre-FAM Period”) and already funded by the Participants, excluding Excluded Costs (described further below). Historical CAT Costs 1 would include costs for the Pre-FAM Period of $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). These costs do not include Excluded Costs, as discussed further below. The following table breaks down Historical CAT Costs 1 for the Pre-FAM Period into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The Pre-FAM Period
The $10,268,840 in technology costs for cloud hosting services represent costs incurred for services provided by the cloud services provider for the CAT, Amazon Web Services, Inc. (“AWS”), during the Pre-FAM Period.
As part of its proposal for acting as the successor Plan Processor for the CAT, FCAT selected AWS as a subcontractor to provide cloud hosting services. In 2019, after reviewing the capabilities of other cloud services providers, FCAT determined that AWS was the only cloud services provider at that time sufficiently mature and capable of providing the full suite of necessary cloud services for the CAT, including, for example, the security, resiliency and complexity necessary for the CAT computing requirements. The use of cloud hosting services is standard for this type of high-volume data activity and reasonable and necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT the fees incurred by the Plan Processor for cloud hosting services provided by AWS as FCAT's subcontrator [
AWS was engaged by FCAT to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. Services provided by AWS include storage services, databases, compute services and other services (such as networking, management tools and DevOps tools). AWS also was engaged to provide various environments for CAT, such as development, performance testing, test and production environments.
The cost for AWS services for the CAT is a function of the volume of CAT Data. The greater the amount of CAT Data, the greater the cost of AWS services to the CAT. During the Pre-FAM Period from the engagement of AWS in February 2019 through June 2020, AWS provided cloud hosting services for volumes of CAT Data far in excess of the volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan states, when all CAT Reporters are submitting their data to the CAT, it “must be sized to receive[,] process and load more than 58 billion records per day,”
The $21,085,485 in technology costs related to operating fees represent costs incurred with regard to activities of FCAT as the Plan Processor. Operating fees are those fees paid by CAT LLC to FCAT as the Plan Processor to operate and maintain the CAT and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
The Selection Subcommittee considered factors including, but not limited to, the following, in recommending FINRA to the Operating Committee as the successor Plan Processor:
a. FINRA's specialized technical expertise and capabilities in the area of broker-dealer technology;
b. The need to appoint a successor Plan Processor with specialized expertise to develop, implement, and maintain the CAT System in accordance with the CAT NMS Plan and SEC Rule 613;
c. FINRA's detailed proposal in response to CATLLC's recent inquiries; and
d. FINRA's data query and analytics systems demonstration to the Participants.
Based on these and other factors, the Selection Subcommittee determined that FINRA was the most appropriate Bidder to become the successor Plan Processor.
On February 26, 2019, the Operating Committee (with FINRA recusing itself) voted to select FINRA as the successor Plan Processor pursuant to Section 6.1(t) of the CAT NMS Plan.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT a negotiated monthly fixed price for the operation of the CAT. This fixed price contract was negotiated on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity. The operating fees during the Pre-FAM Period were paid to FCAT by CAT LLC.
From March 29, 2019 (the commencement of the Plan Processor Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM Period), the Plan Processor's activities with respect to the CAT included the following:
• Commenced user acceptance testing with market data provided by Exegy Incorporated (“Exegy”), a market data provider;
• Published Technical Specifications and related reporting scenarios documents for Phase 2a, 2b and 2c reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated testing for Phase 2a and 2b reporting for Industry Members;
• Began developing Technical Specifications and related reporting scenarios documents for Phase 2d reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published Central Repository Access Technical Specifications, and provided regulator access to test data from Industry Members;
• Facilitated Participant exchanges that support options market makers sending Quote Sent Time to the CAT;
• Facilitated the introduction of OPRA and Options NBBO Other Data to CAT;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing requirements under Regulation SCI;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants, the SEC and its staff;
• Operated the FINRA CAT Helpdesk, which is the primary source for answers to questions about CAT, including questions regarding: clock synchronization, firm reporting responsibilities, interpretive questions, technical specifications for reporting to CAT and more;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
The $2,072,908 in technology costs related to CAIS operating fees represent the fees paid for FCAT's subcontractor charged with the development and operation of CAT's Customer and Account Information System (“CAIS”). The CAT is required under the CAT NMS Plan to capture and store Customer Identifying Information and Customer Account Information in a database separate from the transactional database and to create a CAT-Customer-ID for each Customer.
During the Pre-FAM Period, the CAIS-related services were provided by the Plan Processor through the Plan Processor's subcontractor, Kingland Systems Incorporation (“Kingland”). Kingland had experience operating in the securities regulatory technology space, and as a part of its proposal for acting as the Plan Processor for the CAT, FCAT selected Kingland as a subcontractor to provide certain CAIS-related services.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay to the Plan Processor the fees incurred by FCAT for CAIS-related services provided by FCAT through Kingland on a monthly basis. FCAT negotiated the fees for Kingland's CAIS-related services on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity. The fees for CAIS-related services during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, paid Kingland.
During the Pre-FAM Period, Kingland began development of the CAIS Technical Specifications and the building of CAIS. In addition, Kingland also worked on the build related to the CCID Alternative, an alternative approach to customer information that was not included in the CAT NMS Plan as originally adopted.
The technology costs related to change request fees include costs related to certain modifications, upgrades or other changes to the CAT. Change requests are standard practice and necessary to reflect operational changes, including changes related to new market developments, such as new market participants. In general, if CAT LLC determines that a modification, upgrade or other change to the functionality or service is necessary and appropriate, CAT LLC will submit a request for such a change to the Plan Processor. The Plan Processor will then respond to the request with a proposal for implementing the change, including the cost (if any) of such a change. CAT LLC then determines whether to approve the proposed change. The change request costs were paid by CAT LLC to FCAT. During the Pre-FAM Period, CAT LLC incurred costs of $141,346 related to change requests implemented by FCAT. Such change requests related to a development fee regarding the OPRA and SIP data feeds, and the reprocessing of certain exchange data.
This category of costs includes capitalizable application development costs incurred in the development of the CAT. The capitalized developed technology costs for the Pre-FAM Period of $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
On January 17, 2017, the Selection Committee of the CAT NMS Plan selected the Initial Plan Processor, Thesys Technologies, LLC, for the CAT NMS Plan pursuant to Article V of the CAT NMS Plan.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT, but excluding the period from November 15, 2017 through January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical Specifications, Industry Member Technical Specifications and the Central Repository Access Technical Specifications. In addition, Thesys CAT also developed CAT technology, addressed compliance items, including
The legal costs of $19,674,463 represent the fees paid for legal services provided by two law firms, Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) and Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), during the Pre-FAM Period. The legal costs exclude those costs incurred from November 15, 2017 through November 15, 2018.
WilmerHale's billing rates are negotiated on an annual basis and are determined with reference to the rates charged by other leading law firms for similar work. The Participants assess WilmerHale's performance and review prospective budgets and staffing plans submitted by WilmerHale on an annual basis. WilmerHale's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading law firms for similar work.
The legal costs for WilmerHale during the Pre-FAM Period included costs incurred from 2013 until June 22, 2020 to address corporate and regulatory legal matters related to the CAT. The legal fees for this law firm during the period from February 2013 until the formation of the CAT NMS, LLC on November 15, 2016 were paid directly by the exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, the legal fees were paid by CAT LLC to WilmerHale.
After WilmerHale was engaged in 2013 through the end of the Pre-FAM Period on June 22, 2020 (excluding the legal costs from November 15, 2017 through November 15, 2018), WilmerHale provided legal assistance to the CAT on a variety of matters, including with regard to the following:
• Analyzed various legal matters associated with the Selection Plan, and drafted an amendment to the Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the Development Advisory Group (“DAG”);
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan and related filings;
• Negotiated and drafted the plan processor agreements with the Initial Plan Processor and the successor Plan Processor;
• Provided assistance with compliance with Regulation SCI;
• Assisted with clock synchronization study;
• Provided assistance with respect to the establishment of CAT security;
• Drafted exemptive requests from CAT NMS Plan requirements, including with regard to options market maker quotes, Customer IDs, CAT Reporter IDs, linking allocations to executions, CAT reporting timeline, FDIDs, customer and account information, timestamp granularity, small industry members, data facility reporting and linkage, allocation reports, SRO-assigned market participant identifiers and cancelled trade indicators, thereby seeking to implement changes that would be cost effective and benefit Industry Members and Participants;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided advice regarding CAT policies and procedures;
• Analyzed the SEC's amendment of the CAT NMS Plan regarding financial accountability;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues; and
• Assisted with third-party vendor agreements.
The consulting costs of $17,013,414 represent the fees paid to the consulting firm Deloitte & Touche LLP (“Deloitte”) as project manager during the Pre-FAM Period, from October 2012 until June 22, 2020. These consulting costs include costs for advisory services related to the operation of the CAT, and meeting facilitation and communications coordination, vendor support and financial analyses.
To help facilitate project management given the unprecedented complexity and scope of the CAT project, the Participants determined it was necessary to engage a consulting firm to assist with the CAT project in 2012, following the adoption of Rule 613. A variety of factors were considered in the analysis of prospective consulting firms, including (1) the firm's qualifications, resources, and expertise; (2) the firm's relevant experience and understanding of the regulatory issues raised by the CAT and in coordinating matters of similar scope; (3) the composition of the consulting team; and (4) professional fees. Following a series of interviews, the exchanges and FINRA as a consortium determined that Deloitte was well qualified given the balance of these considerations and engaged Deloitte on October 1, 2012.
Deloitte's fee rates are negotiated on an annual basis and are in line with market rates for this type of specialized consulting work. CAT LLC assesses Deloitte's performance and reviews prospective budgets and staffing plans submitted by Deloitte on an annual basis. Deloitte's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading consulting firms for similar work.
The consulting costs for CAT during the period from 2012 until the formation of the CAT NMS, LLC were paid directly by the Participants to Deloitte. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each month and approved the invoices.
After Deloitte was hired in 2012 through the end of the Pre-FAM Period on June 22, 2020 (excluding the consulting costs from November 15, 2017 through November 15, 2018), Deloitte provided a variety of consulting services, including the following:
• Established and implemented program operations for the CAT project, including the program managment [
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participant's independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Assisted with cost and funding-related activities for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with industry outreach and communications regarding the CAT, including assistance with industry outreach events, the development of the CAT website, frequently asked questions, and coordinating with the CAT LLC's public relations firm;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress;
• Coordinated efforts regarding the selection of the successor Plan Processor;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor, including support for the Operating Committee and successor Plan Processor for the new role; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $880,419 represent the cost incurred for insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT LLC performed an evaluation of various potential alternatives for CAT insurance policies, which included engaging in discussions with different insurance companies and conducting cost comparisons of various alternative approaches to insurance. Based on an analysis of a variety of factors, including coverage and premiums, CAT LLC determined to purchase cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance from USI Insurance Services LLC (“USI”). Such policies are standard for corporate entities, and cyber security liability insurance is important for the CAT System. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial statements be prepared in compliance with GAAP, audited by an independent public accounting firm, and made
After Anchin was hired in April 2018 through the end of the Pre-FAM Period on June 22, 2020 (excluding the period from April 2018 through November 15, 2018), Anchin provided a variety of services, including the following:
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial reporting matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy from July 2018 through March 2019. CAT LLC determined that, unlike certain other vendors, Exegy provided market data that included all data elements required by the CAT NMS Plan.
Upon the termination of the contract between CAT LLC and Exegy, FCAT entered into a contract with Exegy to purchase the required market data from Exegy in July 2019. All costs under the contract were treated as a direct pass through cost to CAT LLC. Therefore, the fees for the market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for the market data.
The public relations costs of $224,669 represent the fees paid to public relations firms during the Pre-FAM Period for professional communications services to CAT, including media relations consulting, strategy and execution. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. Specifically, the public relations firms provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
The services performed by each of the public relations firms were comparable. The fees for such services were reasonable and in line with market rates. Only one public relations firm was engaged at a time; the three firms were engaged sequentially as the primary public relations contact moved among the three firms during this time period.
(ii)
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 1 of the Financial Accountability Milestones (“FAM Period 1”),
By the
CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 1 Period. Accordingly, the $2,642,122 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 1. The fee arrangement for AWS described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC continued to believe that AWS's maturity in the cloud services space as well as the significant cost and time
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 1 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, reference data and other types of Other Data. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 1.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 1. Accordingly, the $1,099,680 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 1. The fee arrangement for FCAT described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, FCAT's activities with respect to the CAT included the following:
• Published iterative drafts of draft Technical Specifications for Phase 2d, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published iterative drafts of CAIS Technical Specifications, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated Industry Member reporting of Quote Sent Time on Options Market Maker quotes;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 1. Accordingly, the $254,998 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 1. The fee arrangement for Kingland described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to CCID Alternative, as well as the acceleration of the reporting of LTIDs.
CAT LLC did not incur costs related to change requests during FAM Period 1.
Capitalized developed technology costs for FAM Period 1 of $1,684,870 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include: (1) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including separate production and industry test entitlements, and reprocessing of exchange event timestamps; (2) implementation fees; and (3) license fees.
The legal costs of $481,687 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 1.
• Assisted with the development of the CAT funding model and drafted related amendments and fee filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, verbal activity, options market maker quote sent time, TRF linkages, and allocations;
• Provided interpretations related to CAT NMS Plan requirements, including the Financial Accountability Milestone amendment;
• Assisted with compliance with Regulation SCI;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the drafting of the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Assisted with communications and presentations for the industry regarding CAIS;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment;
• Provided guidance regarding CAT technical specifications;
• Assisted with third-party vendor agreements; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $137,209 represent the fees paid to Deloitte as project manager during FAM Period 1. CAT LLC continued to employ Deloitte during FAM Period 1 based on, among other things, their expertise and cumulative experience with the CAT. The fee rates for Deloitte during FAM Period 1 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 1, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• Maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups; and
• Prepared monthly and quarterly financial statements.
The public relations costs of $7,700 represent the fees paid to Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak Strategies during FAM Period 1 based on, among other things, their expertise and history with the project. The fee rates for this firm were reasonable and in line with market rates for these types of services. The fees for these services during FAM Period 1 were paid by CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies continued to provide professional communications services to CAT LLC, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already funded by Participants during Period 2 of the Financial Accountability
By
(a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS reporters) for equities transactions, excluding Customer Account Information, CustomerID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission.
CAT LLC completed the requirements of FAM Period 2 by December 31, 2020. The following describes the costs for each of the categories for FAM Period 2.
CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 2 Period. Accordingly, the $20,709,212 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 2. The fee arrangement for AWS described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 2 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, and Other Data, including reference data. In addition, Industry Members began reporting LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 2.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 2. Accordingly, the $9,108,700 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 2. The fee arrangement for FCAT described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, FCAT's activities with respect to the CAT included publishing the Technical Specifications for Phase 2d and overseeing the reporting of firm to firm and intrafirm linkages by Industry Members. In addition, FCAT also continued to engage in the following activities during FAM Period 2:
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the development and implementation of the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 2. The fee arrangement for Kingland described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs.
During FAM Period 2, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 2, CAT incurred costs of $51,823 related to a change request regarding the addition of functionality for exchange Participants to report rejected messages to the CAT.
Capitalized developed technology costs for FAM Period 2 of $6,761,094 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to separate production and industry test entitlements, market maker reference data, and back-processing of exchange exception logic; (3) implementation fees; and (4) license fees.
The legal costs of $2,766,644 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 2.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, allocations, exchange activity, OTQT, initial data validation, error corrections and recordkeeping;
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittees, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for the Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Assisted with third-party vendor agreements (
• Assisted with change requests; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $532,146 represent the fees paid to Deloitte as project manager during FAM Period 2. CAT LLC continued to employ Deloitte during FAM Period 2 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 2 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 2, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $976,098 represent the fees paid for insurance during FAM Period 2. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $438,523 represent the fees paid to Anchin and Grant Thornton for financial services provided during FAM Period 2.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from the Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audit by an independent auditor; and
• Reviewed historical costs from inception.
The public relations costs of $41,940 represent the fees paid to Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak Strategies during FAM Period 2 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 2 were paid by CAT LLC to Peak Strategies. During FAM Period 2, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 3 of the Financial Accountability Milestones (“FAM Period 3”),
By
(a) reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)-(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met.
CAT LLC completed the requirements of FAM Period 3 by December 31, 2021. The following describes the costs for each of the categories for FAM Period 3.
CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 3 Period. Accordingly, the $94,574,759 in technology costs for cloud hosting services represents costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 3. The fee arrangement for AWS described above for the earlier periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During FAM Period 3, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a, Phase 2b, Phase 2c and Phase 2d Industry Member Data (including certain linkages), SIP Data, Other Data, including reference data, and LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 3.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 3. Accordingly, the $23,106,091 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 3. The fee arrangement for FCAT described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, FCAT's activities with respect to the CAT included the following:
• Facilitated Phase 2c and Phase 2d testing for Industry Members;
• Oversaw creation of linkages of the lifecycle of order events based on the received data through Phase 2d;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement with FCAT discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 3. Accordingly, the $5,562,383 in technology costs for CAIS operating fees represents costs incurred for services provided by Kingland during FAM Period 3. The fee arrangement for Kingland described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. The full CAIS Technical Specifications were published during FAM Period 3.
During FAM Period 3, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 3, CAT incurred costs of $396,169 related to change requests, including the following: (1) the addition of functionality for exchange Participants to report rejected messages to the CAT; (2) the migration of MIRS query engine to AWS to reduce operational costs and increase resiliency; and (3) updating the Participant Technical Specifications to allow for two-sided Participant option quote reporting.
Capitalized developed technology costs for FAM Period 3 of $10,763,372 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor, including the transition from equity data received by FINRA pursuant to various regulatory services agreements between FINRA and Participant exchanges to the equity CAT Data, and the completion of the Industry Member Phase 2d options manual and complex orders go-live requirements; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to off-exchange volume concentration, Participant 24-hour trading and an external metastore; (3) implementation fees; and (4) license fees.
The legal costs of $6,333,248 represent the fees paid for legal services provided by three law firms, WilmerHale, Pillsbury and Covington & Burling LLP (“Covington”) during FAM Period 3.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements, including, for example, verbal activity regarding Phase 2c cutover, error reports, error corrections, Phase 2d Reporting, unique Order-ID on internal route events,
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs, CAIS requirements, ADF, and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6(c) of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the SEC's exemptive orders;
• Assisted with communications with the industry, includng CAT Alerts and presentations;
• Provided guidance regarding the confidentiality of CAT Data, including third-party information requests;
• Assisted with cost management analysis and proposals; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
After Covington was hired in 2021 through the end of 2021, the firm provided legal assistance regarding the litigation with the SEC regarding the 2020 Orders. These services included researching, drafting, and filing motions to stay the 2020 orders and related materials in proceedings before the SEC, as well as researching, drafting, and filing petitions for judicial review of the 2020 Orders in proceedings before the U.S. Court of Appeals for the D.C. Circuit. Covington oversaw ongoing litigation proceedings on these matters, and also supported WilmerHale with respect to settlement negotiations with the SEC staff regarding the 2020 Orders.
In addition to these services, CAT LLC engaged Covington in November 2021 to provide assistance with respect to the SEC's disapproval of CAT NMS Plan amendments concerning a proposed limitation on liability in the event of a data breach or similar event. Covington provided advice concerning CAT's response to the SEC's disapproval order. This work accounted for a minority of Covington's fees in 2021.
The consulting costs of $1,408,209 represent the fees paid to Deloitte as project manager during FAM Period 3. CAT LLC continued to employ Deloitte during FAM Period 3 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 3 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 3, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $1,582,714 represent the fees paid for insurance during FAM Period 3. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $92,400 represent the fees paid to Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak Strategies during FAM Period 3 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 3 were paid by CAT LLC to Peak Strategies. During FAM Period 3, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
First, Historical CAT Costs 1 would not include $14,749,362 of costs related to the conclusion of the relationship with the Initial Plan Processor. Such costs include costs related to the American Arbitration Association, the legal assistance of Pillsbury with regard to the arbitration with the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during this one-year period of $48,874,937 from fees charged to Industry Members due to the delay in the start of reporting to the CAT. The Participants would remain responsible for 100% of these $48,874,937 in costs. The following table breaks down these costs into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The following provides additional detail regarding the Excluded Costs.
CAT LLC did not incur technology costs related to the categories of cloud hosting services, operating fees, CAIS operating fees or change requests during the period from November 15, 2017 through November 15, 2018.
Capitalized developed technology costs for the period from November 15, 2017 through November 15, 2018 include capitalizable application development costs of $37,852,083 incurred in the development of the CAT by the Initial Plan Processor. Such costs include development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Initial Plan Processor. Such costs include costs related to Industry Member technical specifications for orders and transactions, the system security plan, testing and production for Participant CAT reporting, third-party security assessment and response, query portal, onboarding of the Chief Information Security Officer, and ingestion of FINRA TRF data and FINRA data related to halts and corporate actions.
The legal costs of $6,143,278 represent the fees paid to WilmerHale for legal services from November 15, 2017 through November 15, 2018. During this period, WilmerHale provided legal assistance to the CAT including with regard to the following:
• Provided legal support for the governance of the CAT, including governance support for the Operating Committee, Advisory Committee, Compliance Subcommittee, and CAT working groups;
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan;
• Provided assistance related to CAT security;
• Drafted exemptive requests, including requests related to PII;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided advice with regard to regulator access to the CAT;
• Assisted with the Plan Processor transition;
• Provided assistance regarding communications with the industry regarding the CAT;
• Provided advice regarding Customer Account Information and PII;
• Provided support for litigation related to SEC exemptive orders; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretative and implementation issues.
The consulting costs of $4,452,106 represent the fees paid to Deloitte for their role as project manager for the CAT from November 15, 2017 through November 15, 2018. During this period, Deloitte engaged in the following activities with respect to the CAT:
• Implemented program operations for the CAT project;
• Provided governance support to the Operating Committee, including support for Subcommittees and working groups of the Operating Committee (
• Assisted with cost and funding issues for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
The professional and administration costs of $340,145 represent the fees paid to Anchin, Exegy and RSM from November 15, 2017 through November 15, 2018.
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $87,325 represent the fees paid to Sloane from November 15, 2017 through November 15, 2018. From the commencement of its engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
Under the CAT NMS Plan, the Operating Committee is required to reasonably establish the length of the Historical Recovery Period used in calculating each Historical Fee Rate based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment, and to describe the reasons for its length.
The Operating Committee determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans to the Participants in a timely fashion. The Operating Committee determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
The length of the Historical Recovery Period 1 and the reasons for its length are provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
The calculation of Historical Fee Rate 1 also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for Historical Recovery Period 1. Under the CAT NMS Plan, the Operating Committee is required to “reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating Committee has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. The Operating Committee determined that such an approach was reasonable as the CAT's annual executed equivalent share
The projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1 and a description of the calculation of the projection is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
Historical Fee Rate 1 would be calculated by dividing Historical CAT Costs 1 by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1, as described in detail above.
Participants would not be required to pay any fees associated with Historical CAT Assessment 1 as the Participants previously have paid all Past CAT Costs. The CAT NMS Plan explains that:
Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
CEBBs and CEBSs would be required to pay fees for Historical CAT Assessment 1 on a monthly basis for the period in which Historical CAT Assessment 1 is in effect.
The CAT NMS Plan states that, “[n]otwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
The CAT NMS Plan states that:
Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis. Each month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, “as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.
The proposed language in paragraph (a)(1)(A) of the fee schedule would describe when CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1. Specifically, CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1 in November 2024 and the fees set forth in that invoice would be calculated based on transactions executed in the prior month, that is, transactions executed in October 2024. The payment for the first invoice would be required within 30 days after the receipt of the first invoice (unless a longer period is indicated), as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule also would describe the monthly cadence of the invoices for Historical CAT Assessment 1. Specifically, after the first invoices are provided to CAT Executing Brokers in November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule would state that “Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis.” Proposed paragraph (a)(1)(B) of the fee schedule also would describe the fees to be set forth in the invoices for Historical CAT Assessment 1. Specifically, it would state that “[e]ach month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule would describe how long Historical CAT Assessment 1 would remain in effect. It would state that “Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time.” This proposed paragraph would further state that “Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.”
Historical CAT Assessment 1 will be assessed for all transactions executed in each month through the end of the month in which two-thirds of Historical CAT Costs 1 are assessed, and then CAT LLC will provide notice that Historical CAT Assessment 1 is no longer in effect. Since Historical CAT Assessment 1 is a monthly fee based on transaction volume from the prior month, Historical CAT Assessment 1 may collect more than two-thirds of Historical CAT Costs 1. To the extent that occurs, any excess money collected during the final month in which Historical CAT Assessment 1 is in effect will be used to offset future fees and/or to fund the reserve for the CAT.
Finally, proposed paragraph (a)(1)(D) of the fee schedule sets forth the requirement for the CAT Executing Brokers to pay the invoices for Historical CAT Assessment 1. It would state that “[e]ach CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of CAT fees.
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due (as determined in accordance with the preceding sentence), such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (a) the Prime Rate plus 300 basis points; or (b) the maximum rate permitted by applicable law.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If a CAT Executing Broker fails to pay any such CAT fee when due, such CAT Executing Broker shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 300 basis points, or (ii) the maximum rate permitted by applicable law.
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
The CAT NMS Plan states that:
Details regarding the calculation of a CAT Executing Broker's Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker's executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS Plan states that, “[f]or each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise on an exchange, and (3) by buy-side transactions and sell-side transactions.”
Furthermore, CAT LLC will make publicly available on the CAT website the total amount invoiced each month that Historical CAT Assessment 1 is in effect as well as the total amount invoiced for Historical CAT Assessment 1 for all months since its commencement. CAT LLC also will make publicly available on the CAT website the total costs to be collected from Industry Members for Historical CAT Assessment 1. By reviewing statistics regarding how much has been invoiced and how much remains to be invoiced for Historical CAT Assessment 1, Industry Members would have sufficient information to reasonably track how much longer Historical CAT Assessment 1 is likely to be in place.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided CAT Executing Brokers with a preview of the transaction data used in creating the invoices for Historical CAT Assessment 1 fees, as the data will be the same as data provided in actual invoices. Such data preview is intended to facilitate the payment of Historical CAT Assessment 1.
The CAT NMS Plan states that “[n]o Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied.”
In accordance with Section 11.6(b) of the CAT NMS Plan, Historical CAT Assessment 1 seeks to recover costs that are related to “all fees, costs, and expenses (including legal and consulting fees, costs, and expenses) incurred by or for the Company in connection with the development, implementation and operation of the CAT from the effective date of [Section 11.6 of the CAT NMS Plan] until such time as Full Implementation of CAT NMS Plan Requirements has been achieved”
The reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of both: (a) equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information; and (b) options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry Members—excluding Small Industry Members that are not OATS reporters—
In adopting the FAMs, the Commission stated that the equities transaction reporting required for FAM Period 1 “is consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Equities 2a file submission and data integrity validations.' ”
• All events and scenarios covered by OATS, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions;
• Reportable Events for: (1) proprietary orders, including market maker orders, for Eligible Securities that are equities; (2) electronic quotes in listed equity Eligible Securities (
• Firm Designated IDs (“FDIDs”), which Industry Members must report to the CAT as required by Sections 6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT NMS Plan;
• Industry Members would be required to report all street side representative orders, including both agency and proprietary orders and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications;
• The link between the street side representative order and the order being represented when: (1) the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member's system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member's system;
• Manual and Electronic Capture Time for Manual Order Events;
• Special handling instructions for the original receipt or origination of an order during Phase 2a; and
• When routing an order, whether the order was routed as an intermarket sweep order (“ISO”).
In Phase 2a, Industry Members were not required to report modifications of a previously routed order in certain limited instances, nor were they required to report a cancellation of an order received from a Customer after the order has been executed.
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Equities 2a file submission and data integrity validation (Large Industry Members and Small OATS Reporters)” was completed on June 22, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information” was completed on June 22, 2020.
In adopting the FAMs, the Commission stated that the options transaction reporting required for FAM Period 1 is “consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Options 2b file submission and data integrity validations.' ”
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Options 2b file submission and data integrity validations” was completed on July 20, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information” was completed on July 20, 2020.
As discussed above, the Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from June 22, 2020 through July 31, 2020. The total costs for this period, as discussed above, are $6,377,343. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third ($2,125,781).
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 began on August 1, 2020, and concluded on December 31, 2020, the date of the Full Implementation of Core Equity Reporting. Section 1.1 of the CAT NMS Plan defines “Full Implementation of Core Equity Reporting” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2020,
Specifically, the Full Implementation of Core Equity Reporting requires the satisfaction of two prongs. The first prong requires Participants to have fully implemented the first phase of equities transaction reporting for Industry Members (excluding Small Industry Members that are not OATS reporters) at an Error Rate of less than 5%. In addition, equities transaction data produced by the CAT at this stage must also be sufficiently interlinked so as to permit full analysis of an order's lifecycle across the national market, excluding full linkage of representative orders. As CAT LLC reported on its Quarterly Progress Reports, Phase 2a was fully implemented as of October 26, 2020, including intra-firm, inter-firm, national securities exchange, and trade reporting facilities linkages.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “Production Go-Live for Firm to Firm Linkage validations for Equities 2a (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020; and
• “Production Go-Live for Equities 2a Exchange and TRF Linkage validations (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020.
Furthermore, as CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2020, the average overall error rate for Phase 2a Industry Member Data was less than 5% as of December 31, 2020. The average overall error rate was calculated by dividing the compliance errors by processed records.
The second prong of this FAM requires that the equities transaction data collected by the CAT at this stage be made available to regulators through two basic query tools required by the CAT NMS Plan—a targeted query tool that will enable regulators to retrieve data via an online query screen with a variety of predefined selection criteria, and a user-defined direct query tool that will provide regulators with the ability to query data using all available attributes and data sources.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from August 1, 2020 through December 31, 2020. The total costs for this period, as discussed above, are $42,976,478. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 began on January 1, 2021, and concluded on December 31, 2021, the date of the Full Availability and Regulatory Utilization of Transactional Database Functionality. Section 1.1 of the CAT NMS Plan defines “Full Availability and Regulatory Utilization of Transactional Database Functionality” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2021,
Specifically, the “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires the satisfaction of five prongs. The first prong requires that reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021,
In addition to Phase 2a and Phase 2b Industry Member Data, the second and third prongs of “Full Availability and Regulatory Utilization of Transactional Database Functionality” require Industry Member reporting of Phase 2c Industry Member Data and Phase 2d Industry Member Data. The Phase 2c Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. That Order states that “Phase 2c Industry Member Data” is Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member Data. Specifically, the Phase 2c Industry Member Data includes Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter (reportable by the Industry Member sending the quotes) (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (
Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter's order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) an equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the ADF operated by FINRA; or (b) for unlisted equity securities to an “interdealer quotation system,” as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing;
The Phase 2d Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. “Phase 2d Industry Member Data” is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account
Phase 2d Industry Member Data also includes with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification Request events; (2) modifications of previously routed orders in certain instances; and (3) OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter that does not match and execute orders. In addition, subject to any exemptive or other relief, Phase 2d Industry Member Data will include verbal or manual quotes on an exchange floor or in the over-the-counter market, where verbal quotes and manual quotes are defined as bids or offers in Eligible Securities provided verbally or that are provided or received other than via a CAT Reporter's order handling and execution system (
The Quarterly Progress Report for the fourth quarter of 2021 states that “Phase 2a was fully implemented as of October 26, 2020;” “Phase 2b was fully implemented as of January 4, 2021;” “Phase 2c was implemented as of April 26, 2021;” and “Phase 2d was fully implemented as of December 13, 2021.”
• “Production Go-Live for Equities 2c reporting requirements (Large Industry Members)” was completed on April 26, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b and 2c (Large Industry Members)” was completed on April 26, 2021;
• “FCAT Plan Processor creates linkages of the lifecycle of order events based on the received data through Phase 2d Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2b reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Equities 2c reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2d (Large Industry Members)” was completed on December 13, 2021; and
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b, 2c and 2d (Small Industry Members)” was completed on December 13, 2021.
The third prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” also imposes an Error Rate requirement of 5% or less. The Quarterly Progress Report for the fourth quarter of 2021 states the average overall error rate was less than 5% as of December 31, 2021. The average overall error rate was calculated by dividing the compliance errors by processed records.
The fourth prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires that the data collected by the CAT at this stage be made available to regulators through an online targeted query tool and a user-defined direct query tool. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021, the query tool functionality incorporating the data from Phases 2a, 2b, 2c and 2d was available to the Participants and to the Commission as of December 31, 2021.
The fifth prong requires the requirements of Section 6.10(a) of the CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan requires the Participants to use the tools described in Appendix D to “develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.” The Exchange implemented a surveillance system, or enhanced existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository as of December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS Plan.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from January 1, 2021 through December 31, 2021. The total costs for this period, as discussed above, are $144,415,268. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• Analyzed various legal matters associated with the Selection Plan and drafted an amendment to Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management office and workstream design;
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is reasonable, taking into consideration a variety of factors, including the expected volume of data and the breadth of services provided and market rates for similar services.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
•
•
•
•
In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
•
•
•
To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
•
FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
•
•
•
•
•
•
•
In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
•
•
•
As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
•
•
•
•
•
•
By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange to collect certain of such costs in a fair and reasonable manner from Industry Members, as contemplated by the CAT NMS Plan.
The proposed Historical CAT Assessment 1 fees would be charged to Industry Members in support of the maintenance of a consolidated audit trail for regulatory purposes. The proposed fees, therefore, are consistent with the Commission's view that regulatory fees be used for regulatory purposes and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
As further discussed below, the SEC approved the CAT Funding Model, finding it was reasonable and that it equitably allocates fees among Participants and Industry Members. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
Section 11.1(b) of the CAT NMS Plan states that “[t]he Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves.” Per Section 11.1(b) of the CAT NMS Plan, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange believes that this proposal is consistent with the Exchange Act because it is consistent with, and implements, the CAT Funding Model in the CAT NMS Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The SEC has determined that the CAT Funding Model is reasonable and satisfies the requirements of the Exchange Act. Specifically, the SEC has concluded that the method for determining Historical CAT Assessments as set forth in Section 11.3 of the CAT NMS Plan, including the formula for calculating the Historical Fee Rate, the identification of the parties responsible for payment and the transactions subject to the fee rate for the Historical CAT Assessment, is reasonable and satisfies the Exchange Act.
The formula for calculating a Historical Fee Rate requires the amount of Historical CAT Costs to be recovered. Specifically, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to provide:
In accordance with this requirement, the Exchange has set forth the amount and type of Historical CAT Costs 1 for each of these categories of costs above.
Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that the fee filing provide “sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.” As discussed below, the Exchange believes that the amounts set forth in this filing for each of these cost categories is “reasonable and appropriate.” Each of the costs included in Historical CAT Costs 1 are reasonable and appropriate because the costs are consistent with standard industry practice, based on the need to comply with the requirements of the CAT NMS Plan, incurred subject to negotiations performed on an arm's length basis, and/or are consistent with the needs of any legal entity, particularly one with no employees.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover costs related to cloud hosting services as a part of Historical CAT Assessments.
To comply with the requirements of the Plan, the breadth of the cloud activities related to the CAT is substantial. The cloud services not only include the production environment for the CAT, but they also include two industry testing environments, support environments for quality assurance and stress testing and disaster recovery capabilities. Moreover, the cloud storage costs are driven by the requirements of the Plan, which requires the storage of multiple versions of the data, from the original submitted version of the data
Data volume is a significant driver of costs for cloud hosting services. When the Commission adopted the CAT NMS Plan in 2016, it estimated that the CAT would need to receive 58 billion records per day
In addition to the effect of the data volume on the cloud hosting costs, the processing timelines set forth in the Plan contribute to the cloud hosting costs. Although CAT LLC has proactively sought to manage cloud hosting costs while complying with the Plan, including through requests to the Commission for exemptive relief and an amendment to the CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any material flexibility in cloud architecture design choices, processing timelines (
The costs for cloud hosting services also reflect the need for specialized cloud hosting services given the data volume and unique processing needs of the CAT. The data volume as well as the data processing needs of the CAT necessitate the use of cloud hosting services. The equipment, power and services required for an on-premises data model, the alternative to cloud hosting services, would be cost prohibitive. Moreover, as CAT was being developed, there were limited cloud hosting providers that could satisfy all the necessary CAT requirements, including the operational and security criteria. Over time more providers offering cloud hosting services that would satisfy these criteria have entered the market. CAT LLC will continue to evaluate alternative cloud hosting services, recognizing that the time and cost to move to an alternative cloud provider would be substantial.
The reasonableness of the cloud hosting services costs is further supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts (including regular efforts to lower compute and storage costs where permitted by the Plan) and oversight. Together, these mechanisms help ensure the ongoing reasonableness of the CAT's costs and the level of fees assessed to support those costs.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to CAIS operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to change request fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to capitalized developed technology costs as a part of Historical CAT Assessments.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to legal fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover professional and administration costs as a part of Historical CAT Assessments.
CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT
CAT LLC also determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC's financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC's financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the role given the balanace of these considerations.
The professional and administrative costs also include costs related to the receipt of certain market data from Exegy. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy. Exegy provided the data elements required by the CAT NMS Plan, and the fees were reasonable and in line with market rates for the market data received.
The professional and administrative costs also include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the effective design, implementation and operation of the controls specified by NIST Special Publication 800-53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm's relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover public relations costs as a part of Historical CAT Assessments.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. CAT LLC determined the total executed equivalent share volume for the prior twelve months by counting executed equivalent shares in the same manner as it will count executed equivalent shares for CAT billing purposes.
CAT LLC has determined to establish a Historical Recovery Period of 24 months for Historical CAT Assessment 1 and that such length is reasonable. CAT LLC determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans notes to the Participants in a timely fashion. CAT LLC determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
CAT LLC has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. CAT LLC determined that such an approach was reasonable as the CAT's annual executed equivalent share volume has remained relatively constant in recent years. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
As noted in the Plan amendment for the CAT Funding Model, as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 per executed equivalent share is reasonable because it provides for a revenue stream for the Company that is aligned with Historical CAT Costs 1 and such costs would be spread out over an appropriate recovery period, as discussed above. Moreover, the Exchange believes that the level of the fee rate is reasonable, as it is comparable to other transaction-based fees. Indeed, Historical CAT Assessment 1 is significantly lower than fees assessed pursuant to Section 31 (
Historical CAT Assessment 1 provides for an equitable allocation of fees, as it equitably allocates CAT costs between and among the Participants and Industry Members. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act, including the formula for calculating Historical CAT Assessments as well as the Industry Members to be charged the Historical CAT Assessments.
Historical CAT Assessment 1 provides for an equitable allocation of fees as it complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. For example, as described above, the calculation of Historical CAT Assessment 1 complies with the formula set forth in Section 11.3(b) of the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the CAT NMS Plan. Furthermore, the Participants would continue to remain responsible for their designated share of Past CAT Costs through the cancellation of loans made by the Participants to CAT LLC.
In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1—Historical CAT Costs 1 (including Excluded Costs), the count for the executed equivalent share volume for the prior 12 months, the length of the Historical Recovery Period, and the projected executed equivalent share volume for the Historical Recovery Period—are reasonable. Moreover, these inputs lead to a reasonable fee rate for Historical CAT Assessment 1 that is lower than other fee rates for transaction-based fees. A reasonable fee rate allocated in accordance with the requirements of the CAT Funding Model provides for an equitable allocation of fees.
Historical CAT Assessment 1 is not an unfairly discriminatory fee. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act. In reaching this conclusion, the SEC analyzed the potential effect of Historical CAT Assessments calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Historical CAT Assessment 1 complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 and the resulting fee rate for Historical CAT Assessment 1 is reasonable. Therefore, Historical CAT Assessment 1 does not impose an unfairly discriminatory fee on Industry Members.
Finally, the Exchange believes the proposed fees established pursuant to the CAT Funding Model promote just and equitable principles of trade, and, in general, protect investors and the public interest, and are provided in a transparent manner and specificity in the fee schedule. The Exchange also believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fee based on fixed rate per executed equivalent share. Such factors are crucial to estimating a reliable revenue stream for CAT LLC and for permitting Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
In addition, all Participants (including exchanges and FINRA) are proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive fee filing, and, therefore, it does not raise competition issues between and among the Participants.
Furthermore, in approving the CAT Funding Model, the SEC analyzed the
As discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 is reasonable and the resulting fee rate for Historical CAT Assessment 1 calculated in accordance with the CAT Funding Model is reasonable. Therefore, Historical CAT Assessment 1 would not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act.
The Exchange neither solicited nor received written comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
Cboe EDGA Exchange, Inc. (the “Exchange” or “Cboe EDGA”) proposes to amend its fee schedule entitled “Consolidated Audit Trail Funding Fees”
The text of the proposed rule change is also available on the Exchange's website (
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required the self-regulatory organizations (“SROs”) to submit a national market system (“NMS”) plan to create, implement and maintain a consolidated audit trail that would capture customer and order event information for orders in NMS securities across all markets, from the time of order inception through routing, cancellation, modification or execution.
The CAT Funding Model provides a framework for the recovery of the costs to create, develop and maintain the CAT, including providing a method for allocating costs to fund the CAT among Participants and Industry Members. The CAT Funding Model establishes two categories of fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry Members to recover a portion of historical CAT costs previously paid by the Participants (“Historical CAT Assessment” fees); and (2) CAT fees assessed by CAT LLC and payable by Participants and Industry Members to fund prospective CAT costs (“Prospective CAT Costs” fees).
Under the CAT Funding Model, “[t]he Operating Committee will establish one or more fees (each a `Historical CAT Assessment') to be payable by Industry Members with regard to CAT costs previously paid by the Participants (`Past CAT Costs').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed to contribute toward the recovery of two-thirds of the Historical CAT Costs. Because the Participants previously have paid Past CAT Costs via loans to the Company, the Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs will be paid by the cancellation of loans made by the Participants to the Company on a pro rata basis based on the outstanding loan amounts due under the loans, instead of through the payment of a CAT fee.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail below) Historical CAT Assessment 1 to recover certain historical CAT costs incurred prior to January 1, 2022, in accordance with the CAT Funding Model. To implement this fee on behalf of CAT LLC, the CAT NMS Plan requires the Participants to “file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves, and such fees shall be labeled as `Consolidated Audit Trail Funding Fees.' ”
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following
The Operating Committee determined the Historical Fee Rate to be used in calculating Historical CAT Assessment 1 (“Historical Fee Rate 1”) by dividing the Historical CAT Costs for Historical CAT Assessment 1 (“Historical CAT Costs 1”) by the projected total executed share volume of all transactions in Eligible Securities for the Historical Recovery Period for Historical CAT Assessment 1 (“Historical Recovery Period 1”), as discussed in detail below. Based on this calculation, the Operating Committee has determined that Historical Fee Rate 1 would be $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
Under the CAT NMS Plan, for purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (1) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (2) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Options (
The CAT NMS Plan states that “[t]he Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment.”
The following describes in detail Historical CAT Costs 1 with regard to four separate historical time periods as well as Past CAT Costs excluded from Historical CAT Costs 1 (“Excluded Costs”). The following cost details are provided in accordance with the requirement in the CAT NMS Plan to provide in the fee filing “a brief description of the amount and type of Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs.”
Historical CAT Costs 1 would include costs incurred by CAT prior to June 22, 2020 (“Pre-FAM Period”) and already funded by the Participants, excluding Excluded Costs (described further below). Historical CAT Costs 1 would include costs for the Pre-FAM Period of $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). These costs do not include Excluded Costs, as discussed further below. The following table breaks down Historical CAT Costs 1 for the Pre-FAM Period into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The Pre-FAM Period
The $10,268,840 in technology costs for cloud hosting services represent costs incurred for services provided by the cloud services provider for the CAT, Amazon Web Services, Inc. (“AWS”), during the Pre-FAM Period.
As part of its proposal for acting as the successor Plan Processor for the CAT, FCAT selected AWS as a subcontractor to provide cloud hosting services. In 2019, after reviewing the capabilities of other cloud services providers, FCAT determined that AWS was the only cloud services provider at that time sufficiently mature and capable of providing the full suite of necessary cloud services for the CAT, including, for example, the security, resiliency and complexity necessary for the CAT computing requirements. The use of cloud hosting services is standard for this type of high-volume data activity and reasonable and necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT the fees incurred by the Plan Processor for cloud hosting services provided by AWS as FCAT's subcontrator [
AWS was engaged by FCAT to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. Services provided by AWS include storage services, databases, compute services and other services (such as networking, management tools and DevOps tools). AWS also was engaged to provide various environments for CAT, such as development, performance testing, test and production environments.
The cost for AWS services for the CAT is a function of the volume of CAT Data. The greater the amount of CAT Data, the greater the cost of AWS services to the CAT. During the Pre-FAM Period from the engagement of AWS in February 2019 through June 2020, AWS provided cloud hosting services for volumes of CAT Data far in excess of the volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan states, when all CAT Reporters are submitting their data to the CAT, it “must be sized to receive[,] process and load more than 58 billion records per day,”
The $21,085,485 in technology costs related to operating fees represent costs incurred with regard to activities of FCAT as the Plan Processor. Operating fees are those fees paid by CAT LLC to FCAT as the Plan Processor to operate and maintain the CAT and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
The Selection Subcommittee considered factors including, but not limited to, the following, in recommending FINRA to the Operating Committee as the successor Plan Processor:
a. FINRA's specialized technical expertise and capabilities in the area of broker-dealer technology;
b. The need to appoint a successor Plan Processor with specialized expertise to develop, implement, and maintain the CAT System in accordance with the CAT NMS Plan and SEC Rule 613;
c. FINRA's detailed proposal in response to CATLLC's recent inquiries; and
d. FINRA's data query and analytics systems demonstration to the Participants.
Based on these and other factors, the Selection Subcommittee determined that FINRA was the most appropriate Bidder to become the successor Plan Processor.
On February 26, 2019, the Operating Committee (with FINRA recusing itself) voted to select FINRA as the successor Plan Processor pursuant to Section 6.1(t) of the CAT NMS Plan.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT a negotiated monthly fixed price for the operation of the CAT. This fixed price contract was negotiated on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity. The operating fees during the Pre-FAM Period were paid to FCAT by CAT LLC.
From March 29, 2019 (the commencement of the Plan Processor Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM Period), the Plan Processor's activities with respect to the CAT included the following:
• Commenced user acceptance testing with market data provided by Exegy Incorporated (“Exegy”), a market data provider;
• Published Technical Specifications and related reporting scenarios documents for Phase 2a, 2b and 2c reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated testing for Phase 2a and 2b reporting for Industry Members;
• Began developing Technical Specifications and related reporting scenarios documents for Phase 2d reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published Central Repository Access Technical Specifications, and provided regulator access to test data from Industry Members;
• Facilitated Participant exchanges that support options market makers sending Quote Sent Time to the CAT;
• Facilitated the introduction of OPRA and Options NBBO Other Data to CAT;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing requirements under Regulation SCI;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants, the SEC and its staff;
• Operated the FINRA CAT Helpdesk, which is the primary source for answers to questions about CAT, including questions regarding: clock synchronization, firm reporting responsibilities, interpretive questions, technical specifications for reporting to CAT and more;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
The $2,072,908 in technology costs related to CAIS operating fees represent the fees paid for FCAT's subcontractor charged with the development and operation of CAT's Customer and Account Information System (“CAIS”). The CAT is required under the CAT NMS Plan to capture and store Customer Identifying Information and Customer Account Information in a database separate from the transactional database and to create a CAT-Customer-ID for each Customer.
During the Pre-FAM Period, the CAIS-related services were provided by the Plan Processor through the Plan Processor's subcontractor, Kingland Systems Incorporation (“Kingland”). Kingland had experience operating in the securities regulatory technology space, and as a part of its proposal for acting as the Plan Processor for the CAT, FCAT selected Kingland as a subcontractor to provide certain CAIS-related services.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay to the Plan Processor the fees incurred by FCAT for CAIS-related services provided by FCAT through Kingland on a monthly basis. FCAT negotiated the fees for Kingland's CAIS-related services on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity. The fees for CAIS-related services during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, paid Kingland.
During the Pre-FAM Period, Kingland began development of the CAIS Technical Specifications and the building of CAIS. In addition, Kingland also worked on the build related to the CCID Alternative, an alternative approach to customer information that was not included in the CAT NMS Plan as originally adopted.
The technology costs related to change request fees include costs related to certain modifications, upgrades or other changes to the CAT. Change requests are standard practice and necessary to reflect operational changes, including changes related to new market developments, such as new market participants. In general, if CAT LLC determines that a modification, upgrade or other change to the functionality or service is necessary and appropriate, CAT LLC will submit a request for such a change to the Plan Processor. The Plan Processor will then respond to the request with a proposal for implementing the change, including the cost (if any) of such a change. CAT LLC then determines whether to approve the proposed change. The change request costs were paid by CAT LLC to FCAT. During the Pre-FAM Period, CAT LLC incurred costs of $141,346 related to change requests implemented by FCAT. Such change requests related to a development fee regarding the OPRA and SIP data feeds, and the reprocessing of certain exchange data.
This category of costs includes capitalizable application development costs incurred in the development of the CAT. The capitalized developed technology costs for the Pre-FAM Period of $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
On January 17, 2017, the Selection Committee of the CAT NMS Plan selected the Initial Plan Processor, Thesys Technologies, LLC, for the CAT NMS Plan pursuant to Article V of the CAT NMS Plan.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT, but excluding the period from November 15, 2017 through January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical Specifications, Industry Member Technical Specifications and the Central Repository Access Technical Specifications. In addition, Thesys CAT also developed CAT technology, addressed compliance items, including drafting CAT policies and procedures, addressing Regulation SCI requirements, establishing a CAT Compliance Officer and a Chief Information Security Officer, addressed security-related matters for the CAT, and worked towards the initiation of Participant reporting per the Participant Technical Specifications.
The legal costs of $19,674,463 represent the fees paid for legal services provided by two law firms, Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) and Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), during the Pre-FAM Period. The legal costs exclude those costs incurred from November 15, 2017 through November 15, 2018.
WilmerHale's billing rates are negotiated on an annual basis and are determined with reference to the rates charged by other leading law firms for similar work. The Participants assess WilmerHale's performance and review prospective budgets and staffing plans submitted by WilmerHale on an annual basis. WilmerHale's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading law firms for similar work.
The legal costs for WilmerHale during the Pre-FAM Period included costs incurred from 2013 until June 22, 2020 to address corporate and regulatory legal matters related to the CAT. The legal fees for this law firm during the period from February 2013 until the formation of the CAT NMS, LLC on November 15, 2016 were paid directly by the exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, the legal fees were paid by CAT LLC to WilmerHale.
After WilmerHale was engaged in 2013 through the end of the Pre-FAM Period on June 22, 2020 (excluding the legal costs from November 15, 2017 through November 15, 2018), WilmerHale provided legal assistance to the CAT on a variety of matters, including with regard to the following:
• Analyzed various legal matters associated with the Selection Plan, and drafted an amendment to the Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the Development Advisory Group (“DAG”);
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan and related filings;
• Negotiated and drafted the plan processor agreements with the Initial Plan Processor and the successor Plan Processor;
• Provided assistance with compliance with Regulation SCI;
• Assisted with clock synchronization study;
• Provided assistance with respect to the establishment of CAT security;
• Drafted exemptive requests from CAT NMS Plan requirements, including with regard to options market maker quotes, Customer IDs, CAT Reporter IDs, linking allocations to executions, CAT reporting timeline, FDIDs, customer and account information, timestamp granularity, small industry members, data facility reporting and linkage, allocation reports, SRO-assigned market participant identifiers and cancelled trade indicators, thereby seeking to implement changes that would be cost effective and benefit Industry Members and Participants;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided advice regarding CAT policies and procedures;
• Analyzed the SEC's amendment of the CAT NMS Plan regarding financial accountability;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues; and
• Assisted with third-party vendor agreements.
The consulting costs of $17,013,414 represent the fees paid to the consulting firm Deloitte & Touche LLP (“Deloitte”) as project manager during the Pre-FAM Period, from October 2012 until June 22, 2020. These consulting costs include costs for advisory services related to the operation of the CAT, and meeting facilitation and communications coordination, vendor support and financial analyses.
To help facilitate project management given the unprecedented complexity and scope of the CAT project, the Participants determined it was necessary to engage a consulting firm to assist with the CAT project in 2012, following the adoption of Rule 613. A variety of factors were considered in the analysis of prospective consulting firms, including (1) the firm's qualifications, resources, and expertise; (2) the firm's relevant experience and understanding of the regulatory issues raised by the CAT and in coordinating matters of similar scope; (3) the composition of the consulting team; and (4) professional fees. Following a series of interviews, the exchanges and FINRA as a consortium determined that Deloitte was well qualified given the balance of these considerations and engaged Deloitte on October 1, 2012.
Deloitte's fee rates are negotiated on an annual basis and are in line with market rates for this type of specialized consulting work. CAT LLC assesses Deloitte's performance and reviews prospective budgets and staffing plans submitted by Deloitte on an annual basis. Deloitte's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading consulting firms for similar work.
The consulting costs for CAT during the period from 2012 until the formation of the CAT NMS, LLC were paid directly by the Participants to Deloitte. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each month and approved the invoices.
After Deloitte was hired in 2012 through the end of the Pre-FAM Period on June 22, 2020 (excluding the consulting costs from November 15, 2017 through November 15, 2018), Deloitte provided a variety of consulting services, including the following:
• Established and implemented program operations for the CAT project, including the program managment [
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participant's independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Assisted with cost and funding-related activities for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with industry outreach and communications regarding the CAT, including assistance with industry outreach events, the development of the CAT website, frequently asked questions, and coordinating with the CAT LLC's public relations firm;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress;
• Coordinated efforts regarding the selection of the successor Plan Processor;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor, including support for the Operating Committee and successor Plan Processor for the new role; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $880,419 represent the cost incurred for insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT LLC performed an evaluation of various potential alternatives for CAT insurance policies, which included engaging in discussions with different insurance companies and conducting cost comparisons of various alternative approaches to insurance. Based on an analysis of a variety of factors, including coverage and premiums, CAT LLC determined to purchase cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance from USI Insurance Services LLC (“USI”). Such policies are standard for corporate
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial statements be prepared in compliance with GAAP, audited by an independent public accounting firm, and made publicly available.
After Anchin was hired in April 2018 through the end of the Pre-FAM Period on June 22, 2020 (excluding the period from April 2018 through November 15, 2018), Anchin provided a variety of services, including the following:
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial reporting matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy from July 2018 through March 2019. CAT LLC determined that, unlike certain other vendors, Exegy provided market data that included all data elements required by the CAT NMS Plan.
Upon the termination of the contract between CAT LLC and Exegy, FCAT entered into a contract with Exegy to purchase the required market data from Exegy in July 2019. All costs under the contract were treated as a direct pass through cost to CAT LLC. Therefore, the fees for the market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for the market data.
The public relations costs of $224,669 represent the fees paid to public relations firms during the Pre-FAM Period for professional communications services to CAT, including media relations consulting, strategy and execution. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. Specifically, the public
The services performed by each of the public relations firms were comparable. The fees for such services were reasonable and in line with market rates. Only one public relations firm was engaged at a time; the three firms were engaged sequentially as the primary public relations contact moved among the three firms during this time period.
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 1 of the Financial Accountability Milestones (“FAM Period 1”),
By the
CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 1 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, reference data and other types of Other Data. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 1.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 1. Accordingly, the $1,099,680 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 1. The fee arrangement for FCAT described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, FCAT's activities with respect to the CAT included the following:
• Published iterative drafts of draft Technical Specifications for Phase 2d, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published iterative drafts of CAIS Technical Specifications, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated Industry Member reporting of Quote Sent Time on Options Market Maker quotes;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 1. Accordingly, the $254,998 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 1. The fee arrangement for Kingland described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to CCID Alternative, as well as the acceleration of the reporting of LTIDs.
CAT LLC did not incur costs related to change requests during FAM Period 1.
Capitalized developed technology costs for FAM Period 1 of $1,684,870 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include: (1) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including separate production and industry test entitlements, and reprocessing of exchange event timestamps; (2) implementation fees; and (3) license fees.
The legal costs of $481,687 represent the fees paid for legal services provided
• Assisted with the development of the CAT funding model and drafted related amendments and fee filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, verbal activity, options market maker quote sent time, TRF linkages, and allocations;
• Provided interpretations related to CAT NMS Plan requirements, including the Financial Accountability Milestone amendment;
• Assisted with compliance with Regulation SCI;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the drafting of the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Assisted with communications and presentations for the industry regarding CAIS;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment;
• Provided guidance regarding CAT technical specifications;
• Assisted with third-party vendor agreements; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $137,209 represent the fees paid to Deloitte as project manager during FAM Period 1. CAT LLC continued to employ Deloitte during FAM Period 1 based on, among other things, their expertise and cumulative experience with the CAT. The fee rates for Deloitte during FAM Period 1 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 1, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• Maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups; and
• Prepared monthly and quarterly financial statements.
The public relations costs of $7,700 represent the fees paid to Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak Strategies during FAM Period 1 based on, among other things, their expertise and history with the project. The fee rates for this firm were reasonable and in line with market rates for these types of services. The fees for these services during FAM Period 1 were paid by CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies continued to provide professional communications services to CAT LLC, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already funded by Participants during Period 2 of the Financial Accountability Milestones (“FAM Period 2”),
By the
(a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS reporters) for equities transactions, excluding Customer Account Information, CustomerID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission.
CAT LLC completed the requirements of FAM Period 2 by December 31, 2020. The following describes the costs for each of the categories for FAM Period 2.
CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 2 Period. Accordingly, the $20,709,212 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 2. The fee arrangement for AWS described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 2 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, and Other Data, including reference data. In addition, Industry Members began reporting LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 2.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 2. Accordingly, the $9,108,700 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 2. The fee arrangement for FCAT described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, FCAT's activities with respect to the CAT included publishing the Technical Specifications for Phase 2d and overseeing the reporting of firm to firm and intrafirm linkages by Industry Members. In addition, FCAT also continued to engage in the following activities during FAM Period 2:
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the development and implementation of the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 2. The fee arrangement for Kingland described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs.
During FAM Period 2, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 2, CAT incurred costs of $51,823 related to a change request regarding the addition of functionality for exchange Participants to report rejected messages to the CAT.
Capitalized developed technology costs for FAM Period 2 of $6,761,094 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to separate production and industry test entitlements, market maker reference data, and back-processing of exchange exception logic; (3) implementation fees; and (4) license fees.
The legal costs of $2,766,644 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 2.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, allocations, exchange activity, OTQT, initial data validation, error corrections and recordkeeping;
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittees, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for the Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Assisted with third-party vendor agreements (
• Assisted with change requests; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $532,146 represent the fees paid to Deloitte as project manager during FAM Period 2. CAT LLC continued to employ Deloitte during FAM Period 2 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 2 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 2, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $976,098 represent the fees paid for insurance during FAM Period 2. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $438,523 represent the fees paid to Anchin and Grant Thornton for financial services provided during FAM Period 2.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from the Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audit by an independent auditor; and
• Reviewed historical costs from inception.
The public relations costs of $41,940 represent the fees paid to Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak Strategies during FAM Period 2 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 2 were paid by CAT LLC to Peak Strategies. During FAM Period 2, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 3 of the Financial Accountability Milestones (“FAM Period 3”),
By
(a) reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)-(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met.
CAT LLC completed the requirements of FAM Period 3 by December 31, 2021. The following describes the costs for each of the categories for FAM Period 3.
CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 3 Period. Accordingly, the $94,574,759 in technology costs for cloud hosting services represents costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 3. The fee arrangement for AWS described above for the earlier periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During FAM Period 3, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a, Phase 2b, Phase 2c and Phase 2d Industry Member Data (including certain linkages), SIP Data, Other Data, including reference data, and LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 3.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 3. Accordingly, the $23,106,091 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 3. The fee arrangement for FCAT described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, FCAT's activities with respect to the CAT included the following:
• Facilitated Phase 2c and Phase 2d testing for Industry Members;
• Oversaw creation of linkages of the lifecycle of order events based on the received data through Phase 2d;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement with FCAT discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 3. Accordingly, the $5,562,383 in technology costs for CAIS operating fees represents costs incurred for services provided by Kingland during FAM Period 3. The fee arrangement for Kingland described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. The full CAIS Technical Specifications were published during FAM Period 3.
During FAM Period 3, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 3, CAT incurred costs of $396,169 related to change requests, including the following: (1) the addition of functionality for exchange Participants to report rejected messages to the CAT; (2) the migration of MIRS query engine to AWS to reduce operational costs and increase resiliency; and (3) updating the Participant Technical Specifications to allow for two-sided Participant option quote reporting.
Capitalized developed technology costs for FAM Period 3 of $10,763,372 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor, including the transition from equity data received by FINRA pursuant to various regulatory services agreements between FINRA and Participant exchanges to the equity CAT Data, and the completion of the Industry Member Phase 2d options manual and complex orders go-live requirements; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to off-exchange volume concentration, Participant 24-hour trading and an external metastore; (3) implementation fees; and (4) license fees.
The legal costs of $6,333,248 represent the fees paid for legal services provided by three law firms, WilmerHale, Pillsbury and Covington & Burling LLP (“Covington”) during FAM Period 3.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements, including, for example, verbal activity regarding Phase 2c cutover, error reports, error
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs, CAIS requirements, ADF, and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6(c) of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the SEC's exemptive orders;
• Assisted with communications with the industry, includng CAT Alerts and presentations;
• Provided guidance regarding the confidentiality of CAT Data, including third-party information requests;
• Assisted with cost management analysis and proposals; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
After Covington was hired in 2021 through the end of 2021, the firm provided legal assistance regarding the litigation with the SEC regarding the 2020 Orders. These services included researching, drafting, and filing motions to stay the 2020 orders and related materials in proceedings before the SEC, as well as researching, drafting, and filing petitions for judicial review of the 2020 Orders in proceedings before the U.S. Court of Appeals for the D.C. Circuit. Covington oversaw ongoing litigation proceedings on these matters, and also supported WilmerHale with respect to settlement negotiations with the SEC staff regarding the 2020 Orders.
In addition to these services, CAT LLC engaged Covington in November 2021 to provide assistance with respect to the SEC's disapproval of CAT NMS Plan amendments concerning a proposed limitation on liability in the event of a data breach or similar event. Covington provided advice concerning CAT's response to the SEC's disapproval order. This work accounted for a minority of Covington's fees in 2021.
The consulting costs of $1,408,209 represent the fees paid to Deloitte as project manager during FAM Period 3. CAT LLC continued to employ Deloitte during FAM Period 3 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 3 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 3, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $1,582,714 represent the fees paid for insurance during FAM Period 3. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $92,400 represent the fees paid to Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak Strategies during FAM Period 3 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 3 were paid by CAT LLC to Peak Strategies. During FAM Period 3, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
First, Historical CAT Costs 1 would not include $14,749,362 of costs related to the conclusion of the relationship with the Initial Plan Processor. Such costs include costs related to the American Arbitration Association, the legal assistance of Pillsbury with regard to the arbitration with the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during this one-year period of $48,874,937 from fees charged to Industry Members due to the delay in the start of reporting to the CAT. The Participants would remain responsible for 100% of these $48,874,937 in costs. The following table breaks down these costs into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The following provides additional detail regarding the Excluded Costs.
CAT LLC did not incur technology costs related to the categories of cloud hosting services, operating fees, CAIS operating fees or change requests during the period from November 15, 2017 through November 15, 2018.
Capitalized developed technology costs for the period from November 15, 2017 through November 15, 2018 include capitalizable application development costs of $37,852,083 incurred in the development of the CAT by the Initial Plan Processor. Such costs include development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Initial Plan Processor. Such costs include costs related to Industry Member technical specifications for orders and transactions, the system security plan, testing and production for Participant CAT reporting, third-party security assessment and response, query portal, onboarding of the Chief Information Security Officer, and ingestion of FINRA TRF data and FINRA data related to halts and corporate actions.
The legal costs of $6,143,278 represent the fees paid to WilmerHale for legal services from November 15, 2017 through November 15, 2018. During this period, WilmerHale provided legal assistance to the CAT including with regard to the following:
• Provided legal support for the governance of the CAT, including governance support for the Operating Committee, Advisory Committee, Compliance Subcommittee, and CAT working groups;
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan;
• Provided assistance related to CAT security;
• Drafted exemptive requests, including requests related to PII;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided advice with regard to regulator access to the CAT;
• Assisted with the Plan Processor transition;
• Provided assistance regarding communications with the industry regarding the CAT;
• Provided advice regarding Customer Account Information and PII;
• Provided support for litigation related to SEC exemptive orders; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretative and implementation issues.
The consulting costs of $4,452,106 represent the fees paid to Deloitte for their role as project manager for the CAT from November 15, 2017 through November 15, 2018. During this period, Deloitte engaged in the following activities with respect to the CAT:
• Implemented program operations for the CAT project;
• Provided governance support to the Operating Committee, including support for Subcommittees and working groups of the Operating Committee (
• Assisted with cost and funding issues for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
The professional and administration costs of $340,145 represent the fees paid to Anchin, Exegy and RSM from November 15, 2017 through November 15, 2018.
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $87,325 represent the fees paid to Sloane from November 15, 2017 through November 15, 2018. From the commencement of its engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
Under the CAT NMS Plan, the Operating Committee is required to reasonably establish the length of the Historical Recovery Period used in calculating each Historical Fee Rate based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment, and to describe the reasons for its length.
The Operating Committee determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans to the Participants in a timely fashion. The Operating Committee determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
The length of the Historical Recovery Period 1 and the reasons for its length are provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
The calculation of Historical Fee Rate 1 also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for Historical Recovery Period 1. Under the CAT NMS Plan, the Operating Committee is required to “reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating Committee has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. The
The projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1 and a description of the calculation of the projection is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
Historical Fee Rate 1 would be calculated by dividing Historical CAT Costs 1 by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1, as described in detail above.
Participants would not be required to pay any fees associated with Historical CAT Assessment 1 as the Participants previously have paid all Past CAT Costs. The CAT NMS Plan explains that:
Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
CEBBs and CEBSs would be required to pay fees for Historical CAT Assessment 1 on a monthly basis for the period in which Historical CAT Assessment 1 is in effect.
The CAT NMS Plan states that, “[n]otwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
The CAT NMS Plan states that:
Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis. Each month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time. Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, “as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.
The proposed language in paragraph (a)(1)(A) of the fee schedule would describe when CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1. Specifically, CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1 in November 2024 and the fees set forth in that invoice would be calculated based on transactions executed in the prior month, that is, transactions executed in October 2024. The payment for the first invoice would be required within 30 days after the receipt of the first invoice (unless a longer period is indicated), as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule also would describe the monthly cadence of the invoices for Historical CAT Assessment 1. Specifically, after the first invoices are provided to CAT Executing Brokers in November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule would state that “Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis.” Proposed paragraph (a)(1)(B) of the fee schedule also would describe the fees to be set forth in the invoices for Historical CAT Assessment 1. Specifically, it would state that “[e]ach month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule would describe how long Historical CAT Assessment 1 would remain in effect. It would state that “Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time.” This proposed paragraph would further state that “Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.”
Historical CAT Assessment 1 will be assessed for all transactions executed in each month through the end of the month in which two-thirds of Historical CAT Costs 1 are assessed, and then CAT LLC will provide notice that Historical CAT Assessment 1 is no longer in effect. Since Historical CAT Assessment 1 is a monthly fee based on transaction volume from the prior month, Historical CAT Assessment 1 may collect more than two-thirds of Historical CAT Costs 1. To the extent that occurs, any excess money collected during the final month in which Historical CAT Assessment 1 is in effect will be used to offset future fees and/or to fund the reserve for the CAT.
Finally, proposed paragraph (a)(1)(D) of the fee schedule sets forth the requirement for the CAT Executing Brokers to pay the invoices for Historical CAT Assessment 1. It would state that “[e]ach CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of CAT fees.
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due (as determined in accordance with the preceding sentence), such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (a) the Prime Rate plus 300 basis points; or (b) the maximum rate permitted by applicable law.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If a CAT Executing Broker fails to pay any such CAT fee when due, such CAT Executing Broker shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 300
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
The CAT NMS Plan states that:
Details regarding the calculation of a CAT Executing Broker's Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker's executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS Plan states that, “[f]or each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise on an exchange, and (3) by buy-side transactions and sell-side transactions.”
Furthermore, CAT LLC will make publicly available on the CAT website the total amount invoiced each month that Historical CAT Assessment 1 is in effect as well as the total amount invoiced for Historical CAT Assessment 1 for all months since its commencement. CAT LLC also will make publicly available on the CAT website the total costs to be collected from Industry Members for Historical CAT Assessment 1. By reviewing statistics regarding how much has been invoiced and how much remains to be invoiced for Historical CAT Assessment 1, Industry Members would have sufficient information to reasonably track how much longer Historical CAT Assessment 1 is likely to be in place.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided CAT Executing Brokers with a preview of the transaction data used in creating the invoices for Historical CAT Assessment 1 fees, as the data will be the same as data provided in actual invoices. Such data preview is intended to facilitate the payment of Historical CAT Assessment 1.
The CAT NMS Plan states that “[n]o Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied.”
In accordance with Section 11.6(b) of the CAT NMS Plan, Historical CAT Assessment 1 seeks to recover costs that are related to “all fees, costs, and expenses (including legal and consulting fees, costs, and expenses) incurred by or for the Company in connection with the development, implementation and operation of the CAT from the effective date of [Section 11.6 of the CAT NMS Plan] until such time as Full Implementation of CAT NMS Plan Requirements has been achieved”
The reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of both: (a) equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information; and (b) options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry
In adopting the FAMs, the Commission stated that the equities transaction reporting required for FAM Period 1 “is consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Equities 2a file submission and data integrity validations.' ”
• All events and scenarios covered by OATS, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions;
• Reportable Events for: (1) proprietary orders, including market maker orders, for Eligible Securities that are equities; (2) electronic quotes in listed equity Eligible Securities (
• Firm Designated IDs (“FDIDs”), which Industry Members must report to the CAT as required by Sections 6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT NMS Plan;
• Industry Members would be required to report all street side representative orders, including both agency and proprietary orders and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications;
• The link between the street side representative order and the order being represented when: (1) the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member's system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member's system;
• Manual and Electronic Capture Time for Manual Order Events;
• Special handling instructions for the original receipt or origination of an order during Phase 2a; and
• When routing an order, whether the order was routed as an intermarket sweep order (“ISO”).
In Phase 2a, Industry Members were not required to report modifications of a previously routed order in certain limited instances, nor were they required to report a cancellation of an order received from a Customer after the order has been executed.
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Equities 2a file submission and data integrity validation (Large Industry Members and Small OATS Reporters)” was completed on June 22, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information” was completed on June 22, 2020.
In adopting the FAMs, the Commission stated that the options transaction reporting required for FAM Period 1 is “consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Options 2b file submission and data integrity validations.' ”
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Options 2b file submission and data integrity validations” was completed on July 20, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information” was completed on July 20, 2020.
As discussed above, the Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from June 22, 2020 through July 31, 2020. The total costs for this period, as discussed above, are $6,377,343. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third ($2,125,781).
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 began on August 1, 2020, and concluded on December 31, 2020, the date of the Full Implementation of Core Equity Reporting. Section 1.1 of the CAT NMS Plan defines “Full Implementation of Core Equity Reporting” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2020,
Specifically, the Full Implementation of Core Equity Reporting requires the satisfaction of two prongs. The first prong requires Participants to have fully implemented the first phase of equities transaction reporting for Industry Members (excluding Small Industry Members that are not OATS reporters) at an Error Rate of less than 5%. In addition, equities transaction data produced by the CAT at this stage must also be sufficiently interlinked so as to permit full analysis of an order's lifecycle across the national market, excluding full linkage of representative orders. As CAT LLC reported on its Quarterly Progress Reports, Phase 2a was fully implemented as of October 26, 2020, including intra-firm, inter-firm, national securities exchange, and trade reporting facilities linkages.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “Production Go-Live for Firm to Firm Linkage validations for Equities 2a (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020; and
• “Production Go-Live for Equities 2a Exchange and TRF Linkage validations (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020.
Furthermore, as CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2020, the average overall error rate for Phase 2a Industry Member Data was less than 5% as of December 31, 2020. The average overall error rate was calculated by dividing the compliance errors by processed records.
The second prong of this FAM requires that the equities transaction data collected by the CAT at this stage be made available to regulators through two basic query tools required by the CAT NMS Plan—a targeted query tool that will enable regulators to retrieve data via an online query screen with a variety of predefined selection criteria, and a user-defined direct query tool that will provide regulators with the ability to query data using all available attributes and data sources.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from August 1, 2020 through December 31, 2020. The total costs for this period, as discussed above, are $42,976,478. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 began on January 1, 2021, and concluded on December 31, 2021, the date of the Full Availability and Regulatory Utilization of Transactional Database Functionality. Section 1.1 of the CAT NMS Plan defines “Full Availability and Regulatory Utilization of Transactional Database Functionality” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2021,
Specifically, the “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires the satisfaction of five prongs. The first prong requires that reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021,
In addition to Phase 2a and Phase 2b Industry Member Data, the second and third prongs of “Full Availability and Regulatory Utilization of Transactional Database Functionality” require Industry Member reporting of Phase 2c Industry Member Data and Phase 2d Industry Member Data. The Phase 2c Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. That Order states that “Phase 2c Industry Member Data” is Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member Data. Specifically, the Phase 2c Industry Member Data includes Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter (reportable by the Industry Member sending the quotes) (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (
Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter's order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) an equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the ADF operated by FINRA; or (b) for unlisted equity securities to an “interdealer quotation system,” as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing;
The Phase 2d Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. “Phase 2d Industry Member Data” is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account
Phase 2d Industry Member Data also includes with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification Request events; (2) modifications of previously routed orders in certain instances; and (3) OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter that does not match and execute orders. In addition, subject to any exemptive or other relief, Phase 2d Industry Member Data will include verbal or manual quotes on an exchange floor or in the over-the-counter market, where verbal quotes and manual quotes are defined as bids or offers in Eligible Securities provided verbally or that are provided or received other than via a CAT Reporter's order handling and execution system (
The Quarterly Progress Report for the fourth quarter of 2021 states that “Phase 2a was fully implemented as of October 26, 2020;” “Phase 2b was fully implemented as of January 4, 2021;” “Phase 2c was implemented as of April 26, 2021;” and “Phase 2d was fully implemented as of December 13, 2021.”
• “Production Go-Live for Equities 2c reporting requirements (Large Industry Members)” was completed on April 26, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b and 2c (Large Industry Members)” was completed on April 26, 2021;
• “FCAT Plan Processor creates linkages of the lifecycle of order events based on the received data through Phase 2d Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2b reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Equities 2c reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2d (Large Industry Members)” was completed on December 13, 2021; and
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b, 2c and 2d (Small Industry Members)” was completed on December 13, 2021.
The third prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” also imposes an Error Rate requirement of 5% or less. The Quarterly Progress Report for the fourth quarter of 2021 states the average overall error rate was less than 5% as of December 31, 2021. The average overall error rate was calculated by dividing the compliance errors by processed records.
The fourth prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires that the data collected by the CAT at this stage be made available to regulators through an online targeted query tool and a user-defined direct query tool. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021, the query tool functionality incorporating the data from Phases 2a, 2b, 2c and 2d was available to the Participants and to the Commission as of December 31, 2021.
The fifth prong requires the requirements of Section 6.10(a) of the CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan requires the Participants to use the tools described in Appendix D to “develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.” The Exchange implemented a surveillance system, or enhanced existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository as of December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS Plan.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from January 1, 2021 through December 31, 2021. The total costs for this period, as discussed above, are $144,415,268. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• Analyzed various legal matters associated with the Selection Plan and drafted an amendment to Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management office and workstream design;
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is reasonable, taking into consideration a variety of factors, including the expected volume of data and the breadth of services provided and market rates for similar services.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
•
•
•
•
In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
•
•
•
To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
•
FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
•
•
•
•
•
•
•
In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . .” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
•
•
•
As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
•
•
•
•
•
•
By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange to collect certain of such costs in a fair and reasonable manner from Industry Members, as contemplated by the CAT NMS Plan.
The proposed Historical CAT Assessment 1 fees would be charged to Industry Members in support of the maintenance of a consolidated audit trail for regulatory purposes. The proposed fees, therefore, are consistent with the Commission's view that regulatory fees be used for regulatory purposes and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
As further discussed below, the SEC approved the CAT Funding Model, finding it was reasonable and that it equitably allocates fees among Participants and Industry Members. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
Section 11.1(b) of the CAT NMS Plan states that “[t]he Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves.” Per Section 11.1(b) of the CAT NMS Plan, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange believes that this proposal is consistent with the Exchange Act because it is consistent with, and implements, the CAT Funding Model in the CAT NMS Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The SEC has determined that the CAT Funding Model is reasonable and satisfies the requirements of the Exchange Act. Specifically, the SEC has concluded that the method for determining Historical CAT Assessments as set forth in Section 11.3 of the CAT NMS Plan, including the formula for calculating the Historical Fee Rate, the identification of the parties responsible for payment and the transactions subject to the fee rate for the Historical CAT Assessment, is reasonable and satisfies the Exchange Act.
The formula for calculating a Historical Fee Rate requires the amount of Historical CAT Costs to be recovered. Specifically, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to provide:
In accordance with this requirement, the Exchange has set forth the amount and type of Historical CAT Costs 1 for each of these categories of costs above.
Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that the fee filing provide “sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.” As discussed below, the Exchange believes that the amounts set forth in this filing for each of these cost categories is “reasonable and appropriate.” Each of the costs included in Historical CAT Costs 1 are reasonable and appropriate because the costs are consistent with standard industry practice, based on the need to comply with the requirements of the CAT NMS Plan, incurred subject to negotiations performed on an arm's length basis, and/or are consistent with the needs of any legal entity, particularly one with no employees.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover costs related to cloud hosting services as a part of Historical CAT Assessments.
To comply with the requirements of the Plan, the breadth of the cloud activities related to the CAT is substantial. The cloud services not only include the production environment for the CAT, but they also include two industry testing environments, support environments for quality assurance and stress testing and disaster recovery capabilities. Moreover, the cloud storage costs are driven by the requirements of the Plan, which requires the storage of multiple versions of the data, from the original submitted version of the data
Data volume is a significant driver of costs for cloud hosting services. When the Commission adopted the CAT NMS Plan in 2016, it estimated that the CAT would need to receive 58 billion records per day
In addition to the effect of the data volume on the cloud hosting costs, the processing timelines set forth in the Plan contribute to the cloud hosting costs. Although CAT LLC has proactively sought to manage cloud hosting costs while complying with the Plan, including through requests to the Commission for exemptive relief and an amendment to the CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any material flexibility in cloud architecture design choices, processing timelines (
The costs for cloud hosting services also reflect the need for specialized cloud hosting services given the data volume and unique processing needs of the CAT. The data volume as well as the data processing needs of the CAT necessitate the use of cloud hosting services. The equipment, power and services required for an on-premises data model, the alternative to cloud hosting services, would be cost prohibitive. Moreover, as CAT was being developed, there were limited cloud hosting providers that could satisfy all the necessary CAT requirements, including the operational and security criteria. Over time more providers offering cloud hosting services that would satisfy these criteria have entered the market. CAT LLC will continue to evaluate alternative cloud hosting services, recognizing that the time and cost to move to an alternative cloud provider would be substantial.
The reasonableness of the cloud hosting services costs is further supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts (including regular efforts to lower compute and storage costs where permitted by the Plan) and oversight. Together, these mechanisms help ensure the ongoing reasonableness of the CAT's costs and the level of fees assessed to support those costs.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to CAIS operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to change request fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to capitalized developed technology costs as a part of Historical CAT Assessments.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to legal fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover professional and administration costs as a part of Historical CAT Assessments.
CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT
CAT LLC also determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC's financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC's financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the role given the balanace of these considerations.
The professional and administrative costs also include costs related to the receipt of certain market data from Exegy. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy. Exegy provided the data elements required by the CAT NMS Plan, and the fees were reasonable and in line with market rates for the market data received.
The professional and administrative costs also include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the effective design, implementation and operation of the controls specified by NIST Special Publication 800-53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm's relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover public relations costs as a part of Historical CAT Assessments.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. CAT LLC determined the total executed equivalent share volume for the prior twelve months by counting executed equivalent shares in the same manner as it will count executed equivalent shares for CAT billing purposes.
CAT LLC has determined to establish a Historical Recovery Period of 24 months for Historical CAT Assessment 1 and that such length is reasonable. CAT LLC determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans notes to the Participants in a timely fashion. CAT LLC determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
CAT LLC has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. CAT LLC determined that such an approach was reasonable as the CAT's annual executed equivalent share volume has remained relatively constant in recent years. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
As noted in the Plan amendment for the CAT Funding Model, as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 per executed equivalent share is reasonable because it provides for a revenue stream for the Company that is aligned with Historical CAT Costs 1 and such costs would be spread out over an appropriate recovery period, as discussed above. Moreover, the Exchange believes that the level of the fee rate is reasonable, as it is comparable to other transaction-based fees. Indeed, Historical CAT Assessment 1 is significantly lower than fees assessed pursuant to Section 31 (
Historical CAT Assessment 1 provides for an equitable allocation of fees, as it equitably allocates CAT costs between and among the Participants and Industry Members. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act, including the formula for calculating Historical CAT Assessments as well as the Industry Members to be charged the Historical CAT Assessments.
Historical CAT Assessment 1 provides for an equitable allocation of fees as it complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. For example, as described above, the calculation of Historical CAT Assessment 1 complies with the formula set forth in Section 11.3(b) of the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the CAT NMS Plan. Furthermore, the Participants would continue to remain responsible for their designated share of Past CAT Costs through the cancellation of loans made by the Participants to CAT LLC.
In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1—Historical CAT Costs 1 (including Excluded Costs), the count for the executed equivalent share volume for the prior 12 months, the length of the Historical Recovery Period, and the projected executed equivalent share volume for the Historical Recovery Period—are reasonable. Moreover, these inputs lead to a reasonable fee rate for Historical CAT Assessment 1 that is lower than other fee rates for transaction-based fees. A reasonable fee rate allocated in accordance with the requirements of the CAT Funding Model provides for an equitable allocation of fees.
Historical CAT Assessment 1 is not an unfairly discriminatory fee. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act. In reaching this conclusion, the SEC analyzed the potential effect of Historical CAT Assessments calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Historical CAT Assessment 1 complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 and the resulting fee rate for Historical CAT Assessment 1 is reasonable. Therefore, Historical CAT Assessment 1 does not impose an unfairly discriminatory fee on Industry Members.
Finally, the Exchange believes the proposed fees established pursuant to the CAT Funding Model promote just and equitable principles of trade, and, in general, protect investors and the public interest, and are provided in a transparent manner and specificity in the fee schedule. The Exchange also believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fee based on fixed rate per executed equivalent share. Such factors are crucial to estimating a reliable revenue stream for CAT LLC and for permitting Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
In addition, all Participants (including exchanges and FINRA) are proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive fee filing, and, therefore, it does not raise competition issues between and among the Participants.
Furthermore, in approving the CAT Funding Model, the SEC analyzed the
As discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 is reasonable and the resulting fee rate for Historical CAT Assessment 1 calculated in accordance with the CAT Funding Model is reasonable. Therefore, Historical CAT Assessment 1 would not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act.
The Exchange neither solicited nor received written comments on the proposed rule change.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required the self-regulatory organizations (“SROs”) to submit a national market system (“NMS”) plan to create, implement and maintain a consolidated audit trail that would capture customer and order event information for orders in NMS securities across all markets, from the time of order inception through routing, cancellation, modification or execution.
The CAT Funding Model provides a framework for the recovery of the costs to create, develop and maintain the CAT, including providing a method for allocating costs to fund the CAT among Participants and Industry Members. The CAT Funding Model establishes two categories of fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry Members to recover a portion of historical CAT costs previously paid by the Participants (“Historical CAT Assessment” fees); and (2) CAT fees assessed by CAT LLC and payable by Participants and Industry Members to fund prospective CAT costs (“Prospective CAT Costs” fees).
Under the CAT Funding Model, “[t]he Operating Committee will establish one or more fees (each a `Historical CAT Assessment') to be payable by Industry Members with regard to CAT costs previously paid by the Participants (`Past CAT Costs').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed to contribute toward the recovery of two-thirds of the Historical CAT Costs. Because the Participants previously have paid Past CAT Costs via loans to the Company, the Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs will be paid by the cancellation of loans made by the Participants to the Company on a pro rata basis based on the outstanding loan amounts due under the loans, instead of through the payment of a CAT fee.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller.
The following fields of the Participant Technical Specifications indicate the CAT Executing Brokers for the transactions executed on an exchange.
In addition, the following fields of the Participant Technical Specifications would indicate the CAT Executing Brokers for the transactions executed otherwise than on an exchange.
The Operating Committee determined the Historical Fee Rate to be used in calculating Historical CAT Assessment 1 (“Historical Fee Rate 1”) by dividing the Historical CAT Costs for Historical CAT Assessment 1 (“Historical CAT Costs 1”) by the projected total executed share volume of all transactions in Eligible Securities for the Historical Recovery Period for Historical CAT Assessment 1 (“Historical Recovery Period 1”), as discussed in detail below. Based on this calculation, the Operating Committee has determined that Historical Fee Rate 1 would be $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
Under the CAT NMS Plan, for purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (1) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (2) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Options (
The CAT NMS Plan states that “[t]he Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment.”
The following describes in detail Historical CAT Costs 1 with regard to four separate historical time periods as well as Past CAT Costs excluded from Historical CAT Costs 1 (“Excluded Costs”). The following cost details are provided in accordance with the requirement in the CAT NMS Plan to provide in the fee filing “a brief description of the amount and type of Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs.”
Historical CAT Costs 1 would include costs incurred by CAT prior to June 22, 2020 (“Pre-FAM Period”) and already funded by the Participants, excluding Excluded Costs (described further below). Historical CAT Costs 1 would include costs for the Pre-FAM Period of $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). These costs do not include Excluded Costs, as discussed further below. The following table breaks down Historical CAT Costs 1 for the Pre-FAM Period into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The
The $10,268,840 in technology costs for cloud hosting services represent costs incurred for services provided by the cloud services provider for the CAT, Amazon Web Services, Inc. (“AWS”), during the Pre-FAM Period.
As part of its proposal for acting as the successor Plan Processor for the CAT, FCAT selected AWS as a subcontractor to provide cloud hosting services. In 2019, after reviewing the capabilities of other cloud services providers, FCAT determined that AWS was the only cloud services provider at that time sufficiently mature and capable of providing the full suite of necessary cloud services for the CAT, including, for example, the security, resiliency and complexity necessary for the CAT computing requirements. The use of cloud hosting services is standard for this type of high-volume data activity and reasonable and necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT the fees incurred by the Plan Processor for cloud hosting services provided by AWS as FCAT's subcontrator [
AWS was engaged by FCAT to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. Services provided by AWS include storage services, databases, compute services and other services (such as networking, management tools and DevOps tools). AWS also was engaged to provide various environments for CAT, such as development, performance testing, test and production environments.
The cost for AWS services for the CAT is a function of the volume of CAT Data. The greater the amount of CAT Data, the greater the cost of AWS services to the CAT. During the Pre-FAM Period from the engagement of AWS in February 2019 through June 2020, AWS provided cloud hosting services for volumes of CAT Data far in excess of the volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan states, when all CAT Reporters are submitting their data to the CAT, it “must be sized to receive[,] process and load more than 58 billion records per day,”
The $21,085,485 in technology costs related to operating fees represent costs incurred with regard to activities of FCAT as the Plan Processor. Operating fees are those fees paid by CAT LLC to FCAT as the Plan Processor to operate and maintain the CAT and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
The Selection Subcommittee considered factors including, but not limited to, the following, in recommending FINRA to the Operating Committee as the successor Plan Processor:
a. FINRA's specialized technical expertise and capabilities in the area of broker-dealer technology;
b. The need to appoint a successor Plan Processor with specialized expertise to develop, implement, and maintain the CAT System in accordance with the CAT NMS Plan and SEC Rule 613;
c. FINRA's detailed proposal in response to CAT LLC's recent inquiries; and
d. FINRA's data query and analytics systems demonstration to the Participants.
Based on these and other factors, the Selection Subcommittee determined that FINRA was the most appropriate Bidder to become the successor Plan Processor.
On February 26, 2019, the Operating Committee (with FINRA recusing itself) voted to select FINRA as the successor Plan Processor pursuant to Section 6.1(t) of the CAT NMS Plan.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT a negotiated monthly fixed price for the operation of the CAT. This fixed price contract was negotiated on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity. The operating fees during the Pre-FAM Period were paid to FCAT by CAT LLC.
From March 29, 2019 (the commencement of the Plan Processor Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM Period), the Plan Processor's activities with respect to the CAT included the following:
• Commenced user acceptance testing with market data provided by Exegy Incorporated (“Exegy”), a market data provider;
• Published Technical Specifications and related reporting scenarios documents for Phase 2a, 2b and 2c reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated testing for Phase 2a and 2b reporting for Industry Members;
• Began developing Technical Specifications and related reporting scenarios documents for Phase 2d reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published Central Repository Access Technical Specifications, and provided regulator access to test data from Industry Members;
• Facilitated Participant exchanges that support options market makers sending Quote Sent Time to the CAT;
• Facilitated the introduction of OPRA and Options NBBO Other Data to CAT;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing requirements under Regulation SCI;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants, the SEC and its staff;
• Operated the FINRA CAT Helpdesk, which is the primary source for answers to questions about CAT, including questions regarding: clock synchronization, firm reporting responsibilities, interpretive questions, technical specifications for reporting to CAT and more;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
The $2,072,908 in technology costs related to CAIS operating fees represent the fees paid for FCAT's subcontractor charged with the development and operation of CAT's Customer and Account Information System (“CAIS”). The CAT is required under the CAT NMS Plan to capture and store Customer Identifying Information and Customer Account Information in a database separate from the transactional database and to create a CAT-Customer-ID for each Customer.
During the Pre-FAM Period, the CAIS-related services were provided by the Plan Processor through the Plan Processor's subcontractor, Kingland Systems Incorporation (“Kingland”). Kingland had experience operating in the securities regulatory technology space, and as a part of its proposal for acting as the Plan Processor for the CAT, FCAT selected Kingland as a subcontractor to provide certain CAIS-related services.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay to the Plan Processor the fees incurred by FCAT for CAIS-related services provided by FCAT through Kingland on a monthly basis. FCAT negotiated the fees for Kingland's CAIS-related services on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity. The fees for CAIS-related services during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, paid Kingland.
During the Pre-FAM Period, Kingland began development of the CAIS Technical Specifications and the building of CAIS. In addition, Kingland also worked on the build related to the CCID Alternative, an alternative approach to customer information that was not included in the CAT NMS Plan as originally adopted.
The technology costs related to change request fees include costs related to certain modifications, upgrades or other changes to the CAT. Change requests are standard practice and necessary to reflect operational changes, including changes related to new market developments, such as new market participants. In general, if CAT LLC determines that a modification, upgrade or other change to the functionality or service is necessary and appropriate, CAT LLC will submit a request for such a change to the Plan Processor. The Plan Processor will then respond to the request with a proposal for implementing the change, including the cost (if any) of such a change. CAT LLC then determines whether to approve the proposed change. The change request costs were paid by CAT LLC to FCAT. During the Pre-FAM Period, CAT LLC incurred costs of $141,346 related to change requests implemented by FCAT. Such change requests related to a development fee regarding the OPRA and SIP data feeds, and the reprocessing of certain exchange data.
This category of costs includes capitalizable application development costs incurred in the development of the CAT. The capitalized developed technology costs for the Pre-FAM Period of $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
On January 17, 2017, the Selection Committee of the CAT NMS Plan selected the Initial Plan Processor, Thesys Technologies, LLC, for the CAT NMS Plan pursuant to Article V of the CAT NMS Plan.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT, but excluding the period from November 15, 2017 through January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical
The legal costs of $19,674,463 represent the fees paid for legal services provided by two law firms, Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) and Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), during the Pre-FAM Period. The legal costs exclude those costs incurred from November 15, 2017 through November 15, 2018.
WilmerHale's billing rates are negotiated on an annual basis and are determined with reference to the rates charged by other leading law firms for similar work. The Participants assess WilmerHale's performance and review prospective budgets and staffing plans submitted by WilmerHale on an annual basis. WilmerHale's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading law firms for similar work.
The legal costs for WilmerHale during the Pre-FAM Period included costs incurred from 2013 until June 22, 2020 to address corporate and regulatory legal matters related to the CAT. The legal fees for this law firm during the period from February 2013 until the formation of the CAT NMS, LLC on November 15, 2016 were paid directly by the exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, the legal fees were paid by CAT LLC to WilmerHale.
After WilmerHale was engaged in 2013 through the end of the Pre-FAM Period on June 22, 2020 (excluding the legal costs from November 15, 2017 through November 15, 2018), WilmerHale provided legal assistance to the CAT on a variety of matters, including with regard to the following:
• Analyzed various legal matters associated with the Selection Plan, and drafted an amendment to the Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the Development Advisory Group (“DAG”);
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan and related filings;
• Negotiated and drafted the plan processor agreements with the Initial Plan Processor and the successor Plan Processor;
• Provided assistance with compliance with Regulation SCI;
• Assisted with clock synchronization study;
• Provided assistance with respect to the establishment of CAT security;
• Drafted exemptive requests from CAT NMS Plan requirements, including with regard to options market maker quotes, Customer IDs, CAT Reporter IDs, linking allocations to executions, CAT reporting timeline, FDIDs, customer and account information, timestamp granularity, small industry members, data facility reporting and linkage, allocation reports, SRO-assigned market participant identifiers and cancelled trade indicators, thereby seeking to implement changes that would be cost effective and benefit Industry Members and Participants;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided advice regarding CAT policies and procedures;
• Analyzed the SEC's amendment of the CAT NMS Plan regarding financial accountability;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues; and
• Assisted with third-party vendor agreements.
The consulting costs of $17,013,414 represent the fees paid to the consulting firm Deloitte & Touche LLP (“Deloitte”) as project manager during the Pre-FAM Period, from October 2012 until June 22, 2020. These consulting costs include costs for advisory services related to the operation of the CAT, and meeting facilitation and communications coordination, vendor support and financial analyses.
To help facilitate project management given the unprecedented complexity and scope of the CAT project, the Participants determined it was necessary to engage a consulting firm to assist with the CAT project in 2012, following the adoption of Rule 613. A variety of factors were considered in the analysis of prospective consulting firms, including (1) the firm's qualifications, resources, and expertise; (2) the firm's relevant experience and understanding of the regulatory issues raised by the CAT and in coordinating matters of similar scope; (3) the composition of the consulting team; and (4) professional fees. Following a series of interviews, the exchanges and FINRA as a consortium determined that Deloitte was well qualified given the balance of these considerations and engaged Deloitte on October 1, 2012.
Deloitte's fee rates are negotiated on an annual basis and are in line with market rates for this type of specialized consulting work. CAT LLC assesses Deloitte's performance and reviews prospective budgets and staffing plans submitted by Deloitte on an annual basis. Deloitte's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading consulting firms for similar work.
The consulting costs for CAT during the period from 2012 until the formation of the CAT NMS, LLC were paid directly by the Participants to Deloitte. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each month and approved the invoices.
After Deloitte was hired in 2012 through the end of the Pre-FAM Period on June 22, 2020 (excluding the consulting costs from November 15, 2017 through November 15, 2018), Deloitte provided a variety of consulting services, including the following:
• Established and implemented program operations for the CAT project, including the program managment [
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participant's independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Assisted with cost and funding-related activities for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with industry outreach and communications regarding the CAT, including assistance with industry outreach events, the development of the CAT website, frequently asked questions, and coordinating with the CAT LLC's public relations firm;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress;
• Coordinated efforts regarding the selection of the successor Plan Processor;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor, including support for the Operating Committee and successor Plan Processor for the new role; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $880,419 represent the cost incurred for insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT LLC performed an evaluation of various potential alternatives for CAT insurance policies, which included engaging in discussions with different insurance companies and conducting cost comparisons of various alternative approaches to insurance. Based on an analysis of a variety of factors, including coverage and premiums, CAT LLC determined to purchase cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance from USI Insurance Services LLC (“USI”). Such policies are standard for corporate entities, and cyber security liability insurance is important for the CAT System. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial
After Anchin was hired in April 2018 through the end of the Pre-FAM Period on June 22, 2020 (excluding the period from April 2018 through November 15, 2018), Anchin provided a variety of services, including the following:
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial reporting matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy from July 2018 through March 2019. CAT LLC determined that, unlike certain other vendors, Exegy provided market data that included all data elements required by the CAT NMS Plan.
Upon the termination of the contract between CAT LLC and Exegy, FCAT entered into a contract with Exegy to purchase the required market data from Exegy in July 2019. All costs under the contract were treated as a direct pass through cost to CAT LLC. Therefore, the fees for the market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for the market data.
The public relations costs of $224,669 represent the fees paid to public relations firms during the Pre-FAM Period for professional communications services to CAT, including media relations consulting, strategy and execution. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. Specifically, the public relations firms provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
The services performed by each of the public relations firms were comparable. The fees for such services were reasonable and in line with market rates. Only one public relations firm was engaged at a time; the three firms were engaged sequentially as the primary public relations contact moved among the three firms during this time period.
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 1 of the Financial Accountability Milestones (“FAM Period 1”),
By
CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 1 Period. Accordingly, the $2,642,122 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 1. The fee arrangement for AWS described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC continued to believe that AWS's
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 1 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, reference data and other types of Other Data. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 1.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 1. Accordingly, the $1,099,680 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 1. The fee arrangement for FCAT described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, FCAT's activities with respect to the CAT included the following:
• Published iterative drafts of draft Technical Specifications for Phase 2d, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published iterative drafts of CAIS Technical Specifications, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated Industry Member reporting of Quote Sent Time on Options Market Maker quotes;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 1. Accordingly, the $254,998 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 1. The fee arrangement for Kingland described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to CCID Alternative, as well as the acceleration of the reporting of LTIDs.
CAT LLC did not incur costs related to change requests during FAM Period 1.
Capitalized developed technology costs for FAM Period 1 of $1,684,870 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include: (1) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including separate production and industry test entitlements, and reprocessing of exchange event timestamps; (2) implementation fees; and (3) license fees.
The legal costs of $481,687 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 1.
• Assisted with the development of the CAT funding model and drafted related amendments and fee filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, verbal activity, options market maker quote sent time, TRF linkages, and allocations;
• Provided interpretations related to CAT NMS Plan requirements, including the Financial Accountability Milestone amendment;
• Assisted with compliance with Regulation SCI;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the drafting of the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Assisted with communications and presentations for the industry regarding CAIS;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment;
• Provided guidance regarding CAT technical specifications;
• Assisted with third-party vendor agreements; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $137,209 represent the fees paid to Deloitte as project manager during FAM Period 1. CAT LLC continued to employ Deloitte during FAM Period 1 based on, among other things, their expertise and cumulative experience with the CAT. The fee rates for Deloitte during FAM Period 1 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 1, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• Maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups; and
• Prepared monthly and quarterly financial statements.
The public relations costs of $7,700 represent the fees paid to Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak Strategies during FAM Period 1 based on, among other things, their expertise and history with the project. The fee rates for this firm were reasonable and in line with market rates for these types of services. The fees for these services during FAM Period 1 were paid by CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies continued to provide professional communications services to CAT LLC, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already funded by Participants during Period 2 of the Financial Accountability Milestones (“FAM Period 2”),
By
(a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS reporters) for equities transactions, excluding Customer Account Information, CustomerID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission.
CAT LLC completed the requirements of FAM Period 2 by December 31, 2020. The following describes the costs for each of the categories for FAM Period 2.
CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 2 Period. Accordingly, the $20,709,212 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 2. The fee arrangement for AWS described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 2 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, and Other Data, including reference data. In addition, Industry Members began reporting LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 2.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 2. Accordingly, the $9,108,700 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 2. The fee arrangement for FCAT described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, FCAT's activities with respect to the CAT included publishing the Technical Specifications for Phase 2d and overseeing the reporting of firm to firm and intrafirm linkages by Industry Members. In addition, FCAT also continued to engage in the following activities during FAM Period 2:
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the development and implementation of the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 2. The fee arrangement for Kingland described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs.
During FAM Period 2, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 2, CAT incurred costs of $51,823 related to a change request regarding the addition of functionality for exchange Participants to report rejected messages to the CAT.
Capitalized developed technology costs for FAM Period 2 of $6,761,094 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to separate production and industry test entitlements, market maker reference data, and back-processing of exchange exception logic; (3) implementation fees; and (4) license fees.
The legal costs of $2,766,644 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 2.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, allocations, exchange activity, OTQT, initial data validation, error corrections and recordkeeping;
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittees, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for the Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Assisted with third-party vendor agreements (
• Assisted with change requests; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $532,146 represent the fees paid to Deloitte as project manager during FAM Period 2. CAT LLC continued to employ Deloitte during FAM Period 2 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 2 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 2, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $976,098 represent the fees paid for insurance during FAM Period 2. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
(i)
The professional and administration costs of $438,523 represent the fees paid to Anchin and Grant Thornton for financial services provided during FAM Period 2.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from the Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audit by an independent auditor; and
• Reviewed historical costs from inception.
The public relations costs of $41,940 represent the fees paid to Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak Strategies during FAM Period 2 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 2 were paid by CAT LLC to Peak Strategies. During FAM Period 2, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 3 of the Financial Accountability Milestones (“FAM Period 3”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(a) reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)-(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met.
CAT LLC completed the requirements of FAM Period 3 by December 31, 2021. The following describes the costs for each of the categories for FAM Period 3.
CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 3 Period. Accordingly, the $94,574,759 in technology costs for cloud hosting services represents costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 3. The fee arrangement for AWS described above for the earlier periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During FAM Period 3, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a, Phase 2b, Phase 2c and Phase 2d Industry Member Data (including certain linkages), SIP Data, Other Data, including reference data, and LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 3.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 3. Accordingly, the $23,106,091 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 3. The fee arrangement for FCAT described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, FCAT's activities with respect to the CAT included the following:
• Facilitated Phase 2c and Phase 2d testing for Industry Members;
• Oversaw creation of linkages of the lifecycle of order events based on the received data through Phase 2d;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement with FCAT discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 3. Accordingly, the $5,562,383 in technology costs for CAIS operating fees represents costs incurred for services provided by Kingland during FAM Period 3. The fee arrangement for Kingland described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. The full CAIS Technical Specifications were published during FAM Period 3.
During FAM Period 3, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 3, CAT incurred costs of $396,169 related to change requests, including the following: (1) the addition of functionality for exchange Participants to report rejected messages to the CAT; (2) the migration of MIRS query engine to AWS to reduce operational costs and increase resiliency; and (3) updating the Participant Technical Specifications to allow for two-sided Participant option quote reporting.
Capitalized developed technology costs for FAM Period 3 of $10,763,372 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor, including the transition from equity data received by FINRA pursuant to various regulatory services agreements between FINRA and Participant exchanges to the equity CAT Data, and the completion of the Industry Member Phase 2d options manual and complex orders go-live requirements; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to off-exchange volume concentration, Participant 24-hour trading and an external metastore; (3) implementation fees; and (4) license fees.
The legal costs of $6,333,248 represent the fees paid for legal services provided by three law firms, WilmerHale, Pillsbury and Covington & Burling LLP (“Covington”) during FAM Period 3.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements, including, for example, verbal activity regarding Phase 2c cutover, error reports, error corrections, Phase 2d Reporting, unique Order-ID on internal route events, reporting addresses, recordkeeping, and unique CCID for foreign customers;
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs, CAIS requirements, ADF, and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6(c) of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the SEC's exemptive orders;
• Assisted with communications with the industry, including CAT Alerts and presentations;
• Provided guidance regarding the confidentiality of CAT Data, including third-party information requests;
• Assisted with cost management analysis and proposals; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
After Covington was hired in 2021 through the end of 2021, the firm provided legal assistance regarding the litigation with the SEC regarding the 2020 Orders. These services included researching, drafting, and filing motions to stay the 2020 orders and related materials in proceedings before the SEC, as well as researching, drafting, and filing petitions for judicial review of the 2020 Orders in proceedings before the U.S. Court of Appeals for the D.C. Circuit. Covington oversaw ongoing litigation proceedings on these matters, and also supported WilmerHale with respect to settlement negotiations with the SEC staff regarding the 2020 Orders.
In addition to these services, CAT LLC engaged Covington in November 2021 to provide assistance with respect to the SEC's disapproval of CAT NMS Plan amendments concerning a proposed limitation on liability in the event of a data breach or similar event. Covington provided advice concerning CAT's response to the SEC's disapproval order. This work accounted for a minority of Covington's fees in 2021.
The consulting costs of $1,408,209 represent the fees paid to Deloitte as project manager during FAM Period 3. CAT LLC continued to employ Deloitte during FAM Period 3 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 3 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 3, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $1,582,714 represent the fees paid for insurance during FAM Period 3. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $92,400 represent the fees paid to Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak Strategies during FAM Period 3 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 3 were paid by CAT LLC to Peak Strategies. During FAM Period 3, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
First, Historical CAT Costs 1 would not include $14,749,362 of costs related to the conclusion of the relationship with the Initial Plan Processor. Such costs include costs related to the American Arbitration Association, the legal assistance of Pillsbury with regard to the arbitration with the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during this one-year period of $48,874,937 from fees charged to Industry Members due to the delay in the start of reporting to the CAT. The Participants would remain responsible for 100% of these $48,874,937 in costs. The following table breaks down these costs into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The following provides additional detail regarding the Excluded Costs.
CAT LLC did not incur technology costs related to the categories of cloud hosting services, operating fees, CAIS operating fees or change requests during the period from November 15, 2017 through November 15, 2018.
Capitalized developed technology costs for the period from November 15, 2017 through November 15, 2018 include capitalizable application development costs of $37,852,083 incurred in the development of the CAT by the Initial Plan Processor. Such costs include development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Initial Plan Processor. Such costs include costs related to Industry Member technical specifications for orders and transactions, the system security plan, testing and production for Participant CAT reporting, third-party security assessment and response, query portal, onboarding of the Chief Information Security Officer, and ingestion of FINRA TRF data and FINRA data related to halts and corporate actions.
The legal costs of $6,143,278 represent the fees paid to WilmerHale for legal services from November 15, 2017 through November 15, 2018. During this period, WilmerHale provided legal assistance to the CAT including with regard to the following:
• Provided legal support for the governance of the CAT, including governance support for the Operating Committee, Advisory Committee, Compliance Subcommittee, and CAT working groups;
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan;
• Provided assistance related to CAT security;
• Drafted exemptive requests, including requests related to PII;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided advice with regard to regulator access to the CAT;
• Assisted with the Plan Processor transition;
• Provided assistance regarding communications with the industry regarding the CAT;
• Provided advice regarding Customer Account Information and PII;
• Provided support for litigation related to SEC exemptive orders; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretative and implementation issues.
The consulting costs of $4,452,106 represent the fees paid to Deloitte for their role as project manager for the CAT from November 15, 2017 through November 15, 2018. During this period, Deloitte engaged in the following activities with respect to the CAT:
• Implemented program operations for the CAT project;
• Provided governance support to the Operating Committee, including support for Subcommittees and working groups of the Operating Committee (
• Assisted with cost and funding issues for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
The professional and administration costs of $340,145 represent the fees paid to Anchin, Exegy and RSM from November 15, 2017 through November 15, 2018.
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $87,325 represent the fees paid to Sloane from November 15, 2017 through November 15, 2018. From the commencement of its engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
Under the CAT NMS Plan, the Operating Committee is required to reasonably establish the length of the Historical Recovery Period used in calculating each Historical Fee Rate based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment, and to describe the reasons for its length.
The Operating Committee determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans to the Participants in a timely fashion. The Operating Committee determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
The length of the Historical Recovery Period 1 and the reasons for its length are provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
The calculation of Historical Fee Rate 1 also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for Historical Recovery Period 1. Under the CAT NMS Plan, the Operating Committee is required to “reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating Committee has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. The Operating Committee determined that such an approach was reasonable as the CAT's annual executed equivalent share volume has remained relatively constant. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
The projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1 and a description of the calculation of the projection is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
Historical Fee Rate 1 would be calculated by dividing Historical CAT Costs 1 by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1, as described in detail above.
Participants would not be required to pay any fees associated with Historical CAT Assessment 1 as the Participants previously have paid all Past CAT Costs. The CAT NMS Plan explains that:
Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
CEBBs and CEBSs would be required to pay fees for Historical CAT Assessment 1 on a monthly basis for the period in which Historical CAT Assessment 1 is in effect.
The CAT NMS Plan states that, “[n]otwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
The CAT NMS Plan states that:
Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis. Each month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time. Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, “as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.
The proposed language in paragraph (a)(1)(A) of the fee schedule would describe when CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1. Specifically, CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1 in November 2024 and the fees set forth in that invoice would be calculated based on transactions executed in the prior month, that is, transactions executed in October 2024. The payment for the first invoice would be required within 30 days after the receipt of the first invoice (unless a longer period is indicated), as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule also would describe the monthly cadence of the invoices for Historical CAT Assessment 1. Specifically, after the first invoices are provided to CAT Executing Brokers in November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule would state that “Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis.” Proposed paragraph (a)(1)(B) of the fee schedule also would describe the fees to be set forth in the invoices for Historical CAT Assessment 1. Specifically, it would state that “[e]ach month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule would describe how long Historical CAT Assessment 1 would remain in effect. It would state that “Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time.” This proposed paragraph would further state that “Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.”
Historical CAT Assessment 1 will be assessed for all transactions executed in each month through the end of the month in which two-thirds of Historical CAT Costs 1 are assessed, and then CAT LLC will provide notice that Historical CAT Assessment 1 is no longer in effect. Since Historical CAT Assessment 1 is a monthly fee based on transaction volume from the prior month, Historical CAT Assessment 1 may collect more than two-thirds of Historical CAT Costs 1. To the extent that occurs, any excess money collected during the final month in which Historical CAT Assessment 1 is in effect will be used to offset future fees and/or to fund the reserve for the CAT.
Finally, proposed paragraph (a)(1)(D) of the fee schedule sets forth the requirement for the CAT Executing Brokers to pay the invoices for Historical CAT Assessment 1. It would state that “[e]ach CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of CAT fees.
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due (as determined in accordance with the preceding sentence), such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (a) the Prime Rate plus 300 basis points; or (b) the maximum rate permitted by applicable law.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If a CAT Executing Broker fails to pay any such CAT fee when due, such CAT Executing Broker shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 300 basis points, or (ii) the maximum rate permitted by applicable law.
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
The CAT NMS Plan states that:
Details regarding the calculation of a CAT Executing Broker's Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker's executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS
Furthermore, CAT LLC will make publicly available on the CAT website the total amount invoiced each month that Historical CAT Assessment 1 is in effect as well as the total amount invoiced for Historical CAT Assessment 1 for all months since its commencement. CAT LLC also will make publicly available on the CAT website the total costs to be collected from Industry Members for Historical CAT Assessment 1. By reviewing statistics regarding how much has been invoiced and how much remains to be invoiced for Historical CAT Assessment 1, Industry Members would have sufficient information to reasonably track how much longer Historical CAT Assessment 1 is likely to be in place.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided CAT Executing Brokers with a preview of the transaction data used in creating the invoices for Historical CAT Assessment 1 fees, as the data will be the same as data provided in actual invoices. Such data preview is intended to facilitate the payment of Historical CAT Assessment 1.
The CAT NMS Plan states that “[n]o Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied.”
In accordance with Section 11.6(b) of the CAT NMS Plan, Historical CAT Assessment 1 seeks to recover costs that are related to “all fees, costs, and expenses (including legal and consulting fees, costs, and expenses) incurred by or for the Company in connection with the development, implementation and operation of the CAT from the effective date of [Section 11.6 of the CAT NMS Plan] until such time as Full Implementation of CAT NMS Plan Requirements has been achieved”
The reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of both: (a) equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information; and (b) options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry Members—excluding Small Industry Members that are not OATS reporters—were required to report two categories of data to the CAT: equites transaction data and options transaction data (both excluding Customer Account Information, Customer-ID, and Customer Identifying Information) by July 31, 2020. Pursuant to exemptive relief provided by the Commission, the Commission authorized the Participants' Compliance Rules to allow core equity reporting for Industry Members (Phase 2a) to begin on June 22, 2020 and core options reporting for Industry Members (Phase 2b) to begin on July 20, 2020.
In adopting the FAMs, the Commission stated that the equities transaction reporting required for FAM Period 1 “is consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Equities 2a file submission and data integrity
• All events and scenarios covered by OATS, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions;
• Reportable Events for: (1) proprietary orders, including market maker orders, for Eligible Securities that are equities; (2) electronic quotes in listed equity Eligible Securities (
• Firm Designated IDs (“FDIDs”), which Industry Members must report to the CAT as required by Sections 6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT NMS Plan;
• Industry Members would be required to report all street side representative orders, including both agency and proprietary orders and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications;
• The link between the street side representative order and the order being represented when: (1) the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member's system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member's system;
• Manual and Electronic Capture Time for Manual Order Events;
• Special handling instructions for the original receipt or origination of an order during Phase 2a; and
• When routing an order, whether the order was routed as an intermarket sweep order (“ISO”).
In Phase 2a, Industry Members were not required to report modifications of a previously routed order in certain limited instances, nor were they required to report a cancellation of an order received from a Customer after the order has been executed.
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Equities 2a file submission and data integrity validation (Large Industry Members and Small OATS Reporters)” was completed on June 22, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information” was completed on June 22, 2020.
In adopting the FAMs, the Commission stated that the options transaction reporting required for FAM Period 1 is “consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Options 2b file submission and data integrity validations.' ”
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Options 2b file submission and data integrity validations” was completed on July 20, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information” was completed on July 20, 2020.
As discussed above, the Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from June 22, 2020 through July 31, 2020. The total costs for this period, as discussed above, are $6,377,343. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third ($2,125,781).
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 began on August 1, 2020, and concluded on December 31, 2020, the date of the Full Implementation of Core Equity Reporting. Section 1.1 of the CAT NMS Plan defines “Full Implementation of Core Equity Reporting” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2020,
Specifically, the Full Implementation of Core Equity Reporting requires the satisfaction of two prongs. The first prong requires Participants to have fully implemented the first phase of equities transaction reporting for Industry Members (excluding Small Industry Members that are not OATS reporters) at an Error Rate of less than 5%. In addition, equities transaction data produced by the CAT at this stage must also be sufficiently interlinked so as to permit full analysis of an order's lifecycle across the national market, excluding full linkage of representative orders. As CAT LLC reported on its Quarterly Progress Reports, Phase 2a was fully implemented as of October 26, 2020, including intra-firm, inter-firm, national securities exchange, and trade reporting facilities linkages.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “Production Go-Live for Firm to Firm Linkage validations for Equities 2a (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020; and
• “Production Go-Live for Equities 2a Exchange and TRF Linkage validations (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020.
Furthermore, as CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2020, the average overall error rate for Phase 2a Industry Member Data was less than 5% as of December 31, 2020. The average overall error rate was calculated by dividing the compliance errors by processed records.
The second prong of this FAM requires that the equities transaction data collected by the CAT at this stage be made available to regulators through two basic query tools required by the CAT NMS Plan—a targeted query tool that will enable regulators to retrieve data via an online query screen with a variety of predefined selection criteria, and a user-defined direct query tool that will provide regulators with the ability to query data using all available attributes and data sources.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from August 1, 2020 through December 31, 2020. The total costs for this period, as discussed above, are $42,976,478. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 began on January 1, 2021, and concluded on December 31, 2021, the date of the Full Availability and Regulatory Utilization of Transactional Database Functionality. Section 1.1 of the CAT NMS Plan defines “Full Availability and Regulatory Utilization of Transactional Database Functionality” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress
Specifically, the “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires the satisfaction of five prongs. The first prong requires that reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021,
In addition to Phase 2a and Phase 2b Industry Member Data, the second and third prongs of “Full Availability and Regulatory Utilization of Transactional Database Functionality” require Industry Member reporting of Phase 2c Industry Member Data and Phase 2d Industry Member Data. The Phase 2c Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. That Order states that “Phase 2c Industry Member Data” is Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member Data. Specifically, the Phase 2c Industry Member Data includes Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter (reportable by the Industry Member sending the quotes) (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (
Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter's order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) an equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the ADF operated by FINRA; or (b) for unlisted equity securities to an “interdealer quotation system,” as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing;
The Phase 2d Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. “Phase 2d Industry Member Data” is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account opened or Account Effective Date (as applicable) for accounts with an LTID and flag indicating the Firm Designated ID type as account or relationship for such accounts; (6) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (7) the modification or cancellation of an internal route of an order; and (8) linkage between a combined order and the original customer orders. Phase 2d Industry Member Data also would include electronic quotes that are provided by or received in a CAT Reporter's order/quote handling or execution systems in Eligible Securities that are options and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: a listed option bid or offer which is accessible electronically by customers or other market participants and is immediately actionable (
Phase 2d Industry Member Data also includes with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification
The Quarterly Progress Report for the fourth quarter of 2021 states that “Phase 2a was fully implemented as of October 26, 2020;” “Phase 2b was fully implemented as of January 4, 2021;” “Phase 2c was implemented as of April 26, 2021;” and “Phase 2d was fully implemented as of December 13, 2021.”
• “Production Go-Live for Equities 2c reporting requirements (Large Industry Members)” was completed on April 26, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b and 2c (Large Industry Members)” was completed on April 26, 2021;
• “FCAT Plan Processor creates linkages of the lifecycle of order events based on the received data through Phase 2d Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2b reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Equities 2c reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2d (Large Industry Members)” was completed on December 13, 2021; and
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b, 2c and 2d (Small Industry Members)” was completed on December 13, 2021.
The third prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” also imposes an Error Rate requirement of 5% or less. The Quarterly Progress Report for the fourth quarter of 2021 states the average overall error rate was less than 5% as of December 31, 2021. The average overall error rate was calculated by dividing the compliance errors by processed records.
The fourth prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires that the data collected by the CAT at this stage be made available to regulators through an online targeted query tool and a user-defined direct query tool. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021, the query tool functionality incorporating the data from Phases 2a, 2b, 2c and 2d was available to the Participants and to the Commission as of December 31, 2021.
The fifth prong requires the requirements of Section 6.10(a) of the CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan requires the Participants to use the tools described in Appendix D to “develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.” The Exchange implemented a surveillance system, or enhanced existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository as of December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS Plan.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from January 1, 2021 through December 31, 2021. The total costs for this period, as discussed above, are $144,415,268. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1 through 3.
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the individual Participants in responding to the adoption of Rule 613.
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for formulating, drafting, and filing with the Commission the CAT NMS Plan and for ensuring that the Participants' joint obligations under Rule 613 were met in a timely and efficient manner. In formulating the CAT NMS Plan, the Participants also engaged multiple persons across a wide range of roles and expertise, engaged the consulting firm Deloitte as project manager, and engaged the law firm WilmerHale to serve as legal counsel in drafting the Plan. Within this structure, the Participants focused on, among other things, comparative analyses of the proposed technologies and operating models, development of funding models to support the building and operation of the CAT, and detailed review of governance considerations. Given the complexity and scope of developing the CAT NMS Plan, these efforts were extensive.
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was originally contemplated by Rule 613, and therefore should be recoverable as part of Historical CAT Assessment 1.
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• Analyzed various legal matters associated with the Selection Plan and drafted an amendment to Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management office and workstream design;
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is reasonable, taking into consideration a variety of factors, including the expected volume of data and the breadth of services provided and market rates for similar services.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
•
•
•
•
In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven trillion more events in 2023 due to the efficiency and cost avoidance efforts for cloud hosting services. For example, when AWS introduced new storage options, FCAT adopted the cost-efficient new storage option after establishing that the new offering would satisfy the security and other standards of the CAT NMS Plan. This change led to millions of dollars of savings in storage costs. Similarly, when AWS introduced a new compute processor, FCAT adopted this new compute processor, which lead to millions of dollars in savings in compute costs. However, in other cases, new cloud technology developments could not be implemented in CAT because they would not satisfy the security or other requirements of the CAT NMS Plan.
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements,
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
•
•
•
To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
•
FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
•
•
•
•
•
•
•
In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the extent of the services and market rates. Moreover, the scope of the legal costs associated with the development of the funding model reflect the complexity of the task in satisfying the detailed requirements of the CAT NMS Plan, the standards of the Exchange Act, and the many perspectives of the different market constituents potentially affected by or interested in the funding model, including Industry Members, Participants and investors. The many and varied comments by market participants on CAT funding over the years demonstrate the complexity of the task.
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . .
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . . ” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong background regarding issues related to the regulatory obligations of self-regulatory organizations, including their obligations under national market system plans. The compensation paid to the Chair is appropriate for a person with such background and skills. The average annual amount paid to the Chair from 2017 through the end of FAM 3 was $292,733.30. Separate from the Chair, CAT LLC relies upon a Leadership Team of representatives of the SROs to oversee the day-to-day implementation of the CAT NMS Plan. CAT LLC does not compensate any member of the Leadership Team.
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
•
•
•
As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their customers. Likewise, the CAT billing approach provided by the Plan Processor is designed to address the needs of CAT Reporters with regard to the reconciliation of CAT invoices with the underlying trades provided by CAT LLC with the invoices; they are not designed to address issues related to any pass-through fees. Accordingly, facilitating CAT Reporters' ability to pass through fees to their clients is outside the scope of this fee filing. Nevertheless, as described below, CAT LLC and the Plan Processor have expended significant efforts to provide
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
•
•
•
•
•
•
By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange to collect certain of such costs in a fair and reasonable manner from Industry Members, as contemplated by the CAT NMS Plan.
The proposed Historical CAT Assessment 1 fees would be charged to Industry Members in support of the maintenance of a consolidated audit trail for regulatory purposes. The proposed fees, therefore, are consistent with the Commission's view that regulatory fees be used for regulatory purposes and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT. In addition, any surplus would be used as a reserve to offset future fees. Given the direct relationship between CAT fees and CAT costs, the Exchange believes that the proposed fees are reasonable, equitable and not unfairly discriminatory.
As further discussed below, the SEC approved the CAT Funding Model, finding it was reasonable and that it equitably allocates fees among Participants and Industry Members. The Exchange believes that the proposed fees adopted pursuant to the CAT
Section 11.1(b) of the CAT NMS Plan states that “[t]he Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves.” Per Section 11.1(b) of the CAT NMS Plan, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange believes that this proposal is consistent with the Exchange Act because it is consistent with, and implements, the CAT Funding Model in the CAT NMS Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The SEC has determined that the CAT Funding Model is reasonable and satisfies the requirements of the Exchange Act. Specifically, the SEC has concluded that the method for determining Historical CAT Assessments as set forth in Section 11.3 of the CAT NMS Plan, including the formula for calculating the Historical Fee Rate, the identification of the parties responsible for payment and the transactions subject to the fee rate for the Historical CAT Assessment, is reasonable and satisfies the Exchange Act.
The formula for calculating a Historical Fee Rate requires the amount of Historical CAT Costs to be recovered. Specifically, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to provide:
In accordance with this requirement, the Exchange has set forth the amount and type of Historical CAT Costs 1 for each of these categories of costs above.
Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that the fee filing provide “sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.” As discussed below, the Exchange believes that the amounts set forth in this filing for each of these cost categories is “reasonable and appropriate.” Each of the costs included in Historical CAT Costs 1 are reasonable and appropriate because the costs are consistent with standard industry practice, based on the need to comply with the requirements of the CAT NMS Plan, incurred subject to negotiations performed on an arm's length basis, and/or are consistent with the needs of any legal entity, particularly one with no employees.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover costs related to cloud hosting services as a part of Historical CAT Assessments.
To comply with the requirements of the Plan, the breadth of the cloud activities related to the CAT is substantial. The cloud services not only include the production environment for the CAT, but they also include two industry testing environments, support environments for quality assurance and stress testing and disaster recovery capabilities. Moreover, the cloud storage costs are driven by the requirements of the Plan, which requires the storage of multiple versions of the data, from the original submitted version of the data through various processing steps, to the final version of the data.
Data volume is a significant driver of costs for cloud hosting services. When the Commission adopted the CAT NMS Plan in 2016, it estimated that the CAT would need to receive 58 billion records per day
In addition to the effect of the data volume on the cloud hosting costs, the processing timelines set forth in the Plan contribute to the cloud hosting costs. Although CAT LLC has proactively sought to manage cloud hosting costs while complying with the Plan, including through requests to the Commission for exemptive relief and an amendment to the CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any material flexibility in cloud architecture design choices, processing timelines (
The costs for cloud hosting services also reflect the need for specialized cloud hosting services given the data volume and unique processing needs of the CAT. The data volume as well as the data processing needs of the CAT necessitate the use of cloud hosting services. The equipment, power and services required for an on-premises data model, the alternative to cloud hosting services, would be cost prohibitive. Moreover, as CAT was being developed, there were limited cloud hosting providers that could satisfy all the necessary CAT requirements, including the operational and security criteria. Over time more providers offering cloud hosting services that would satisfy these criteria have entered the market. CAT LLC will continue to evaluate alternative cloud hosting services, recognizing that the time and cost to move to an alternative cloud provider would be substantial.
The reasonableness of the cloud hosting services costs is further supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts (including regular efforts to lower compute and storage costs where permitted by the Plan) and oversight. Together, these mechanisms help ensure the ongoing reasonableness of the CAT's costs and the level of fees assessed to support those costs.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to CAIS operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to change request fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to capitalized developed technology costs as a part of Historical CAT Assessments.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to legal fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover professional and administration costs as a part of Historical CAT Assessments.
CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT project, considering a variety of factors in its analysis, including the firm's relevant expertise and fees.
CAT LLC also determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC's financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC's financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the role given the balanace of these considerations.
The professional and administrative costs also include costs related to the receipt of certain market data from Exegy. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy. Exegy provided the data elements required by the CAT NMS Plan, and the fees were reasonable and in line with market rates for the market data received.
The professional and administrative costs also include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the effective design, implementation and operation of the controls specified by NIST Special Publication 800-53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm's relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover public relations costs as a part of Historical CAT Assessments.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. CAT LLC determined the total executed equivalent share volume for the prior twelve months by counting executed equivalent shares in the same manner as it will count executed equivalent shares for CAT billing purposes.
CAT LLC has determined to establish a Historical Recovery Period of 24 months for Historical CAT Assessment 1 and that such length is reasonable. CAT LLC determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans notes to the Participants in a timely fashion. CAT LLC determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
CAT LLC has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. CAT LLC determined that such an approach was reasonable as the CAT's annual executed equivalent share volume has remained relatively constant in recent years. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
As noted in the Plan amendment for the CAT Funding Model, as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 per executed equivalent share is reasonable because it provides for a revenue stream for the Company that is aligned with Historical CAT Costs 1 and such costs would be spread out over an appropriate recovery period, as discussed above. Moreover, the Exchange believes that the level of the fee rate is reasonable, as it is comparable to other transaction-based fees. Indeed, Historical CAT Assessment 1 is significantly lower than fees assessed pursuant to Section 31 (
Historical CAT Assessment 1 provides for an equitable allocation of fees, as it equitably allocates CAT costs between and among the Participants and Industry Members. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act, including the formula for calculating Historical CAT Assessments as well as the Industry Members to be charged the Historical CAT Assessments.
Historical CAT Assessment 1 provides for an equitable allocation of fees as it complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. For example, as described above, the calculation of Historical CAT Assessment 1 complies with the formula set forth in Section 11.3(b) of the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the CAT NMS Plan. Furthermore, the Participants would continue to remain responsible for their designated share of Past CAT Costs through the cancellation of loans made by the Participants to CAT LLC.
In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1—Historical CAT Costs 1 (including Excluded Costs), the count for the executed equivalent share volume for the prior 12 months, the length of the Historical Recovery Period, and the projected executed equivalent share volume for the Historical Recovery Period—are reasonable. Moreover, these inputs lead to a reasonable fee rate for Historical CAT Assessment 1 that is lower than other fee rates for transaction-based fees. A reasonable fee rate allocated in accordance with the requirements of the CAT Funding Model provides for an equitable allocation of fees.
Historical CAT Assessment 1 is not an unfairly discriminatory fee. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act. In reaching this conclusion, the SEC analyzed the potential effect of Historical CAT Assessments calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Historical CAT Assessment 1 complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 and the resulting fee rate for Historical CAT Assessment 1 is reasonable. Therefore, Historical CAT Assessment 1 does not impose an unfairly discriminatory fee on Industry Members.
Finally, the Exchange believes the proposed fees established pursuant to the CAT Funding Model promote just and equitable principles of trade, and, in general, protect investors and the public interest, and are provided in a transparent manner and specificity in the fee schedule. The Exchange also believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fee based on fixed rate per executed equivalent share. Such factors are crucial to estimating a reliable revenue stream for CAT LLC and for permitting Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
In addition, all Participants (including exchanges and FINRA) are proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive fee filing, and, therefore, it does not raise competition issues between and among the Participants.
Furthermore, in approving the CAT Funding Model, the SEC analyzed the potential competitive impact of the CAT Funding Model, including competitive issues related to market services, trading services and regulatory services, efficiency concerns, and capital formation.
As discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 is reasonable and the resulting fee rate for Historical CAT Assessment 1 calculated in accordance with the CAT Funding Model is reasonable. Therefore, Historical CAT Assessment 1 would not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) under the Securities Exchange Act of 1934 (the “Act”)
The Exchange proposes to establish fees for Industry Members
The text of the proposed rule change is available on the Exchange's website at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
On July 11, 2012, the Commission adopted Rule 613 of Regulation NMS, which required the self-regulatory organizations (“SROs”) to submit a national market system (“NMS”) plan to create, implement and maintain a consolidated audit trail that would capture customer and order event information for orders in NMS securities across all markets, from the time of order inception through routing, cancellation, modification or execution.
The CAT Funding Model provides a framework for the recovery of the costs to create, develop and maintain the CAT, including providing a method for allocating costs to fund the CAT among Participants and Industry Members. The CAT Funding Model establishes two categories of fees: (1) CAT fees assessed by CAT LLC and payable by certain Industry Members to recover a portion of historical CAT costs previously paid by the Participants (“Historical CAT Assessment” fees); and (2) CAT fees assessed by CAT LLC and payable by Participants and Industry Members to fund prospective CAT costs (“Prospective CAT Costs” fees).
Under the CAT Funding Model, “[t]he Operating Committee will establish one or more fees (each a `Historical CAT Assessment') to be payable by Industry Members with regard to CAT costs previously paid by the Participants (`Past CAT Costs').”
Each Historical CAT Assessment to be paid by CEBBs and CEBSs is designed to contribute toward the recovery of two-thirds of the Historical CAT Costs. Because the Participants previously have paid Past CAT Costs via loans to the Company, the Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs will be paid by the cancellation of loans made by the Participants to the Company on a pro rata basis based on the outstanding loan amounts due under the loans, instead of through the payment of a CAT fee.
CAT LLC proposes to charge CEBBs and CEBSs (as described in more detail
The Exchange previously filed a fee filing to implement Historical CAT Assessment 1. On January 17, 2024, the SEC published this prior filing for Historical CAT Assessment 1, temporarily suspended the fee filing, and instituted proceedings to determine whether to approve or disapprove the fee filing.
Historical CAT Assessment 1 will be charged to each CEBB and CEBS for each applicable transaction in Eligible Securities.
(a) with respect to a transaction in an Eligible Security that is executed on an exchange, the Industry Member identified as the Industry Member responsible for the order on the buy-side of the transaction and the Industry Member responsible for the sell-side of the transaction in the equity order trade event and option trade event in the CAT Data submitted to the CAT by the relevant exchange pursuant to the Participant Technical Specifications; and (b) with respect to a transaction in an Eligible Security that is executed otherwise than on an exchange and required to be reported to an equity trade reporting facility of a registered national securities association, the Industry Member identified as the executing broker and the Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event in the CAT Data submitted to the CAT by FINRA pursuant to the Participant Technical Specifications; provided, however, in those circumstances where there is a non-Industry Member identified as the contra-side executing broker in the TRF/ORF/ADF transaction data event or no contra-side executing broker is identified in the TRF/ORF/ADF transaction data event, then the Industry Member identified as the executing broker in the TRF/ORF/ADF transaction data event would be treated as CAT Executing Broker for the Buyer and for the Seller.
The following
In addition, the
The Operating Committee determined the Historical Fee Rate to be used in calculating Historical CAT Assessment 1 (“Historical Fee Rate 1”) by dividing the Historical CAT Costs for Historical CAT Assessment 1 (“Historical CAT Costs 1”) by the projected total executed share volume of all transactions in Eligible Securities for the Historical Recovery Period for Historical CAT Assessment 1 (“Historical Recovery Period 1”), as discussed in detail below. Based on this calculation, the Operating Committee has determined that Historical Fee Rate 1 would be $0.00003994969693072937 per executed equivalent share. This rate is then divided by three and rounded to determine the fee rate of $0.000013 per executed equivalent share that will be assessed to CEBBs and CEBSs, as also discussed in detail below.
Under the CAT NMS Plan, for purposes of calculating each Historical CAT Assessment, executed equivalent shares in a transaction in Eligible Securities will be reasonably counted as follows: (1) each executed share for a transaction in NMS Stocks will be counted as one executed equivalent share; (2) each executed contract for a transaction in Listed Options will be counted based on the multiplier applicable to the specific Listed Options (
The CAT NMS Plan states that “[t]he Operating Committee will reasonably determine the Historical CAT Costs sought to be recovered by each Historical CAT Assessment, where the Historical CAT Costs will be Past CAT Costs minus Past CAT Costs reasonably excluded from Historical CAT Costs by the Operating Committee. Each Historical CAT Assessment will seek to recover from CAT Executing Brokers two-thirds of Historical CAT Costs incurred during the period covered by the Historical CAT Assessment.”
The following describes in detail Historical CAT Costs 1 with regard to four separate historical time periods as well as Past CAT Costs excluded from Historical CAT Costs 1 (“Excluded Costs”). The following cost details are provided in accordance with the requirement in the CAT NMS Plan to provide in the fee filing “a brief description of the amount and type of Historical CAT Costs, including (1) the technology line items of cloud hosting services, operating fees, CAIS operating fees, change request fees, and capitalized developed technology costs, (2) legal, (3) consulting, (4) insurance, (5) professional and administration and (6) public relations costs.”
Historical CAT Costs 1 would include costs incurred by CAT prior to June 22, 2020 (“Pre-FAM Period”) and already funded by the Participants, excluding Excluded Costs (described further below). Historical CAT Costs 1 would include costs for the Pre-FAM Period of $124,290,730. The Participants would remain responsible for one-third of this cost (which they have previously paid) ($41,430,243.33), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($41,430,243.33) and CEBSs paying one-third ($41,430,243.33). These costs do not include Excluded Costs, as discussed further below. The following table breaks down Historical CAT Costs 1 for the Pre-FAM Period into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The
The $10,268,840 in technology costs for cloud hosting services represent costs incurred for services provided by the cloud services provider for the CAT, Amazon Web Services, Inc. (“AWS”), during the Pre-FAM Period.
As part of its proposal for acting as the successor Plan Processor for the CAT, FCAT selected AWS as a subcontractor to provide cloud hosting services. In 2019, after reviewing the capabilities of other cloud services providers, FCAT determined that AWS was the only cloud services provider at that time sufficiently mature and capable of providing the full suite of necessary cloud services for the CAT, including, for example, the security, resiliency and complexity necessary for the CAT computing requirements. The use of cloud hosting services is standard for this type of high-volume data activity and reasonable and necessary for implementation of the CAT, particularly given the substantial data volumes associated with the CAT.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT the fees incurred by the Plan Processor for cloud hosting services provided by AWS as FCAT's subcontrator [
AWS was engaged by FCAT to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. Services provided by AWS include storage services, databases, compute services and other services (such as networking, management tools and DevOps tools). AWS also was engaged to provide various environments for CAT, such as development, performance testing, test and production environments.
The cost for AWS services for the CAT is a function of the volume of CAT Data. The greater the amount of CAT Data, the greater the cost of AWS services to the CAT. During the Pre-FAM Period from the engagement of AWS in February 2019 through June 2020, AWS provided cloud hosting services for volumes of CAT Data far in excess of the volume predictions set forth in the CAT NMS Plan. The CAT NMS Plan states, when all CAT Reporters are submitting their data to the CAT, it “must be sized to receive[,] process and load more than 58 billion records per day,”
The $21,085,485 in technology costs related to operating fees represent costs incurred with regard to activities of FCAT as the Plan Processor. Operating fees are those fees paid by CAT LLC to FCAT as the Plan Processor to operate and maintain the CAT and to perform business operations related to the system, including compliance, security, testing, training, communications with the industry (
FCAT was selected to assume the role of the successor Plan Processor. Prior to this selection, the Participants engaged in discussions with two prior Bidders
The Selection Subcommittee considered factors including, but not limited to, the following, in recommending FINRA to the Operating Committee as the successor Plan Processor:
a. FINRA's specialized technical expertise and capabilities in the area of broker-dealer technology;
b. The need to appoint a successor Plan Processor with specialized expertise to develop, implement, and maintain the CAT System in accordance with the CAT NMS Plan and SEC Rule 613;
c. FINRA's detailed proposal in response to CATLLC's recent inquiries; and
d. FINRA's data query and analytics systems demonstration to the Participants.
Based on these and other factors, the Selection Subcommittee determined that FINRA was the most appropriate Bidder to become the successor Plan Processor.
On February 26, 2019, the Operating Committee (with FINRA recusing itself) voted to select FINRA as the successor Plan Processor pursuant to Section 6.1(t) of the CAT NMS Plan.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay FCAT a negotiated monthly fixed price for the operation of the CAT. This fixed price contract was negotiated on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan and Rule 613, taking into consideration a variety of factors, including the breadth of services provided and market rates for similar types of activity. The operating fees during the Pre-FAM Period were paid to FCAT by CAT LLC.
From March 29, 2019 (the commencement of the Plan Processor Agreement with FCAT) through June 22, 2020 (the end of the Pre-FAM Period), the Plan Processor's activities with respect to the CAT included the following:
• Commenced user acceptance testing with market data provided by Exegy Incorporated (“Exegy”), a market data provider;
• Published Technical Specifications and related reporting scenarios documents for Phase 2a, 2b and 2c reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated testing for Phase 2a and 2b reporting for Industry Members;
• Began developing Technical Specifications and related reporting scenarios documents for Phase 2d reporting for Industry Members, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published Central Repository Access Technical Specifications, and provided regulator access to test data from Industry Members;
• Facilitated Participant exchanges that support options market makers sending Quote Sent Time to the CAT;
• Facilitated the introduction of OPRA and Options NBBO Other Data to CAT;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing requirements under Regulation SCI;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants, the SEC and its staff;
• Operated the FINRA CAT Helpdesk, which is the primary source for answers to questions about CAT, including questions regarding: clock synchronization, firm reporting responsibilities, interpretive questions, technical specifications for reporting to CAT and more;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content;
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
The $2,072,908 in technology costs related to CAIS operating fees represent the fees paid for FCAT's subcontractor charged with the development and operation of CAT's Customer and Account Information System (“CAIS”). The CAT is required under the CAT NMS Plan to capture and store Customer Identifying Information and Customer Account Information in a database separate from the transactional database and to create a CAT-Customer-ID for each Customer.
During the Pre-FAM Period, the CAIS-related services were provided by the Plan Processor through the Plan Processor's subcontractor, Kingland Systems Incorporation (“Kingland”). Kingland had experience operating in the securities regulatory technology space, and as a part of its proposal for acting as the Plan Processor for the CAT, FCAT selected Kingland as a subcontractor to provide certain CAIS-related services.
Under the Plan Processor Agreement with FCAT, CAT LLC is required to pay to the Plan Processor the fees incurred by FCAT for CAIS-related services provided by FCAT through Kingland on a monthly basis. FCAT negotiated the fees for Kingland's CAIS-related services on an arm's length basis with the goals of managing costs and receiving services required to comply with the CAT NMS Plan, taking into consideration a variety of factors, including the services to be provided and market rates for similar types of activity. The fees for CAIS-related services during the Pre-FAM Period were paid by CAT LLC to FCAT. FCAT, in turn, paid Kingland.
During the Pre-FAM Period, Kingland began development of the CAIS Technical Specifications and the building of CAIS. In addition, Kingland also worked on the build related to the CCID Alternative, an alternative approach to customer information that was not included in the CAT NMS Plan as originally adopted.
The technology costs related to change request fees include costs related to certain modifications, upgrades or other changes to the CAT. Change requests are standard practice and necessary to reflect operational changes, including changes related to new market developments, such as new market participants. In general, if CAT LLC determines that a modification, upgrade or other change to the functionality or service is necessary and appropriate, CAT LLC will submit a request for such a change to the Plan Processor. The Plan Processor will then respond to the request with a proposal for implementing the change, including the cost (if any) of such a change. CAT LLC then determines whether to approve the proposed change. The change request costs were paid by CAT LLC to FCAT. During the Pre-FAM Period, CAT LLC incurred costs of $141,346 related to change requests implemented by FCAT. Such change requests related to a development fee regarding the OPRA and SIP data feeds, and the reprocessing of certain exchange data.
This category of costs includes capitalizable application development costs incurred in the development of the CAT. The capitalized developed technology costs for the Pre-FAM Period of $51,847,150 relate to technology provided by the Initial Plan Processor and the successor Plan Processor.
On January 17, 2017, the Selection Committee of the CAT NMS Plan selected the Initial Plan Processor, Thesys Technologies, LLC, for the CAT NMS Plan pursuant to Article V of the CAT NMS Plan.
From January 17, 2017 through January 30, 2019, the time in which the Thesys CAT was engaged for the CAT, but excluding the period from November 15, 2017 through January 30, 2019, the Initial Plan Processor engaged in various activities with respect to the CAT, including preparing iterative drafts of Participant Technical
The legal costs of $19,674,463 represent the fees paid for legal services provided by two law firms, Wilmer Cutler Pickering Hale and Dorr LLP (“WilmerHale”) and Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”), during the Pre-FAM Period. The legal costs exclude those costs incurred from November 15, 2017 through November 15, 2018.
WilmerHale's billing rates are negotiated on an annual basis and are determined with reference to the rates charged by other leading law firms for similar work. The Participants assess WilmerHale's performance and review prospective budgets and staffing plans submitted by WilmerHale on an annual basis. WilmerHale's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading law firms for similar work.
The legal costs for WilmerHale during the Pre-FAM Period included costs incurred from 2013 until June 22, 2020 to address corporate and regulatory legal matters related to the CAT. The legal fees for this law firm during the period from February 2013 until the formation of the CAT NMS, LLC on November 15, 2016 were paid directly by the exchanges and FINRA to WilmerHale. After the formation of CAT NMS LLC, the legal fees were paid by CAT LLC to WilmerHale.
After WilmerHale was engaged in 2013 through the end of the Pre-FAM Period on June 22, 2020 (excluding the legal costs from November 15, 2017 through November 15, 2018), WilmerHale provided legal assistance to the CAT on a variety of matters, including with regard to the following:
• Analyzed various legal matters associated with the Selection Plan, and drafted an amendment to the Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the Development Advisory Group (“DAG”);
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan and related filings;
• Negotiated and drafted the plan processor agreements with the Initial Plan Processor and the successor Plan Processor;
• Provided assistance with compliance with Regulation SCI;
• Assisted with clock synchronization study;
• Provided assistance with respect to the establishment of CAT security;
• Drafted exemptive requests from CAT NMS Plan requirements, including with regard to options market maker quotes, Customer IDs, CAT Reporter IDs, linking allocations to executions, CAT reporting timeline, FDIDs, customer and account information, timestamp granularity, small industry members, data facility reporting and linkage, allocation reports, SRO-assigned market participant identifiers and cancelled trade indicators, thereby seeking to implement changes that would be cost effective and benefit Industry Members and Participants;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided advice regarding CAT policies and procedures;
• Analyzed the SEC's amendment of the CAT NMS Plan regarding financial accountability;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues; and
• Assisted with third-party vendor agreements.
The consulting costs of $17,013,414 represent the fees paid to the consulting firm Deloitte & Touche LLP (“Deloitte”) as project manager during the Pre-FAM Period, from October 2012 until June 22, 2020. These consulting costs include costs for advisory services related to the operation of the CAT, and meeting facilitation and communications coordination, vendor support and financial analyses.
To help facilitate project management given the unprecedented complexity and scope of the CAT project, the Participants determined it was necessary to engage a consulting firm to assist with the CAT project in 2012, following the adoption of Rule 613. A variety of factors were considered in the analysis of prospective consulting firms, including (1) the firm's qualifications, resources, and expertise; (2) the firm's relevant experience and understanding of the regulatory issues raised by the CAT and in coordinating matters of similar scope; (3) the composition of the consulting team; and (4) professional fees. Following a series of interviews, the exchanges and FINRA as a consortium determined that Deloitte was well qualified given the balance of these considerations and engaged Deloitte on October 1, 2012.
Deloitte's fee rates are negotiated on an annual basis and are in line with market rates for this type of specialized consulting work. CAT LLC assesses Deloitte's performance and reviews prospective budgets and staffing plans submitted by Deloitte on an annual basis. Deloitte's compensation arrangements are reasonable and appropriate, and in line with the rates charged by other leading consulting firms for similar work.
The consulting costs for CAT during the period from 2012 until the formation of the CAT NMS, LLC were paid directly by the Participants to Deloitte. After the formation of CAT NMS, LLC, the consulting fees were paid by CAT LLC to Deloitte. CAT LLC reviewed the consulting fees each month and approved the invoices.
After Deloitte was hired in 2012 through the end of the Pre-FAM Period on June 22, 2020 (excluding the consulting costs from November 15, 2017 through November 15, 2018), Deloitte provided a variety of consulting services, including the following:
• Established and implemented program operations for the CAT project, including the program managment [
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participant's independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Assisted with cost and funding-related activities for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with industry outreach and communications regarding the CAT, including assistance with industry outreach events, the development of the CAT website, frequently asked questions, and coordinating with the CAT LLC's public relations firm;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress;
• Coordinated efforts regarding the selection of the successor Plan Processor;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor, including support for the Operating Committee and successor Plan Processor for the new role; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $880,419 represent the cost incurred for insurance for CAT during the Pre-FAM Period. Commencing in 2020, CAT LLC performed an evaluation of various potential alternatives for CAT insurance policies, which included engaging in discussions with different insurance companies and conducting cost comparisons of various alternative approaches to insurance. Based on an analysis of a variety of factors, including coverage and premiums, CAT LLC determined to purchase cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance from USI Insurance Services LLC (“USI”). Such policies are standard for corporate entities, and cyber security liability insurance is important for the CAT System. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
In adopting the CAT NMS Plan, the Commission amended the Plan to add a requirement that CAT LLC's financial
After Anchin was hired in April 2018 through the end of the Pre-FAM Period on June 22, 2020 (excluding the period from April 2018 through November 15, 2018), Anchin provided a variety of services, including the following:
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial reporting matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy from July 2018 through March 2019. CAT LLC determined that, unlike certain other vendors, Exegy provided market data that included all data elements required by the CAT NMS Plan.
Upon the termination of the contract between CAT LLC and Exegy, FCAT entered into a contract with Exegy to purchase the required market data from Exegy in July 2019. All costs under the contract were treated as a direct pass through cost to CAT LLC. Therefore, the fees for the market data were paid by CAT LLC to FCAT, who, in turn, paid Exegy for the market data.
The public relations costs of $224,669 represent the fees paid to public relations firms during the Pre-FAM Period for professional communications services to CAT, including media relations consulting, strategy and execution. By engaging a public relations firm, CAT LLC was better positioned to understand and address CAT matters to the benefit of all market participants. Specifically, the public relations firms provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
The services performed by each of the public relations firms were comparable. The fees for such services were reasonable and in line with market rates. Only one public relations firm was engaged at a time; the three firms were engaged sequentially as the primary public relations contact moved among the three firms during this time period.
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 1 of the Financial Accountability Milestones (“FAM Period 1”),
By the completion of FAM Period 1, CAT LLC was required to implement the reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of equities transaction data and options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.
CAT LLC continued to utilize AWS in FAM Period 1 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 1 Period. Accordingly, the $2,642,122 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 1. The fee arrangement for AWS described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. Moreover, CAT LLC continued to believe that AWS's
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 1 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, reference data and other types of Other Data. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 1.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 1. Accordingly, the $1,099,680 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 1. The fee arrangement for FCAT described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, FCAT's activities with respect to the CAT included the following:
• Published iterative drafts of draft Technical Specifications for Phase 2d, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Published iterative drafts of CAIS Technical Specifications, after substantial engagement with SEC staff, Industry Members and Participants on the Technical Specifications;
• Facilitated Industry Member reporting of Quote Sent Time on Options Market Maker quotes;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 1. Accordingly, the $254,998 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 1. The fee arrangement for Kingland described above with regard to the Pre-FAM Period continued in place during FAM Period 1 pursuant to the Plan Processor Agreement. During FAM Period 1, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to CCID Alternative, as well as the acceleration of the reporting of LTIDs.
CAT LLC did not incur costs related to change requests during FAM Period 1.
Capitalized developed technology costs for FAM Period 1 of $1,684,870 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include: (1) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including separate production and industry test entitlements, and reprocessing of exchange event timestamps; (2) implementation fees; and (3) license fees.
The legal costs of $481,687 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 1.
• Assisted with the development of the CAT funding model and drafted related amendments and fee filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, verbal activity, options market maker quote sent time, TRF linkages, and allocations;
• Provided interpretations related to CAT NMS Plan requirements, including the Financial Accountability Milestone amendment;
• Assisted with compliance with Regulation SCI;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the drafting of the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Assisted with communications and presentations for the industry regarding CAIS;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to response to OCIE examinations and the annual assessment;
• Provided guidance regarding CAT technical specifications;
• Assisted with third-party vendor agreements; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $137,209 represent the fees paid to Deloitte as project manager during FAM Period 1. CAT LLC continued to employ Deloitte during FAM Period 1 based on, among other things, their expertise and cumulative experience with the CAT. The fee rates for Deloitte during FAM Period 1 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 1 were paid by CAT LLC to the consulting firm. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 1, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT;
• Assisted with the transition from the Initial Plan Processor to the successor Plan Processor; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
Although insurance was in effect during FAM Period 1, CAT LLC did not incur costs related to insurance during FAM Period 1.
• Maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups; and
• Prepared monthly and quarterly financial statements.
The public relations costs of $7,700 represent the fees paid to Peak Strategies during FAM Period 1. CAT LLC continued to employ Peak Strategies during FAM Period 1 based on, among other things, their expertise and history with the project. The fee rates for this firm were reasonable and in line with market rates for these types of services. The fees for these services during FAM Period 1 were paid by CAT LLC to Peak Strategies. During FAM Period 1, Peak Strategies continued to provide professional communications services to CAT LLC, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT LLC and already
By the completion of FAM Period 2, CAT LLC was required to implement the following with regard to the CAT:
(a) Industry Member reporting (excluding reporting by Small Industry Members that are not OATS reporters) for equities transactions, excluding Customer Account Information, CustomerID, and Customer Identifying Information, is developed, tested, and implemented at a 5% Error Rate or less and with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, and trade reporting facilities linkage to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, excluding linkage of representative orders, from order origination through order execution or order cancellation; and (b) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3 and Section 8.2.1 incorporates the Industry Member equities transaction data described in condition (a) and is available to the Participants and to the Commission.
CAT LLC completed the requirements of FAM Period 2 by December 31, 2020. The following describes the costs for each of the categories for FAM Period 2.
CAT LLC continued to utilize AWS in FAM Period 2 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 2 Period. Accordingly, the $20,709,212 in technology costs for cloud hosting services represent costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 2. The fee arrangement for AWS described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During the FAM 2 Period, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a and Phase 2b Industry Member Data (including certain linkages) as well as SIP Data, and Other Data, including reference data. In addition, Industry Members began reporting LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 2.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 2. Accordingly, the $9,108,700 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 2. The fee arrangement for FCAT described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, FCAT's activities with respect to the CAT included publishing the Technical Specifications for Phase 2d and overseeing the reporting of firm to firm and intrafirm linkages by Industry Members. In addition, FCAT also continued to engage in the following activities during FAM Period 2:
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the development and implementation of the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 2. Accordingly, the $1,590,298 in technology costs for CAIS operating fees represent costs incurred for services provided by Kingland during FAM Period 2. The fee arrangement for Kingland described above with regard to the Pre-FAM Period and FAM Period 1 continued in place during FAM Period 2 pursuant to the Plan Processor Agreement. During FAM Period 2, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs.
During FAM Period 2, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 2, CAT incurred costs of $51,823 related to a change request regarding the addition of functionality for exchange Participants to report rejected messages to the CAT.
Capitalized developed technology costs for FAM Period 2 of $6,761,094 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to separate production and industry test entitlements, market maker reference data, and back-processing of exchange exception logic; (3) implementation fees; and (4) license fees.
The legal costs of $2,766,644 represent the fees paid for legal services provided by two law firms, WilmerHale and Pillsbury during FAM Period 2.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements regarding, for example, allocations, exchange activity, OTQT, initial data validation, error corrections and recordkeeping;
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittees, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6 of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for the Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Assisted with third-party vendor agreements (
• Assisted with change requests; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The consulting costs of $532,146 represent the fees paid to Deloitte as project manager during FAM Period 2. CAT LLC continued to employ Deloitte during FAM Period 2 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 2 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 2 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 2, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $976,098 represent the fees paid for insurance during FAM Period 2. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $438,523 represent the fees paid to Anchin and Grant Thornton for financial services provided during FAM Period 2.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from the Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audit by an independent auditor; and
• Reviewed historical costs from inception.
The public relations costs of $41,940 represent the fees paid to Peak Strategies during FAM Period 2. CAT LLC continued to employ Peak Strategies during FAM Period 2 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 2 were paid by CAT LLC to Peak Strategies. During FAM Period 2, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would include costs incurred by CAT and already funded by the Participants during Period 3 of the Financial Accountability Milestones (“FAM Period 3”),
By the completion of FAM Period 3, CAT LLC was required to implement the following requirements with regard the CAT:
(a) reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders; (b) Industry Member reporting for equities transactions and simple electronic options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with sufficient intra-firm linkage, inter-firm linkage, national securities exchange linkage, trade reporting facilities linkage, and representative order linkages (including any equities allocation information provided in an Allocation Report) to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, is developed, tested, and implemented at a 5% Error Rate or less; (c) Industry Member reporting for manual options transactions and complex options transactions, excluding Customer Account Information, Customer-ID, and Customer Identifying Information, with all required linkages to permit the Participants and the Commission to analyze the full lifecycle of an order across the national market system, from order origination through order execution or order cancellation, including any options allocation information provided in an Allocation Report, is developed, tested, and fully implemented; (d) the query tool functionality required by Section 6.10(c)(i)(A) and Appendix D, Sections 8.1.1-8.1.3, Section 8.2.1, and Section 8.5 incorporates the data described in conditions (b)-(c) and is available to the Participants and to the Commission; and (e) the requirements of Section 6.10(a) are met.
CAT LLC completed the requirements of FAM Period 3 by December 31, 2021. The following describes the costs for each of the categories for FAM Period 3.
CAT LLC continued to utilize AWS in FAM Period 3 to provide a broad array of cloud hosting services for the CAT, including data ingestion, data management, and analytic tools. AWS continued to provide storage services, databases, compute services and other services (such as networking, management tools and DevOps tools), as well as various environments for CAT, such as development, performance testing, test, and production environments, during the FAM 3 Period. Accordingly, the $94,574,759 in technology costs for cloud hosting services represents costs incurred for services provided by AWS, as the cloud services provider, during FAM Period 3. The fee arrangement for AWS described above for the earlier periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement.
The cost for AWS cloud services for the CAT continued to be a function of the volume of CAT Data. During FAM Period 3, the volume of CAT Data continued to far exceed the original predictions for the CAT as set forth in the CAT NMS Plan. During this period, data submitted to the CAT included options and equities Participant Data, Phase 2a, Phase 2b, Phase 2c and Phase 2d Industry Member Data (including certain linkages), SIP Data, Other Data, including reference data, and LTID account information. The following chart provides data regarding the average daily volume, cumulative total events, total compute hours and storage footprint of the CAT during FAM Period 3.
Pursuant to the Plan Processor Agreement discussed above, FCAT continued in its role as the Plan Processor for the CAT during FAM Period 3. Accordingly, the $23,106,091 in technology costs for operating fees represent costs incurred for the services provided by FCAT under the Plan Processor Agreement during FAM Period 3. The fee arrangement for FCAT described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, FCAT's activities with respect to the CAT included the following:
• Facilitated Phase 2c and Phase 2d testing for Industry Members;
• Oversaw creation of linkages of the lifecycle of order events based on the received data through Phase 2d;
• Addressed compliance items, including drafting CAT policies and procedures, and addressing Regulation SCI requirements;
• Provided support to the Operating Committee, the Compliance Subcommittee and CAT working groups;
• Assisted with interpretive efforts and exemptive requests regarding the CAT NMS Plan;
• Oversaw the security of the CAT;
• Monitored the operation of the CAT, including with regard to Participant and Industry Member reporting;
• Provided support to subcontractors under the Plan Processor Agreement;
• Provided support in discussions with the Participants and the SEC and its staff;
• Operated the FINRA CAT Helpdesk;
• Facilitated communications with the industry, including via FAQs, CAT Alerts, meetings, presentations and webinars;
• Administered the CAT website and all of its content; and
• Provided technical support and assistance with connectivity, data access, and user support, including the use of CAT Data and query tools, for Participants and the SEC staff.
Pursuant to the Plan Processor Agreement with FCAT discussed above, Kingland continued in its role as a subcontractor for the development and implementation of CAIS during FAM Period 3. Accordingly, the $5,562,383 in technology costs for CAIS operating fees represents costs incurred for services provided by Kingland during FAM Period 3. The fee arrangement for Kingland described above with regard to the prior Periods continued in place during FAM Period 3 pursuant to the Plan Processor Agreement. During FAM Period 3, Kingland continued the development of the CAIS Technical Specifications and building of CAIS. In addition, Kingland continued to work on the CAIS Technical Specifications and build related to the CCID Alternative, as well as the acceleration of the reporting of LTIDs. The full CAIS Technical Specifications were published during FAM Period 3.
During FAM Period 3, CAT LLC engaged FCAT to pursue certain change requests in accordance with the Plan Processor Agreement. The change request costs were paid by CAT LLC to FCAT. Specifically, during FAM Period 3, CAT incurred costs of $396,169 related to change requests, including the following: (1) the addition of functionality for exchange Participants to report rejected messages to the CAT; (2) the migration of MIRS query engine to AWS to reduce operational costs and increase resiliency; and (3) updating the Participant Technical Specifications to allow for two-sided Participant option quote reporting.
Capitalized developed technology costs for FAM Period 3 of $10,763,372 include capitalizable application development costs incurred in the development of the CAT by FCAT. Such costs include (1) development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Plan Processor, including the transition from equity data received by FINRA pursuant to various regulatory services agreements between FINRA and Participant exchanges to the equity CAT Data, and the completion of the Industry Member Phase 2d options manual and complex orders go-live requirements; (2) costs related to certain modifications, upgrades, or other changes to the CAT that were not contemplated by the agreement between CAT LLC and the Plan Processor, including costs related to off-exchange volume concentration, Participant 24-hour trading and an external metastore; (3) implementation fees; and (4) license fees.
The legal costs of $6,333,248 represent the fees paid for legal services provided by three law firms, WilmerHale, Pillsbury and Covington & Burling LLP (“Covington”) during FAM Period 3.
• Assisted with the development of the CAT funding model and drafting related amendments and rule filings;
• Drafted exemptive requests from CAT NMS Plan requirements, including, for example, verbal activity regarding Phase 2c cutover, error reports, error
• Provided interpretations related to CAT NMS Plan requirements, including with regard to the Financial Accountability Milestone amendment, FAQs, CAIS requirements, ADF, and technical specifications;
• Provided support for the Operating Committee, Compliance Subcommittee, working groups and Leadership Team, including with regard to meetings with the SEC staff;
• Assisted with the Implementation Plan and Quarterly Progress Reports required pursuant to Section 6.6(c) of the CAT NMS Plan;
• Drafted SRO rule filings related to the CAT Compliance Rule;
• Provided support for Compliance Subcommittee, including with regard to responses to OCIE examinations and the annual assessment;
• Provided guidance regarding the SEC's proposed security amendments to the CAT NMS Plan;
• Provided guidance regarding SRO rule filings for the retirement of systems;
• Provided legal support for Operating Committee meetings, including drafting resolutions and other materials and voting advice;
• Provided assistance with change requests;
• Provided guidance and regulatory support for litigation regarding the response to the SEC's exemptive orders;
• Assisted with communications with the industry, includng CAT Alerts and presentations;
• Provided guidance regarding the confidentiality of CAT Data, including third-party information requests;
• Assisted with cost management analysis and proposals; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
After Covington was hired in 2021 through the end of 2021, the firm provided legal assistance regarding the litigation with the SEC regarding the 2020 Orders. These services included researching, drafting, and filing motions to stay the 2020 orders and related materials in proceedings before the SEC, as well as researching, drafting, and filing petitions for judicial review of the 2020 Orders in proceedings before the U.S. Court of Appeals for the D.C. Circuit. Covington oversaw ongoing litigation proceedings on these matters, and also supported WilmerHale with respect to settlement negotiations with the SEC staff regarding the 2020 Orders.
In addition to these services, CAT LLC engaged Covington in November 2021 to provide assistance with respect to the SEC's disapproval of CAT NMS Plan amendments concerning a proposed limitation on liability in the event of a data breach or similar event. Covington provided advice concerning CAT's response to the SEC's disapproval order. This work accounted for a minority of Covington's fees in 2021.
The consulting costs of $1,408,209 represent the fees paid to Deloitte as project manager during FAM Period 3. CAT LLC continued to employ Deloitte during FAM Period 3 based on, among other things, their expertise and long history with the project. The fee rates for Deloitte during FAM Period 3 were negotiated and in line with market rates for this type of specialized consulting work. The consulting fees during FAM Period 3 were paid to Deloitte by CAT LLC. CAT LLC reviewed the consulting fees each month and approved the invoices. During FAM Period 3, Deloitte's CAT-related activities included the following:
• Implemented program operations for the CAT project;
• Provided support to the Operating Committee, the Chair of the Operating Committee and the Leadership Team, including project management support, coordination and planning for meetings and communications, and interfacing with law firms and the SEC;
• Assisted with cost and funding matters for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided support for third-party vendors for the CAT, including FCAT, Anchin and the law firms engaged by CAT LLC.
The insurance costs of $1,582,714 represent the fees paid for insurance during FAM Period 3. CAT LLC continued to maintain cyber security liability insurance, directors' and officers' liability insurance, and errors and omissions liability insurance offered by USI. After engaging in a process for renewing the coverage, CAT LLC determined to purchase these insurance policies from USI. The annual premiums for these policies were competitive for the coverage provided. The annual premiums were paid by CAT LLC to USI.
The professional and administration costs of $595,923 represent the fees paid to Anchin and Grant Thornton for financial services during FAM Period 3.
• Updated and maintained internal controls;
• Provided cash management and treasury functions;
• Faciliated [
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $92,400 represent the fees paid to Peak Strategies during FAM Period 3. CAT LLC continued to employ Peak Strategies during FAM Period 3 based on, among other things, their expertise and history with the project. The fee rates for this firm were in line with market rates for these types of services. The fees for these services during FAM Period 3 were paid by CAT LLC to Peak Strategies. During FAM Period 3, Peak Strategies continued to provide professional communications services to CAT, including media relations consulting, strategy and execution. Specifically, the public relations firm provided services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
Historical CAT Costs 1 would not include three categories of CAT costs (“Excluded Costs”): (1) $14,749,362 of costs related to the termination of the relationship with the Initial Plan Processor; (2) $48,874,937, which are all CAT costs incurred from November 15, 2017 through November 15, 2018; and (3) $19,628,791, which are costs paid to the the Initial Plan Processor from November 16, 2018 through February 2019 when the relationship with the Initial Plan Processor was concluded. The Participants would remain responsible for 100% of these costs, which total $83,253,090. CAT LLC determined to exclude these Excluded Costs from Historical CAT Costs 1 because these costs relate to the delay in the start of reporting to the CAT and the conclusion of the relationship with the Initial Plan Processor.
First, Historical CAT Costs 1 would not include $14,749,362 of costs related to the conclusion of the relationship with the Initial Plan Processor. Such costs include costs related to the American Arbitration Association, the legal assistance of Pillsbury with regard to the arbitration with the Initial Plan Processor, and the settlement costs related to the arbitration with the Initial Plan Processor. The Participants would remain responsible for 100% of these $14,749,362 in costs.
Second, Historical CAT Costs 1 would not include all CAT costs incurred from November 15, 2017 through November 15, 2018. CAT LLC determined to exclude all costs during this one-year period of $48,874,937 from fees charged to Industry Members due to the delay in the start of reporting to the CAT. The Participants would remain responsible for 100% of these $48,874,937 in costs. The following table breaks down these costs into the categories set forth in Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan.
The following provides additional detail regarding the Excluded Costs.
CAT LLC did not incur technology costs related to the categories of cloud hosting services, operating fees, CAIS operating fees or change requests during the period from November 15, 2017 through November 15, 2018.
Capitalized developed technology costs for the period from November 15, 2017 through November 15, 2018 include capitalizable application development costs of $37,852,083 incurred in the development of the CAT by the Initial Plan Processor. Such costs include development costs incurred during the application development stage to meet various agreed-upon milestones regarding the CAT, as defined in the agreement between CAT LLC and the Initial Plan Processor. Such costs include costs related to Industry Member technical specifications for orders and transactions, the system security plan, testing and production for Participant CAT reporting, third-party security assessment and response, query portal, onboarding of the Chief Information Security Officer, and ingestion of FINRA TRF data and FINRA data related to halts and corporate actions.
The legal costs of $6,143,278 represent the fees paid to WilmerHale for legal services from November 15, 2017 through November 15, 2018. During this period, WilmerHale provided legal assistance to the CAT including with regard to the following:
• Provided legal support for the governance of the CAT, including governance support for the Operating Committee, Advisory Committee, Compliance Subcommittee, and CAT working groups;
• Assisted with the development of the CAT funding model and drafted related amendments of the CAT NMS Plan;
• Provided assistance related to CAT security;
• Drafted exemptive requests, including requests related to PII;
• Assisted with the Implementation Plan required pursuant to Section 6.6(c)(i) of the CAT NMS Plan;
• Provided interpretations of and related to the CAT NMS Plan;
• Provided advice with regard to regulator access to the CAT;
• Assisted with the Plan Processor transition;
• Provided assistance regarding communications with the industry regarding the CAT;
• Provided advice regarding Customer Account Information and PII;
• Provided support for litigation related to SEC exemptive orders; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretative and implementation issues.
The consulting costs of $4,452,106 represent the fees paid to Deloitte for their role as project manager for the CAT from November 15, 2017 through November 15, 2018. During this period, Deloitte engaged in the following activities with respect to the CAT:
• Implemented program operations for the CAT project;
• Provided governance support to the Operating Committee, including support for Subcommittees and working groups of the Operating Committee (
• Assisted with cost and funding issues for the CAT, including the development of the CAT funding model and assistance with loans and the CAT bank account for CAT funding;
• Provided support for updating the SEC on the progress of the development of the CAT; and
• Provided active planning and coordination with and support for the Initial Plan Processor with regard to the development of the CAT, and reported to the Participants on the progress.
CAT LLC did not incur costs related to insurance during the period from November 15, 2017 through November 15, 2018.
The professional and administration costs of $340,145 represent the fees paid to Anchin, Exegy and RSM from November 15, 2017 through November 15, 2018.
• Developed, updated and maintained internal controls;
• Provided cash management and treasury functions;
• Facilitated bill payments;
• Provided monthly bookkeeping;
• Reviewed vendor invoices and documentation in support of cash disbursements;
• Provided accounting research and consultations on various accounting, financial reporting and tax matters;
• Addressed not-for-profit tax and accounting considerations;
• Prepared tax returns;
• Addressed various accounting, financial reporting and operating inquiries from Participants;
• Developed and maintained quarterly and annual operating and financial budgets, including budget to actual fluctuation analyses;
• Addressed accounting and financial matters relating to the transition from CAT NMS, LLC to Consolidated Audit Trail, LLC, including supporting the dissolution of CAT NMS, LLC;
• Supported compliance with the CAT NMS Plan;
• Worked with and provided support to the Operating Committee and various CAT working groups;
• Prepared monthly, quarterly and annual financial statements;
• Supported the annual financial statement audits by an independent auditor;
• Reviewed historical costs from inception; and
• Provided accounting and financial information in support of SEC filings.
The public relations costs of $87,325 represent the fees paid to Sloane from November 15, 2017 through November 15, 2018. From the commencement of its engagment [
Third, Historical CAT Costs 1 would not include the $19,628,791 in costs paid to the Initial Plan Processor from November 16, 2018 through February 2019 when CAT LLC's relationship with the Initial Plan Processor concluded. CAT LLC determined that Historical CAT Costs 1 would not include any fees paid to the Initial Plan Processor after November 15, 2017,
Under the CAT NMS Plan, the Operating Committee is required to reasonably establish the length of the Historical Recovery Period used in calculating each Historical Fee Rate based upon the amount of the Historical CAT Costs to be recovered by the Historical CAT Assessment, and to describe the reasons for its length.
The Operating Committee determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans to the Participants in a timely fashion. The Operating Committee determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
The length of the Historical Recovery Period 1 and the reasons for its length are provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
The calculation of Historical Fee Rate 1 also requires the determination of the projected total executed equivalent share volume of transactions in Eligible Securities for Historical Recovery Period 1. Under the CAT NMS Plan, the Operating Committee is required to “reasonably determine the projected total executed equivalent share volume of all transactions in Eligible Securities for each Historical Recovery Period based on the executed equivalent share volume of all transactions in Eligible Securities for the prior twelve months.”
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. The Operating Committee has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. The
The projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1 and a description of the calculation of the projection is provided in this filing in accordance with the requirement in the CAT NMS Plan to provide such information in a fee filing for a Historical CAT Assessment.
Historical Fee Rate 1 would be calculated by dividing Historical CAT Costs 1 by the reasonably projected total executed equivalent share volume of all transactions in Eligible Securities for Historical Recovery Period 1, as described in detail above.
Participants would not be required to pay any fees associated with Historical CAT Assessment 1 as the Participants previously have paid all Past CAT Costs. The CAT NMS Plan explains that:
Because Participants previously have paid Past CAT Costs via loans to the Company, Participants would not be required to pay any Historical CAT Assessment. In lieu of a Historical CAT Assessment, the Participants' one-third share of Historical CAT Costs and such other additional Past CAT Costs as reasonably determined by the Operating Committee will be paid by the cancellation of loans made to the Company on a pro rata basis based on the outstanding loan amounts due under the loans.
The CAT NMS Plan further states that “Historical CAT Assessments are designed to recover two-thirds of the Historical CAT Costs.”
CEBBs and CEBSs would be required to pay fees for Historical CAT Assessment 1 on a monthly basis for the period in which Historical CAT Assessment 1 is in effect.
The CAT NMS Plan states that, “[n]otwithstanding the length of the Historical Recovery Period used in calculating the Historical Fee Rate, each Historical CAT Assessment calculated using the Historical Fee Rate will remain in effect until all Historical CAT Costs for the Historical CAT Assessment are collected.”
To implement Historical CAT Assessment 1, a new section would be added to the Exchange's fee schedule for “Consolidated Audit Trail Funding Fees”, and it would include the proposed paragraphs described below.
The CAT NMS Plan states that:
Each month in which a Historical CAT Assessment is in effect, each CEBB and each CEBS shall pay a fee for each transaction in Eligible Securities executed by the CEBB or CEBS from the prior month as set forth in CAT Data, where the Historical CAT Assessment for each transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by one-third and by the Historical Fee Rate reasonably determined pursuant to paragraph (b)(i) of this Section 11.3.
Accordingly, based on the factors discussed above, the Exchange proposes to add paragraph (a)(1) to the Consolidated Audit Trail Funding Fees section of its fee schedule. Proposed paragraph (a)(1) would state the following:
(A) Each CAT Executing Broker shall receive its first invoice for Historical CAT Assessment 1 in November 2024, which shall set forth the Historical CAT Assessment 1 fees calculated based on transactions in October 2024, and shall receive an invoice for Historical CAT Assessment 1 for each month thereafter in which Historical CAT Assessment 1 is in effect.
(B) Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis. Each month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.
(C) Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time. Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.
(D) Each CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).
As noted in the Plan amendment for the CAT Funding Model, “as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the Historical Fee Rate by one-third and describing the relevant number of decimal places for the fee rate.
The proposed language in paragraph (a)(1)(A) of the fee schedule would describe when CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1. Specifically, CAT Executing Brokers would receive their first monthly invoice for Historical CAT Assessment 1 in November 2024 and the fees set forth in that invoice would be calculated based on transactions executed in the prior month, that is, transactions executed in October 2024. The payment for the first invoice would be required within 30 days after the receipt of the first invoice (unless a longer period is indicated), as described in paragraph (b)(2) of the fee schedule.
Proposed paragraph (a)(1)(A) of the fee schedule also would describe the monthly cadence of the invoices for Historical CAT Assessment 1. Specifically, after the first invoices are provided to CAT Executing Brokers in November 2024, invoices will be sent to CAT Executing Brokers each month thereafter while Historical CAT Assessment 1 is in effect.
Proposed paragraph (a)(1)(B) of the fee schedule would describe the invoices for Historical CAT Assessment 1. Proposed paragraph (a)(1)(B) of the fee schedule would state that “Consolidated Audit Trail, LLC shall provide each CAT Executing Broker with an invoice for Historical CAT Assessment 1 on a monthly basis.” Proposed paragraph (a)(1)(B) of the fee schedule also would describe the fees to be set forth in the invoices for Historical CAT Assessment 1. Specifically, it would state that “[e]ach month, such invoices shall set forth a fee for each transaction in Eligible Securities executed by the CAT Executing Broker in its capacity as a CAT Executing Broker for the Buyer (“CEBB”) and/or the CAT Executing Broker for the Seller (“CEBS”) (as applicable) from the prior month as set forth in CAT Data. The fee for each such transaction will be calculated by multiplying the number of executed equivalent shares in the transaction by the fee rate of $0.000013 per executed equivalent share.”
Furthermore, proposed paragraph (a)(1)(C) of the fee schedule would describe how long Historical CAT Assessment 1 would remain in effect. It would state that “Historical CAT Assessment 1 will remain in effect until $212,039,879.34 (two-thirds of Historical CAT Costs 1) are collected from CAT Executing Brokers collectively, which is estimated to be approximately two years, but could be for a longer or shorter period of time.” This proposed paragraph would further state that “Consolidated Audit Trail, LLC will provide notice when Historical CAT Assessment 1 will no longer be in effect.”
Historical CAT Assessment 1 will be assessed for all transactions executed in each month through the end of the month in which two-thirds of Historical CAT Costs 1 are assessed, and then CAT LLC will provide notice that Historical CAT Assessment 1 is no longer in effect. Since Historical CAT Assessment 1 is a monthly fee based on transaction volume from the prior month, Historical CAT Assessment 1 may collect more than two-thirds of Historical CAT Costs 1. To the extent that occurs, any excess money collected during the final month in which Historical CAT Assessment 1 is in effect will be used to offset future fees and/or to fund the reserve for the CAT.
Finally, proposed paragraph (a)(1)(D) of the fee schedule sets forth the requirement for the CAT Executing Brokers to pay the invoices for Historical CAT Assessment 1. It would state that “[e]ach CAT Executing Broker shall be required to pay each invoice for Historical CAT Assessment 1 in accordance with paragraph (b).”
Paragraph (b)(1) to the “Consolidated Audit Trail Funding Fees” section of its fee schedule describes the manner of payment of Industry Member CAT fees. Paragraph (b)(1) states that “[e]ach CAT Executing Broker shall pay its CAT fees as required pursuant to paragraph (a) each month to the Consolidated Audit Trail, LLC in the manner prescribed by the Consolidated Audit Trail, LLC.” The CAT NMS Plan requires the Operating Committee to establish a system for the collection of CAT fees.
The CAT NMS Plan further states that:
Participants shall require each Industry Member to pay all applicable fees authorized under this Article XI within thirty (30) days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If an Industry Member fails to pay any such fee when due (as determined in accordance with the preceding sentence), such Industry Member shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of: (a) the Prime Rate plus 300 basis points; or (b) the maximum rate permitted by applicable law.
Accordingly, the Exchange previously has added this requirement to the Exchange's fee schedule. Specifically, paragraph (b)(2) of the fee schedule states:
Each CAT Executing Broker shall pay the CAT fees required pursuant to paragraph (a) within thirty days after receipt of an invoice or other notice indicating payment is due (unless a longer payment period is otherwise indicated). If a CAT Executing Broker fails to pay any such CAT fee when due, such CAT Executing Broker shall pay interest on the outstanding balance from such due date until such fee is paid at a per annum rate equal to the lesser of (i) the Prime Rate plus 300
The requirements of paragraph (b)(2) would apply to Historical CAT Assessment 1.
The CAT NMS Plan states that:
Details regarding the calculation of a CAT Executing Broker's Historical CAT Assessment will be provided upon request to such CAT Executing Broker. At a minimum, such details would include each CAT Executing Broker's executed equivalent share volume and corresponding fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise than on an exchange, and (3) by buy-side transactions and sell-side transactions.
Such information would provide CEBBs and CEBSs with the ability to understand the details regarding the calculation of their Historical CAT Assessment.
In addition, CAT LLC will make certain aggregate statistics regarding Historical CAT Assessments publicly available. Specifically, the CAT NMS Plan states that, “[f]or each Historical CAT Assessment, at a minimum, CAT LLC will make publicly available the aggregate executed equivalent share volume and corresponding aggregate fee by (1) Listed Options, NMS Stocks and OTC Equity Securities, (2) by transactions executed on each exchange and transactions executed otherwise on an exchange, and (3) by buy-side transactions and sell-side transactions.”
Furthermore, CAT LLC will make publicly available on the CAT website the total amount invoiced each month that Historical CAT Assessment 1 is in effect as well as the total amount invoiced for Historical CAT Assessment 1 for all months since its commencement. CAT LLC also will make publicly available on the CAT website the total costs to be collected from Industry Members for Historical CAT Assessment 1. By reviewing statistics regarding how much has been invoiced and how much remains to be invoiced for Historical CAT Assessment 1, Industry Members would have sufficient information to reasonably track how much longer Historical CAT Assessment 1 is likely to be in place.
To assist Industry Members with compliance with the commencement of Historical CAT Assessment 1, CAT LLC has been making available to CAT Executing Brokers mock invoices prior to the commencement of Historical CAT Assessment 1. Specifically, CAT Executing Brokers have received mock invoices based on transaction data each month since November 2023. The mock invoices are in the same form as the actual, payable invoices, including both the relevant transaction data and the corresponding fee. However, no payments have been required in response to such mock invoices; they have been used solely to assist CAT Executing Brokers with the development of their processes for paying the CAT fees. Such data has provided CAT Executing Brokers with a preview of the transaction data used in creating the invoices for Historical CAT Assessment 1 fees, as the data will be the same as data provided in actual invoices. Such data preview is intended to facilitate the payment of Historical CAT Assessment 1.
The CAT NMS Plan states that “[n]o Participant will make a filing with the SEC pursuant to Section 19(b) of the Exchange Act regarding any Historical CAT Assessment until any applicable Financial Accountability Milestone described in Section 11.6 has been satisfied.”
In accordance with Section 11.6(b) of the CAT NMS Plan, Historical CAT Assessment 1 seeks to recover costs that are related to “all fees, costs, and expenses (including legal and consulting fees, costs, and expenses) incurred by or for the Company in connection with the development, implementation and operation of the CAT from the effective date of [Section 11.6 of the CAT NMS Plan] until such time as Full Implementation of CAT NMS Plan Requirements has been achieved”
The reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of both: (a) equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information; and (b) options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information.
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports.
Under the FAM Period 1 requirement of Initial Industry Member Core Equity and Options Reporting, Industry
In adopting the FAMs, the Commission stated that the equities transaction reporting required for FAM Period 1 “is consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Equities 2a file submission and data integrity validations.' ”
• All events and scenarios covered by OATS, which includes information related to the receipt or origination of orders, order transmittal, and order modifications, cancellations and executions;
• Reportable Events for: (1) proprietary orders, including market maker orders, for Eligible Securities that are equities; (2) electronic quotes in listed equity Eligible Securities (
• Firm Designated IDs (“FDIDs”), which Industry Members must report to the CAT as required by Sections 6.3(d)(i)(A) and 6.4(d)(ii)(C) of the CAT NMS Plan;
• Industry Members would be required to report all street side representative orders, including both agency and proprietary orders and mark such orders as representative orders, except in certain limited exceptions as described in the Industry Member Technical Specifications;
• The link between the street side representative order and the order being represented when: (1) the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer; and (2) there is (a) an existing direct electronic link in the Industry Member's system between the order being represented and the representative order and (b) any resulting executions are immediately and automatically applied to the represented order in the Industry Member's system;
• Manual and Electronic Capture Time for Manual Order Events;
• Special handling instructions for the original receipt or origination of an order during Phase 2a; and
• When routing an order, whether the order was routed as an intermarket sweep order (“ISO”).
In Phase 2a, Industry Members were not required to report modifications of a previously routed order in certain limited instances, nor were they required to report a cancellation of an order received from a Customer after the order has been executed.
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Equities 2a file submission and data integrity validation (Large Industry Members and Small OATS Reporters)” was completed on June 22, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “equities transaction data, excluding Customer Account Information, Customer-ID, and Customer Identifying Information” was completed on June 22, 2020.
In adopting the FAMs, the Commission stated that the options transaction reporting required for FAM Period 1 is “consistent with the functionality that the Participants describe on the CAT NMS Plan website as `Production Go-Live for Options 2b file submission and data integrity validations.' ”
The Quarterly Progress Report for the third quarter of 2020 states that “Interim Step: Production Go-Live for Options 2b file submission and data integrity validations” was completed on July 20, 2020. Accordingly, the FAM Period 1 requirement of reporting by Industry Members (excluding Small Industry Members that are not OATS reporters) of “options transaction data, excluding Customer Account Information, Customer-ID and Customer Identifying Information” was completed on July 20, 2020.
As discussed above, the Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from June 22, 2020 through July 31, 2020. The total costs for this period, as discussed above, are $6,377,343. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remaining two-thirds, with CEBBs paying one-third ($2,125,781) and CEBSs paying one-third ($2,125,781).
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 2. FAM Period 2 began on August 1, 2020, and concluded on December 31, 2020, the date of the Full Implementation of Core Equity Reporting. Section 1.1 of the CAT NMS Plan defines “Full Implementation of Core Equity Reporting” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2020,
Specifically, the Full Implementation of Core Equity Reporting requires the satisfaction of two prongs. The first prong requires Participants to have fully implemented the first phase of equities transaction reporting for Industry Members (excluding Small Industry Members that are not OATS reporters) at an Error Rate of less than 5%. In addition, equities transaction data produced by the CAT at this stage must also be sufficiently interlinked so as to permit full analysis of an order's lifecycle across the national market, excluding full linkage of representative orders. As CAT LLC reported on its Quarterly Progress Reports, Phase 2a was fully implemented as of October 26, 2020, including intra-firm, inter-firm, national securities exchange, and trade reporting facilities linkages.
• “Production Go-Live for Equities 2a Intrafirm Linkage validations” was completed on 7/27/2020;
• “Production Go-Live for Firm to Firm Linkage validations for Equities 2a (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020; and
• “Production Go-Live for Equities 2a Exchange and TRF Linkage validations (Large Industry Members and Small OATS Reporters)” was completed on October 26, 2020.
Furthermore, as CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2020, the average overall error rate for Phase 2a Industry Member Data was less than 5% as of December 31, 2020. The average overall error rate was calculated by dividing the compliance errors by processed records.
The second prong of this FAM requires that the equities transaction data collected by the CAT at this stage be made available to regulators through two basic query tools required by the CAT NMS Plan—a targeted query tool that will enable regulators to retrieve data via an online query screen with a variety of predefined selection criteria, and a user-defined direct query tool that will provide regulators with the ability to query data using all available attributes and data sources.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from August 1, 2020 through December 31, 2020. The total costs for this period, as discussed above, are $42,976,478. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
Historical CAT Assessment 1 seeks to recover costs that are related to Post-Amendment Expenses incurred during FAM Period 3. FAM Period 3 began on January 1, 2021, and concluded on December 31, 2021, the date of the Full Availability and Regulatory Utilization of Transactional Database Functionality. Section 1.1 of the CAT NMS Plan defines “Full Availability and Regulatory Utilization of Transactional Database Functionality” as:
Under Section 1.1 of the CAT NMS Plan, this Financial Accountability Milestone is considered complete as of the date identified in the Participants' Quarterly Progress Reports. As indicated by the Participants' Quarterly Progress Report for the fourth quarter of 2021,
Specifically, the “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires the satisfaction of five prongs. The first prong requires that reporting to the Order Audit Trail System (“OATS”) is no longer required for new orders. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021,
In addition to Phase 2a and Phase 2b Industry Member Data, the second and third prongs of “Full Availability and Regulatory Utilization of Transactional Database Functionality” require Industry Member reporting of Phase 2c Industry Member Data and Phase 2d Industry Member Data. The Phase 2c Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. That Order states that “Phase 2c Industry Member Data” is Industry Member Data related to Eligible Securities that are equities other than Phase 2a Industry Member Data, Phase 2d Industry Member Data, or Phase 2e Industry Member Data. Specifically, the Phase 2c Industry Member Data includes Industry Member Data that is related to Eligible Securities that are equities and that is related to: (1) Allocation Reports as required to be recorded and reported to the Central Repository pursuant to Section 6.4(d)(ii)(A)(1) of the CAT NMS Plan; (2) quotes in unlisted Eligible Securities sent to an IDQS operated by a CAT Reporter (reportable by the Industry Member sending the quotes) (except for quotes reportable in Phase 2d, as discussed below); (3) electronic quotes in listed equity Eligible Securities (
Phase 2c Industry Member Data also includes electronic quotes that are provided by or received in a CAT Reporter's order/quote handling or execution systems in Eligible Securities that are equities and are provided by an Industry Member to other market participants off a national securities exchange under the following conditions: (1) an equity bid or offer is displayed publicly or has been communicated (a) for listed securities to the ADF operated by FINRA; or (b) for unlisted equity securities to an “interdealer quotation system,” as defined in FINRA Rule 6420(c); or (2) an equity bid or offer which is accessible electronically by customers or other market participants and is immediately actionable for execution or routing;
The Phase 2d Industry Member Data is described in detail in the SEC's Phased Reporting Exemptive Relief Order. “Phase 2d Industry Member Data” is Industry Member Data that is related to Eligible Securities that are options other than Phase 2b Industry Member Data, Industry Member Data that is related to Eligible Securities that are equities other than Phase 2a Industry Member Data or Phase 2c Industry Member Data, and Industry Member Data other than Phase 2e Industry Member Data. Phase 2d Industry Member Data includes with respect to the Eligible Securities that are options: (1) simple manual orders; (2) electronic and manual paired orders; (3) all complex orders with linkages to all CAT-reportable legs; (4) LTIDs (if applicable) for accounts with Reportable Events for Phase 2d; (5) date account
Phase 2d Industry Member Data also includes with respect to Eligible Securities that are options or equities (1) receipt time of cancellation and modification instructions through Order Cancel Request and Order Modification Request events; (2) modifications of previously routed orders in certain instances; and (3) OTC Equity Securities quotes sent by an Industry Member to an IDQS operated by an Industry Member CAT Reporter that does not match and execute orders. In addition, subject to any exemptive or other relief, Phase 2d Industry Member Data will include verbal or manual quotes on an exchange floor or in the over-the-counter market, where verbal quotes and manual quotes are defined as bids or offers in Eligible Securities provided verbally or that are provided or received other than via a CAT Reporter's order handling and execution system (
The Quarterly Progress Report for the fourth quarter of 2021 states that “Phase 2a was fully implemented as of October 26, 2020;” “Phase 2b was fully implemented as of January 4, 2021;” “Phase 2c was implemented as of April 26, 2021;” and “Phase 2d was fully implemented as of December 13, 2021.”
• “Production Go-Live for Equities 2c reporting requirements (Large Industry Members)” was completed on April 26, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b and 2c (Large Industry Members)” was completed on April 26, 2021;
• “FCAT Plan Processor creates linkages of the lifecycle of order events based on the received data through Phase 2d Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Large Industry Members)” was completed on December 13, 2021;
• “Production Go-Live for Options 2b reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Equities 2c reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “Production Go-Live for Options 2d reporting requirements (Small OATS Reporters and Small Non-OATS Reporters)” was completed on December 13, 2021;
• “LTID Account Information Reporting Go-Live for Phases 2d (Large Industry Members)” was completed on December 13, 2021; and
• “LTID Account Information Reporting Go-Live for Phases 2a, 2b, 2c and 2d (Small Industry Members)” was completed on December 13, 2021.
The third prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” also imposes an Error Rate requirement of 5% or less. The Quarterly Progress Report for the fourth quarter of 2021 states the average overall error rate was less than 5% as of December 31, 2021. The average overall error rate was calculated by dividing the compliance errors by processed records.
The fourth prong of “Full Availability and Regulatory Utilization of Transactional Database Functionality” requires that the data collected by the CAT at this stage be made available to regulators through an online targeted query tool and a user-defined direct query tool. As CAT LLC reported on its Quarterly Progress Report for the fourth quarter of 2021, the query tool functionality incorporating the data from Phases 2a, 2b, 2c and 2d was available to the Participants and to the Commission as of December 31, 2021.
The fifth prong requires the requirements of Section 6.10(a) of the CAT NMS Plan to have been met. Section 6.10(a) of the CAT NMS Plan requires the Participants to use the tools described in Appendix D to “develop and implement a surveillance system, or enhance existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository.” The Exchange implemented a surveillance system, or enhanced existing surveillance systems, reasonably designed to make use of the consolidated information contained in the Central Repository as of December 31, 2021 in accordance with Section 6.10(a) of the CAT NMS Plan.
The Commission has determined that the Participants have sufficiently complied with the conditions set forth in the 2020 Orders and with the technical requirements for Quarterly Progress Reports set forth in Section 6.6(c) of the CAT NMS Plan for purposes of determining compliance with this FAM.
As discussed above, Historical CAT Costs 1 to be recovered via Historical CAT Assessment 1 would include fees, costs and expenses incurred by or for the Company in connection with the development, implementation and operation of the CAT during the period from January 1, 2021 through December 31, 2021. The total costs for this period, as discussed above, are $144,415,268. Participants would remain responsible for one-third of this cost (which they have previously paid), and Industry Members would be responsible for the remain [
As discussed above, CAT LLC has satisfied the Financial Accountability Milestones (“FAMs”) for Periods 1
CAT LLC does not believe that the exemptive relief relating to the reporting of electronic responses for quotes (“RFQs”) that are not immediately actionable (“NIA Electronic RFQ Responses”) affect the conclusion that FAMs 1 through 3 have been satisfied. The only reason CAT LLC pursued this relief is because certain Industry Members introduced concerns that NIA Electronic RFQ Responses could be considered “orders” reportable pursuant to Rule 613(j)(8) and some Industry Members were not prepared to report such orders to CAT. Thus, the relief was requested on behalf of Industry Members. CAT LLC itself has not taken any position on whether NIA Electronic RFQ Responses are “orders,” as the definition of “order” is an SEC rule and the trading processes for NIA Electronic RFQ Responses are the Industry Members', not those of the Participants or CAT LLC. Accordingly, CAT LLC stated in its letter that “Industry Members must determine whether trading interest falls within the definition of an `order' for CAT purposes. To the extent an NIA Electronic RFQ Response is not considered an `order” as defined in Rule 613(j)(8) and the CAT NMS Plan, it would not be reportable to CAT.”
Only “orders” as defined in SEC Rule 613(j)(8) are reportable to CAT. There is no agreement across the industry or among regulators as to whether NIA Electronic RFQ Responses are “orders” reportable to CAT. Certain Industry Members have raised the question as to whether NIA Electronic RFQ Responses are orders, but others have argued that they are not orders under Rule 613(j)(8).
As further discussed in the prior FIF letters, even if the Commission had the legal authority to require the reporting of NIA RFQ responses to CAT without an amendment to Rule 613, the Commission has not provided guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT. In subsequent discussions with industry members, Commission representatives have agreed that, prior to NIA RFQ responses being reportable to CAT, it would be necessary for the Commission to provide further guidance to industry members as to the conditions under which NIA RFQ responses would be reportable to CAT.
On May 20, 2024, the Commission granted CAT LLC's request for exemptive relief from certain CAT reporting requirements pertaining to NIA Electronic RFQ Responses to the extent such responses are considered “orders” reportable pursuant to Rule 613(j)(8).
When the Commission proposed the FAMs, the Participants expressed concern that, “by conditioning the ability of CAT LLC and the Participants to collect Post-Amendment Industry Member Fees on factors dependent on the efforts of Industry Members, the Commission's proposals inadvertently establish a perverse incentive for Industry Members to devote less than maximum efforts to comply with their obligations related to the CAT as they will pay less fees in such instances.”
CAT LLC does not believe that the Commission's May 19, 2023 order granting temporary exemptive relief relating to certain verbal floor activity and unstructured verbal and electronic upstairs activity (the “2023 Verbal Quotes Exemption”) affects the conclusion that FAMs 1 through 3 have been satisfied. The 2023 Verbal Quotes Exemption, which was issued on May 19, 2023, is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. The relevant exemption for this time period is the Commission's November 12, 2020 order, which granted relief for the same activity through July 31, 2023 (the “2020 Verbal Quotes Order”).
CAT LLC does not believe that the Commission's November 2, 2023 order granting relief from certain CAT NMS Plan requirements (the “November 2023 Order”) affects the conclusion that FAMs 1 through 3 have been satisfied. The November 2023 Order is not relevant for purposes of FAM Periods 1 through 3, which only cover the period through December 31, 2021. As described in the November 2023 Order, the relevant exemptive orders for this time period were issued on December 16, 2020, which also states that “the Commission has determined that the Participants have sufficiently complied with the conditions set forth in the prior Orders and with the technical requirements for Quarterly Progress Reports set forth in section 6.6(c) of the CAT NMS Plan, including for purposes of determining compliance with any applicable Financial Accountability Milestones.”
CAT LLC also completed the requirements of FAM Period 2, including the required linkages, by December 31, 2020. Although Participant exchanges may report the Executing Broker to CAT differently in certain situations, these reporting differences are irrelevant for linkage purposes as the fields used for CAT Executing Broker are not used for linkage.
The CAT Funding Model approved by the Commission permits the recovery of reasonable costs in each of the categories of CAT costs sought to be recovered via Historical CAT Assessment 1.
CAT LLC believes that it is reasonable to seek recovery of costs incurred prior to when the CAT NMS Plan became effective in November 2016, such as legal and consulting fees incurred to create the CAT NMS Plan. Rule 613 specifically mandates that the CAT be created, implemented and maintained, and further provides that the CAT NMS Plan include a proposed allocation of estimated costs to fund the creation, implementation and maintenance of the CAT among the Participants (referred to as “plan sponsors”), and between the Participants and Industry Members (referred to as “members of the plan sponsors”).
Accordingly, the CAT NMS Plan specifically permits the recovery of costs, including legal and consulting costs, reasonably incurred prior to November 2016 in connection with the creation and implementation of the CAT.
Furthermore, the costs incurred to create and implement the CAT prior to the effective date of the CAT NMS Plan (“Pre-Formation Costs”) were reasonable both in scope and amount, in accordance with the requirements of Section 11.1(c) of the CAT NMS Plan. During the four-year period from 2012 to 2016, a total of $13,842,881 in Pre-Formation Costs were incurred. This is an average of approximately $3.5 million per year over this period. The Pre-Formation Costs fell into three categories: legal costs, consulting costs and public relations costs. This includes legal costs of $3,196,434; consulting costs of $10,589,273; and public relations costs of $57,174. The legal, consulting and public relations services were performed by WilmerHale, Deloitte and Peppercomm, respectively. The selection considerations and fees for these three firms are described in detail above and are described further below. The Pre-Formation Costs are direct costs of CAT, which have been funded entirely by the Participants through non-interest-bearing notes. The Pre-Formation Costs do not include the significant costs incurred by each of the
The Pre-Formation Costs are reasonable and appropriate as they reflect the extensive efforts that were necessary to create the CAT NMS Plan as mandated after the SEC's adoption of Rule 613. As described in more detail below, these efforts included, among other things, developing a plan for selecting the Plan Processor, soliciting and evaluating bids, engaging a diverse set of market participants and the SEC in the development of the Plan, interacting with the SEC in their oversight of the development of the Plan, and seeking appropriate exemptive relief to address areas of concern in Rule 613.
The Participants determined to utilize an RFP to ensure that potential alternative solutions for creating the Plan could be presented and considered, and that a detailed and meaningful cost-benefit analysis could be performed. The SEC supported the use of an RFP, and approved its use as it is described in extensive detail in the CAT NMS Plan.
In the context of the SEC's adoption of Rule 613, commenters urged the Commission to utilize an RFP process to assist in the planning and design of the NMS plan.
In this regard, several commenters suggested that the Commission undergo a RFP or request for information (“RFI”) process to create and implement a consolidated audit trail. Specifically, FIF urged the Commission to perform a RFP process “to determine the best technical solution for developing a consolidated audit trail.” FIF suggested that the Commission “should outline a set of goals and guiding principles they are striving to achieve as part of the adopted CAT filing and leave the determination of data elements and other technical requirements to [an] industry working group.” Similarly, Direct Edge suggested that Commission staff should form and engage in a working group to develop an RFP for publication by the Commission. DirectEdge explained that an RFP process would facilitate the identification of the costs and benefits of the audit trail, as well as the consideration of a wider range of technological solutions. Further, commenters, including Broadridge Financial Solutions, Inc., a technology provider, also requested more specific information about the audit trail system to better assess the Commission's initial cost estimates and to determine the best approach to the consolidated audit trail.
In response to these comments, the Commission modified Rule 613 to require the Participants to address certain important considerations regarding the features and details of the NMS plan and to extend the timeframe for submission of the CAT NMS Plan by the Participants from the 90 days as originally proposed to 270 days, in part, to accommodate a process that would address these considerations.
The SEC specifically recognized that the Participants planned to use an RFP when it approved the Selection Plan, and stated that the RFP was a reasonable approach.
On February 26, 2013, the Participants published an RFP soliciting bids from parties interested in serving as the plan processor for the CAT. Initially, 31 firms submitted intentions to bid. In the following months, the Participants engaged with potential bidders with respect to, among other things, the selection process, selection criteria, and potential bidders' questions and concerns. On March 21, 2014, the Participants received ten bids in response to the RFP.
On September 4, 2013, the Participants filed with the Commission a national market system plan to govern the process for Participant review of the bids submitted in response to the RFP, the procedures for evaluating the bids, and, ultimately, selection of the plan processor (the “Selection Plan”).
The Selection Plan divided the review and evaluation of bids, and the selection of the plan processor, into various stages. Specifically, pursuant to the Selection Plan, a selection committee reviewed all bids and determined which bids contained sufficient information to allow the Participants to meaningfully assess and evaluate the bids. The ten submitted bids were deemed “Qualified Bids,” and so passed to the next stage, in which each bidder presented its bids to the Participants on a confidential basis. On July 1, 2014, after conducting careful analysis and comparison of the bids, the Selection Committee voted and selected a shortlist of six eligible bidders. The Selection Committee determined which shortlisted bidders would be provided the opportunity to revise their bids. After the Selection Committee assessed and evaluated the revised bids, the Selection Committee selected the plan processor via two rounds of voting by the Participants, as described in the Selection Plan.
The Selection Plan established an Operating Committee responsible for
When it approved the CAT NMS Plan in 2016, the Commission reiterated its belief that the Selection Plan remains a “reasonable approach,” that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue”:
In approving the Selection Plan, the Commission stated that the Selection Plan is reasonably designed to achieve its objective of facilitating the development of the CAT NMS Plan and the selection of the Plan Processor. The Commission also found that the Selection Plan is reasonably designed to govern the process by which the SROs will formulate and submit the CAT NMS Plan, including the review, evaluation, and narrowing down of Bids in response to the RFP, and ultimately choosing the Plan Processor that will build, operate, and maintain the consolidated audit trail. The Commission believes that the process set out in the Selection Plan for selecting a Plan Processor remains a reasonable approach, which will facilitate the selection of Plan Processor through a fair, transparent and competitive process and that no modifications to the Selection Plan are required to meet the approval standard. . . . In response to the comment that offered support for a specific Bidder, the Commission agrees with the Participants that the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor and thus believes that the process set forth in the Selection Plan should be permitted to continue.
During the process of developing the CAT NMS Plan, the Participants engaged in extensive and meaningful dialogue with market participants and the SEC. To this end, the Participants created a website to update the public on the progress of the CAT NMS Plan, published a request for comment on multiple issues related to the Plan, held multiple public events to inform the industry of the progress of the CAT and to address inquiries, and formed, and later expanded, a DAG to solicit more input from a representative industry group.
The DAG included representatives of Participants and Industry Members and conducted meetings to discuss, among other things, technical and operational aspects the Participants were considering for the Plan. The Participants issued press releases soliciting participants for the DAG, and a wide spectrum of firms was deliberately chosen to provide insight from various industry segments affected by CAT. The DAG meetings included discussions of topics such as option market maker quote reporting, requirements for capturing Customer IDs, timestamps and clock synchronization, reporting requirements for order handling scenarios, costs and funding, error handling and corrections, and potential elimination of systems made redundant by the CAT. From the inception of the DAG through September 2014, the DAG participated in 36 meetings, as well as a variety of DAG subcommittee meetings.
Following multiple discussions between the Participants and both the DAG and the bidders, as well as among the Participants themselves, the Participants recognized that some provisions of Rule 613 would not permit certain solutions to be included in the Plan that the Participants, in coordination with the DAG, determined advisable to effectuate the most efficient and cost-effective CAT. Specifically, “the SROs reached the conclusion that additional flexibility in certain of the minimum requirements specified in Rule 613 would allow them to propose a more efficient and cost-effective approach without adversely affecting the reliability or accuracy of CAT Data, or its security and confidentiality.”
After reviewing the exemptive request, the Commission determined that it was appropriate in the public interest and consistent with the protection of investors to grant the requested exemptive relief.
[T]he Commission is persuaded to provide flexibility in the discrete areas discussed in the Exemption Request so that the alternative approaches can be included in the CAT NMS Plan and subject to notice and comment. Doing so could allow for more efficient and cost-effective approaches than otherwise would be permitted. The Commission at this stage is not deciding whether the proposed approaches detailed below are more efficient or effective than those in Rule 613. However, the Commission believes the proposed approaches should be within the permissible range of alternatives available to the SROs.
The Commission further stated that the requested exemptive relief is consistent with the protection of investors. The Commission noted that:
Doing so will provide the public an opportunity to consider and comment on whether these proposed alternative approaches would indeed be more efficient and cost-effective than those otherwise required by Rule 613, and whether such approaches would adversely affect the reliability or accuracy of CAT Data or otherwise undermine the goals of Rule 613. Moreover, if—as the SROs represent—efficiency gains and cost savings would result from including the proposed approaches in the CAT NMS Plan without adverse effects, then the resultant benefits could potentially flow to investors (
The Participants incorporated the exemptive relief into the proposed CAT NMS Plan, which was noticed for comment, and the Commission ultimately approved the CAT NMS Plan with the more efficient and cost-effective alternative approaches described in the exemptive relief. Accordingly, the Participants believe that the costs incurred in developing the exemptive request were critical to the creation of a better CAT than was
Rule 613(a)(1) under Regulation NMS required the Participants to jointly file the CAT NMS Plan on or before April 28, 2013, less than a year after the adoption of Rule 613. In recognition of the complexity of the project to create the CAT NMS Plan as well as industry interest in limiting or eliminating certain requirements of Rule 613 (
The SROs stated in their Request Letter that they do not believe that the 270-day time period provided for in Rule 613(a)(1) provides sufficient time for the development of the RFP, formulation and submission of bids, and review and evaluation of such bids. The SROs also stated that they believe additional time beyond the 270 days provided for in Rule 613(a)(1) is necessary in order to provide sufficient time for effective consultation with and input from the industry and the public on the proposed solution chosen by the SROs for the creation of the consolidated audit trail at the conclusion of the RFP process and the NMS plan itself.
In recognition of the need for additional time to refine the technical description of and requirements for the CAT and to allow for additional evaluation of the proposed cost and funding considerations, the SEC granted two extensions of this deadline.
This additional time to complete the RFP process should allow the SROs to engage in a more thoughtful and comprehensive process for the development of an NMS plan. In this regard, the Commission notes that the additional time to solicit comment from the industry and the public at certain key points in the development of the NMS plan could identify issues that can be resolved earlier in the development of the consolidated audit trail and prior to filing the NMS plan with the Commission.
Given the Commission's recognition of the reasonableness and value of the extension of the deadline to file the CAT NMS Plan, the Participants believe that the costs incurred in developing the extension request were important to the process of developing the CAT NMS Plan, and therefore should be recoverable as part of Historical CAT Assessment 1.
After extensive analyses and discussions with the DAG, bidders, market participants and the SEC staff, the Participants finalized the draft of the CAT NMS Plan and filed the CAT NMS Plan with the SEC on September 30, 2014. Following additional discussions, the Participants filed several amendments to the CAT NMS Plan during 2015 and 2016. With these additional changes, the SEC published the CAT NMS Plan for notice and comment in May 2016.
The Pre-Formation Costs include legal costs of $3,196,434. The legal services were performed by WilmerHale. The selection considerations and fees for WilmerHale were described in detail above. Prior to the creation of CAT LLC, WilmerHale was engaged to represent the consortium of SROs, not the individual Participants. For administrative purposes, FINRA agreed to receive such legal bills, although such costs were shared among the Participants. Therefore, the legal costs incurred with respect to WilmerHale do not include legal costs incurred by the individual Participants. These pre-formation legal costs are described in detail above and are further described below:
• Analyzed various legal matters associated with the Selection Plan and drafted an amendment to Selection Plan;
• Assisted with the RFP and bidding process for the CAT Plan Processor;
• Analyzed legal matters related to the DAG;
• Drafted the CAT NMS Plan, analyzed various items related to the CAT NMS Plan, and responded to comment letters on the CAT NMS Plan;
• Provided legal support for the formation of the legal entity, the governance of the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Drafted exemptive requests;
• Provided interpretations related to the CAT NMS Plan;
• Provided support with regard to discussions among the exchanges, FINRA and other third parties, such as Deloitte;
• Provided tax advice with regard to CAT's status as a tax-exempt organization; and
• Provided support with regard to discussions with the SEC and its staff, including with respect to addressing interpretive and implementation issues.
The Pre-Formation Costs include consulting costs of $10,589,273. The consulting services were performed by Deloitte. The selection considerations and fees for Deloitte were described in detail above. Prior to the creation of CAT LLC, for administrative purposes, Deloitte was engaged by FINRA to provide consulting services related to CAT, but the costs were shared by the consortium of SROs per agreement. Therefore, the consulting costs incurred with respect to Deloitte do not include consulting costs incurred by the individual Participants. The pre-formation consulting costs include the following:
• Established and implemented program operations for the CAT project, including the program management office and workstream design;
• Assisted with the Plan Processor selection process, including but not limited to, the development of the RFP and the bidder evaluation process, and facilitation and consolidation of the Participants' independent reviews;
• Assisted with the development and drafting of the CAT NMS Plan, including conducting cost-benefit studies, reviewing technical requirements of other NMS plans, analyzing OATS and CAT requirements, and drafting appendices to the Plan;
• Provided governance support to the CAT, including governance support prior to the adoption of the CAT NMS Plan, which involved support for the full committee of exchanges and FINRA as well as subcommittees of this group (
• Provided support for updating the SEC on the progress of the development of the CAT;
• Provided support for industry outreach sessions, including with regard to program design and agenda development, program support and logistics and coordination; and
• Provided support in fact finding, drafting content and meeting coordination for WilmerHale with regard to the CAT and the development of the CAT NMS Plan.
Such Pre-Formation Costs did not include costs related to the Chair of the CAT NMS Plan Operating Committee, as the CAT NMS Plan had not yet been adopted.
The Pre-Formation Costs include public relations costs of $57,174. The public relations services were performed by Peppercomm. The selection considerations and fees for Peppercomm are described in detail above. The costs related to Peppercomm were shared among the SROs. Therefore, the public relations costs do not include public relations costs incurred by the individual Participants. The pre-formation public relations costs include services related to communications with the public regarding the CAT, including monitoring developments related to the CAT (
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs related to cloud hosting services as a part of Historical CAT Assessments. CAT LLC believes that the costs related to cloud hosting services described in detail above are reasonable and appropriate given the strict data processing timelines and storage requirements imposed by the Commission-approved CAT NMS Plan and should be recoverable as a part of Historical CAT Assessment 1.
CAT LLC believes that the costs for the cloud hosting services are reasonable, both in terms of the level of the fees paid by CAT LLC for cloud hosting services provided by AWS and the scope of the services performed by AWS for CAT LLC. CAT LLC believes that both the scope and amount of the costs for cloud hosting services are reasonable given the current requirements of the CAT NMS Plan adopted pursuant to Rule 613, including the strict data processing timeline, storage and other technical requirements under the Commission-approved CAT NMS Plan.
CAT LLC believes that the level of fees for the cloud hosting services is reasonable, taking into consideration a variety of factors, including the expected volume of data and the breadth of services provided and market rates for similar services.
CAT LLC also believes that the scope of services provided by AWS for the CAT are appropriate given the current requirements of the Commission-approved CAT NMS Plan. As described above, the cloud hosting services costs reflect a variety of factors including, among other things:
•
•
•
•
In addition, various requirements of the CAT NMS Plan adopted pursuant to Rule 613 contribute to the significant cloud hosting services costs, and that various Plan requirements could be amended or removed without affecting the regulatory purpose of the CAT. Indeed, CAT LLC has repeatedly sought exemptive relief and filed amendments to the CAT NMS Plan, and has even filed suit against the Commission, to seek to revise or eliminate certain costly requirements related to the CAT. However, despite these efforts, absent the Commission granting exemptive relief or approving cost savings amendments to the CAT NMS Plan, CAT LLC, the Participants and Industry Members are all required to comply with such requirements.
CAT is reasonably designed to efficiently and effectively utilize cloud computing and storage services, given the requirements of the Commission-approved CAT NMS Plan, including requirements related to security, operational reliance and quality assurance, and maintainability.
The Plan Processor uses state-of-the-art software that meets the strict security standards of the CAT NMS Plan. CAT utilizes a big data processing framework that is extensively used by large data processing companies, such as Apple, Meta, Netflix, IBM and Google. As such, it has substantial commercial support and support in the open-source community. It is also well suited for use with regard to iterative types of algorithms and query functions and analytics that the CAT requires, and it provides the heightened security necessary for the CAT.
The development and implementation of the design of CAT is not and has not been static. CAT LLC and the Plan Processor are always evaluating new innovations and service offerings from AWS and other providers to seek to maximize efficiency and cost avoidance while still satisfying the requirements of the CAT NMS Plan. These efforts have led to substantial savings to date. The cloud hosting costs for 2023 were less than the cloud hosting costs for 2022 by $8 million despite processing seven
When evaluating the design of the CAT, it must be kept in mind that the CAT is not a typical commercial technology project. The ability to make use of technology approaches that may lead to cost avoidance is also subject to the restrictive requirements of the CAT NMS Plan, such as processing timeframes, requirements for retention of data versions, query requirements, and security standards. Because such requirements are set forth in the CAT NMS Plan, any modification of such requirements are subject to the time-consuming process of amending the CAT NMS Plan or seeking an exemption from the relevant requirement. For example, CAT LLC recently has filed an amendment to address several of these expensive Plan requirements.
The CAT System also was designed to minimize the extent to which Industry Members would need to alter their systems to report to CAT. During the design process, Industry Member groups argued that it would make more sense financially for the CAT to accommodate differences in industry systems, than for all Industry Members to change their systems. Moreover, such design choices would facilitate consistency, uniformity and accuracy in reporting. Requiring the CAT to make such accommodations may increase CAT costs while accommodating CAT Reporters.
Based on the requirements in the CAT NMS Plan and/or in response to industry requests for functionality to be embedded with the Plan Processor to streamline or limit Industry Member system changes, the CAT has been designed to limit the effect on Industry Members. The following provides examples of such accommodations:
•
•
•
To be clear, if OATS-like error correction tools are not made available on Day 1, hundreds of firms will be required to create and test their own tools or obtain vendor alternatives prior to the CAT Go-Live Date. Proprietary tools will require additional system builds, access to and ingestion of CAT data to perform system validation, and testing which will further stress the limited number of subject matter experts (“SMEs”) dedicated to the implementation of CAT reporting. Should this occur, inevitably firms (especially small firms who lack the necessary IT staff to write code and develop proprietary systems), may be put in the position of passing onto investors the cost required to build hundreds of redundant systems.
CAT provides various tools to help Industry Members identify and rectify errors.
•
FIF CAT WG is not proposing a specific format; rather, we are proposing flexibility of input formats which includes support of existing formats (
Mandating a uniform format for reporting data to the CAT simplifies the task for the Central Repository of consolidating/storing data, but it puts the burden on each CAT Reporter to accurately translate their current (
CAT provides such a flexible input format.
The costs for cloud hosting services are appropriate and have not been adversely affected by the original design and approaches of the Initial Plan Processor. FCAT's design costs are the result of the requirements of the Commission-approved CAT NMS Plan.
When FCAT took over as the Plan Processor from Thesys, it utilized certain aspects of the technical specifications created by Thesys in its design. However, FCAT has not maintained aspects of the original design that would not be appropriate for the CAT. FCAT revised and enhanced the original technical specifications of the CAT System to increase its efficiency and efficacy, and to ensure its compliance with the CAT NMS Plan. For example, the Initial Plan Processor's approach utilized many more fields than FCAT's approach, which relies on additional linkages. With the additional linkages, the CAT System takes on more of the CAT-related burdens than the Industry Members. Such an approach serves to facilitate consistency, uniformity and accuracy in reporting.
Moreover, FCAT did not utilize the system built by the Initial Plan Processor; it rebuilt the CAT System based on revised technical specifications. For example, the Initial Plan Processor used an on-premises processing approach which was not geared toward the huge amounts of data stored in the CAT, while FCAT adopted a cloud-based solution in response to such data demands.
Furthermore, given the very short timeframe to develop the CAT System and the prior optimization of certain query tools (
CAT LLC continues to support the selection of AWS as the cloud hosting services provider for CAT given the compliance, operational, and security requirements of the CAT. Independent analyses confirm these conclusions, noting that “AWS is an excellent choice for either strategic or tactical use and recommends considering AWS for almost all cloud IaaS or IaaS+PaaS scenarios.”
•
•
•
•
•
•
•
In addition, the nature of the CAT, including the amount of data it must process and the size of its data footprint, does not allow for a multi-cloud solution as this would be cost prohibitive and greatly increase the security boundary and associated risk profile of the CAT. For example, a multi-cloud hosting option would increase costs, complexity, and risk for operations with regard to, for example, DevOps, production support, and networking. Similarly, with regard to security, a multi-cloud solution would increase risk, including with regard to the need for data transfers between cloud providers and the expansion of the security boundary. With regard to labor, a multi-cloud solution would lose economies of scale due to the need to support unique cloud requirements. Accordingly, the use of single-cloud solution continues to provide advantages with regard to cost, complexity, and risk. Indeed, “[t]he best practice is to focus on a single primary strategic provider.”
Furthermore, if another cloud service provider were determined to be a better match for the CAT at some future date, switching cloud service providers would be a very significant, expensive and time-consuming effort. Such an effort would likely be a 10-to-15-year commitment at a substantial expense. Such a move would require the replication or redesign of the underlying cloud environments (
CAT LLC believes that the recovery of costs related to the development of the funding model is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
Funding the CAT is a critical aspect of Rule 613 and the CAT NMS Plan. Article XI of the CAT NMS Plan describes in detail the requirements for funding the CAT, and the Participants are required to comply with and enforce compliance with the funding requirements of the CAT NMS Plan, just as with other aspects of the Plan. Accordingly, the development and implementation of a funding model for the CAT is as much a part of the requirements of the CAT NMS Plan as the development and operation of the CAT System. CAT LLC sees no reason to distinguish the efforts to develop a funding model from, for example, efforts to develop the CAT System, in seeking to recover reasonable CAT costs.
Moreover, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . legal costs.”
In addition, the legal costs incurred for the assistance in developing the CAT Funding Model are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at negotiated rates for such services that reflect both the
CAT LLC believes that the recovery of legal costs related to the litigation with the SEC regarding the CAT NMS Plan is appropriate, and that the amount and scope of such costs, as described above, are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
The conditional exemptive relief in this Order allows for the implementation of alternative regulatory solutions that continue to advance the regulatory goals that Rule 613 and the CAT NMS Plan were intended to promote, while reducing the implementation and operational costs, burdens, and/or difficulties that would otherwise be incurred by the Participants and Industry Members that must fund the CAT.
CAT LLC believes it is reasonable and appropriate to incur costs to limit the need to incur even greater costs due to certain interpretations of the Plan.
In addition, the legal costs incurred during the litigation are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. As described above, the specialized services were performed by experienced counsel at market rates for such services. As such, the legal costs related to this litigation incurred during the period covered by Historical CAT Assessment 1 were reasonable.
Finally, Industry Members will directly benefit from the result of the litigation because it has addressed CAT NMS Plan requirements that would have imposed significantly greater costs on the CAT. Accordingly, it is reasonable and appropriate that the costs of such litigation be included in the Historical CAT Costs 1.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017, which was the date by which Participants were required to begin reporting to the CAT, due to the delay in the commencement of reporting to the CAT. As discussed above, the Participants determined to exclude all CAT costs incurred from November 15, 2017 through November 15, 2018, which includes $37,852,083 in Thesys costs incurred from November 15, 2017 through November 15, 2018 (as well as other CAT costs during this period). The remaining Thesys costs incurred after November 15, 2018 are the $19,628,791 in capitalized developed technology costs for the period from November 16, 2018 through February 2019 incurred in the development of the CAT by the Initial Plan Processor, as well as a transition fee for the transition from the Initial Plan Processor to the successor Plan Processor. The Participants would remain responsible for 100% of these $19,628,791 in costs.
CAT LLC believes that it is appropriate to recover costs related to the services performed by the Initial Plan Processor prior to November 15, 2017. CAT LLC notes that the development and implementation of the CAT System, while unprecedented in scope and design, is like any other large and innovative technology project in that, inevitably, there were adjustments and refinements in the technical approach as the project developed, even with substantial planning efforts and oversight prior to the build. This is even more likely when the project faces a very tight implementation schedule, such as the one imposed by the Commission in Rule 613 and the CAT NMS Plan. However, an adjusted approach does not mean that the funds were not valid expenditures and should not be recovered.
The reasonableness of Thesys costs should be evaluated by the Commission as of the time they were incurred, not in hindsight. As detailed above, the Commission concluded in 2016 that “the competitive bidding process to select the Plan Processor is a reasonable and effective way to choose a Plan Processor,” and that “the process set forth in the Selection Plan should be permitted to continue.”
As noted in the CAT Funding Model Approval Order, “[i]n Rule 613, the Commission made the determination that the costs of the CAT should be shared by the Participants and Industry Members.”
CAT LLC believes that the recovery of CAIS-related costs is appropriate, and that the amount and scope of such costs, as described above, are reasonable, and that the reasonableness of historical costs should be evaluated by the Commission as of the time they were incurred, not in hindsight.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable CAIS operating costs as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . CAIS operating fees.”
In addition, CAT LLC determined that the CAIS operating fees described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The “CAIS Operating Costs” for Historical CAT Assessment 1 total $9,480,587, with Pre-FAM costs of $2,072,908, FAM 1 costs of $254,998, FAM 2 costs of $1,590,298, and FAM 3 costs of $5,562,383. As described above, the CAIS operating fees were incurred with regard to two categories of CAIS-related efforts: (1) the acceleration of the reporting of LTIDs; and (2) the development of the CAIS Technical Specifications and the building of CAIS. These two categories of costs are discussed in more detail below.
During the period covered by Historical CAT Assessment 1, the CAIS operating costs included costs related to the acceleration of the reporting of LTIDs earlier than originally contemplated during this period at the request of the SEC and in accordance with exemptive relief granted by the SEC.
• After FCAT developed the LTID Technical Specifications, the LTID Technical Specifications were published on January 31, 2020, with additional updates provided to the LTID Technical Specifications through April 2021.
• The LTID account information testing environment opened on August 24, 2020.
• The LTID account information reporting production environment opened on December 14, 2020.
• CAT Reporters were required to request their production readiness certification for account information related to LTIDs by the deadline of April 9, 2021.
• The LTID account information reporting for Phases 2a, 2b and 2c for Large Industry Members went live on April 26, 2021.
• The LTID account information reporting for Phases 2d for Large Industry Members went live on December 13, 2021.
• The LTID account information reporting for Phases 2a, 2b, 2c and 2d for Small Industry Members went live on April 26, 2021.
Throughout this project, FCAT and CAT LLC worked closely with the industry on LTID and CAIS reporting. Between December 2019 and December 2021, at least 57 checkpoint calls, webinars, and technical working group meetings with industry representatives were hosted to address issues and to educate CAT Reporters regarding LTID and CAIS reporting.
The LTID reporting project was successfully completed in a timely fashion, and the fees related to the project were reasonable. Accordingly, CAT LLC appropriately seeks to recover such costs via Historical CAT Assessment 1.
During the period covered by Historical CAT Assessment 1, FCAT began the development of the full CAIS Technical Specifications and the building of CAIS. The CAIS Technical Specifications were developed during this period as follows:
• Iterative drafts of the CAIS Technical Specifications were published on June 30, 2020, December 1, 2020, and January 1, 2021.
• The full, final CAIS Technical Specifications were published on January 29, 2021.
• Updated versions of the CAIS Technical Specifications were published throughout 2021.
As discussed above, FCAT and CAT LLC frequently engaged with the industry regarding the development of CAIS, hosting regular checkpoint calls, webinars, and technical working group meetings with industry representatives to address any issues, including addressing the interplay between Industry Members' existing customer systems and CAIS, and to educate CAT Reporters regarding LTID and CAIS reporting. Such engagement was critical to the CAIS development process as the CAIS project was unprecedented in terms of its content, scope and complexity.
During this period, FCAT also commenced the building of the CAIS system in accordance with the CAIS Technical Specifications during the period covered by Historical CAT Assessment 1. The CAIS system was ready for industry testing shortly after the end of this period in January 2022.
The CAIS Technical Specifications and the CAIS system, as developed during this period, continue to be in use today. Industry Members have been required to report, and have continuously reported, required data to CAIS on a daily basis since November 7, 2022, consistent with interim reporting obligations. The CAIS system accepts and validates the CAIS data submitted by Industry Members and provides Industry Members with initial feedback on data errors. In light of the unprecedented nature of the CAIS system, certain changes to the system, such as changes related to error corrections and the CAIS regulatory portal, were necessary to finalize CAIS reporting. FCAT worked to address these remaining issues,
CAT LLC believes that the recovery of public relations costs is appropriate and that the amount and scope of such costs, as described above, are reasonable.
The Commission has long recognized that external public relations costs are reasonably associated with creating, implementing and maintaining the CAT. In the CAT NMS Plan Approval Order, the Commission estimated that the Participants had collectively spent approximately $2,400,000 in preparation of the CAT NMS Plan on external public relations, legal, and consulting costs, and estimated that the Participants would continue to incur external public relations costs associated with maintaining the CAT upon approval of the CAT NMS Plan.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for public relations services as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . public relations costs.”
In addition, CAT LLC determined that the public relations costs described above are reasonable in both amount and scope and should be recoverable as a part of Historical CAT Assessment 1. The services performed by the public relations firms through 2021 were limited in scope to assist CAT LLC, which has no employees of its own, to be better positioned to understand and address CAT matters to the benefit of all market participants and to communicate on important CAT topics with the public. In addition, the costs for these services were appropriately limited. During the 10-year period covered by Historical CAT Assessment 1, the average cost per year for these services was approximately $36,000.
CAT LLC believes that the recovery of legal costs related to the limitation of liability provision, including costs related to the proceedings before the SEC and costs related to the proposed amendment to the Consolidated Audit Trail Reporter Agreement and the Consolidated Audit Trail Reporting Agent Agreement (the “Reporting Agreements”) is appropriate and that the amount and scope of such costs as described above are reasonable.
As a preliminary matter, as discussed above, the Commission recognized that it is appropriate to recover reasonable costs for legal services as a part of Historical CAT Assessments.
Moreover, it is critical that CAT LLC, which has no employees of its own, have the ability to fund a legal defense in litigation and other legal proceedings against it. In response to CAT LLC requiring Industry Members to agree to the limitation of liability provision to submit data to the CAT, SIFMA filed an application for review of actions taken by CAT LLC and the Participants pursuant to Sections 19(d) and 19(f) of the Exchange Act. Contemporaneously with the filing of this proceeding, SIFMA moved for a stay of the requirement that Industry Members sign a Reporter Agreement, or in the alternative, asked the Commission to further delay the launch of CAT reporting on June 22, 2020. CAT LLC must have the resources to defend itself from litigious actions by others, like these.
Although a limitation of liability provision ultimately was not adopted as proposed, it was a reasonable provision to propose for the CAT Reporter Agreements, given that such provisions are in accordance with industry norms. Limitations of liability are ubiquitous within the securities industry and have long governed the economic relationships between self-regulatory organizations and the entities that they regulate. For example, U.S. securities exchanges have adopted rules to limit their liability for losses that Industry Members incur through their use of exchange facilities.
Furthermore, as described above, the specialized services were performed by experienced counsel at market rates for such services. Accordingly, the legal costs for the efforts related to the limitation of liability provision were reasonable.
CAT LLC believes that the recovery of consulting costs related to the Chair of the CAT Operating Committee is appropriate and that the amount and scope of such costs are reasonable.
As a preliminary matter, the selection of the Chair of the Operating Committee complies with the requirements of Section 4.2 of the CAT NMS Plan. The initial Chair that served during the period covered by Historical CAT Assessment was designated by a Participant as the Participant's alternate voting member. Accordingly, the Chair is a representative of the Participants, as required by the CAT NMS Plan.
In addition, in approving the CAT Funding Model, the Commission recognized that it is appropriate to recover reasonable costs for consulting as a part of Historical CAT Assessments. As approved by the SEC, the CAT NMS Plan states that “the reasonably budgeted CAT costs shall include . . . consulting . . .” costs.
The Participants determined that the position of the Chair was a critical role for the implementation of the CAT, and an independent Chair would appropriately consider and address the views of each of the Participants. The Participants also determined that it was important to have a Chair with a strong
CAT LLC understands that there are three types of reconciliation processes related to the invoices:
•
•
•
As discussed further below, CAT LLC only considers the first type of process to be a “reconciliation” and the only type of process that is required under the CAT NMS Plan. CAT LLC provides the means to reconcile the CAT invoice amount to the underlying trades provided by CAT.
The CAT NMS Plan does not require CAT LLC to facilitate the second type of process: matching underlying trades for a CAT invoice with a firm's internal books and records. CAT LLC has access only to the underlying trades provided by CAT; it does not have access to a firm's internal books and records. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
The CAT NMS Plan also does not require CAT LLC to provide the ability to identify the order originator for the underlying trades for the CAT invoices. Accordingly, the billing guidance and processes do not provide CAT Reporters with the ability to identify the order originator for the underlying trades provided by CAT with CAT invoices. CAT LLC has been working closely with CAT Reporters to explain its billing approach and to address any outstanding billing questions. But, it should not be lost that CAT LLC provides information sufficient to allow CAT Reporters to reconcile CAT invoice amounts with the underlying trades provided by CAT LLC.
The CAT NMS Plan does not require CAT LLC to facilitate the matching of underlying trades for a CAT invoice with a firm's internal books and records, which may consist of trading data from various sources external to CAT. Although beyond the requirements of the CAT NMS Plan and involving firm specific considerations, CAT LLC voluntarily has provided guidance and processes to assist CAT Reporters in their efforts to match the underlying trades with their own books and records.
In this regard, it is important to recognize that CAT LLC has developed a billing approach that greatly improves upon existing billing practices for similar regulatory fees (
To facilitate the introduction of CAT fees, CAT LLC has worked with FCAT to develop an approach to CAT billing that is consistent with existing billing constructs used with regard to Section 31-related sales values fees, subject to certain enhancements. Under this billing approach, FCAT is providing additional linkage elements, not necessarily provided in the Section 31-sales value fee context, to facilitate CAT Reporters' ability to match the underlying trades provided by CAT with their internal books and records and to reduce the complexity of that process. Specifically, FCAT is providing various key elements of the trade itself, such as the tradeID and branch sequence,
With the Additional Trade Details, CAT LLC and FCAT believe that the overwhelming majority of underlying trades provided by CAT bills can be matched with a CAT Reporter's internal books and records. CAT LLC recognizes that there may be certain cases in which such matching is more difficult given various firm-specific considerations, but believes that such instances are significantly more limited than with regard to the SRO fees charged in relation to Section 31.
Similar to other regulatory fees, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Accordingly, Historical CAT Assessment 1 does not address the process by which any CAT Reporters may pass through the fee to their
In its approval of the CAT Funding Model, the Commission approved charging CAT fees to the CAT Executing Broker, rather than the originating broker. This fee filing must comply with the requirements of the CAT Funding Model, and, therefore, charges the Historical CAT Assessment 1 to CAT Executing Brokers.
Moreover, charging originating brokers would introduce significant complexity to the billing process from the CAT's perspective, and would increase the costs of implementing CAT fees. Charging the CAT Executing Broker is simple and straightforward, and leverages a one-to-one relationship between billable events (trades) and billable parties, similar to other transaction-based fees. In contrast, for a single trade event, there may be many originating brokers, and each trade must be broken down on a pro-rata basis, to account for one or more layers of aggregation, disaggregation, and representation of the underlying orders. While CAT is indeed designed to capture and unwind complex aggregation scenarios, the data and linkages are structured to facilitate regulatory use, and not a billing mechanism that assesses fees on a distinct set of executed trades; it is not simply a matter of using existing CAT linkages. Furthermore, charging originating brokers would implicate issues related to lifecycle linkage rates, and issues related to corrections, cancellations and allocations, while charging CAT Executing Brokers would avoid such issues.
As noted, the CAT NMS Plan does not address the manner or extent to which CAT Executing Brokers may seek to pass any CAT Fees on to their customers, nor does it impose any obligation on CAT LLC or the Plan Processor to facilitate firms' ability to do so. Nevertheless, the Additional Trade Details provided with regard to the underlying trades on CAT invoices may assist with this process. Like with Section 31-related sales value fees, however, it is not always possible to trace every fee on a transaction back to the originating party. Industry Members have faced these issues under Section 31-related sales values fees for many years.
CAT LLC has worked with FCAT to provide significant technical assistance to Industry Members to allow the Industry Members to understand how Historical CAT Assessment 1 will be implemented and billed, including webinars, CAT alerts, mock invoices, and responses to questions posed to the FCAT Help Desk.
•
•
•
•
•
•
By providing such detailed and sustained assistance to Industry Members regarding CAT fees and billing, CAT LLC has successfully addressed questions raised by Industry Members regarding the CAT fees and billing processes.
CAT LLC has provided Industry Members with ample time to comply with the implementation of Historical CAT Assessment 1. CAT LLC originally proposed issuing the first invoices for Historical CAT Assessment 1 in December 2023 based on transactions in Eligible Securities in November 2023. In consideration of the feedback about the need for additional time to implement the new fee, CAT LLC pushed back this timeline by four months, proposing to issue the first Historical CAT Assessment 1 in April 2024 based on transactions in March 2024.
The Exchange believes the proposed rule change is consistent with the requirements of the Exchange Act. The Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,
The Exchange believes that this proposal is consistent with the Act because it implements provisions of the Plan and is designed to assist the Exchange in meeting regulatory obligations pursuant to the Plan. In approving the Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The Exchange believes that the proposed fees paid by the CEBBs and CEBSs are reasonable, equitably allocated and not unfairly discriminatory. First, the Historical CAT Assessment 1 fees to be collected are directly associated with the costs of establishing and maintaining the CAT, where such costs include Plan Processor costs and costs related to technology, legal, consulting, insurance, professional and administration, and public relations costs. The Exchange has already incurred such development and implementation costs and the proposed Historical CAT Assessment 1 fees, therefore, would allow the Exchange to collect certain of such costs in a fair and reasonable manner from Industry Members, as contemplated by the CAT NMS Plan.
The proposed Historical CAT Assessment 1 fees would be charged to Industry Members in support of the maintenance of a consolidated audit trail for regulatory purposes. The proposed fees, therefore, are consistent with the Commission's view that regulatory fees be used for regulatory purposes and not to support the Exchange's business operations. The proposed fees would not cover Exchange services unrelated to the CAT.
As further discussed below, the SEC approved the CAT Funding Model, finding it was reasonable and that it equitably allocates fees among Participants and Industry Members. The Exchange believes that the proposed fees adopted pursuant to the CAT Funding Model approved by the SEC are reasonable, equitably allocated and not unfairly discriminatory.
Section 11.1(b) of the CAT NMS Plan states that “[t]he Participants shall file with the SEC under Section 19(b) of the Exchange Act any such fees on Industry Members that the Operating Committee approves.” Per Section 11.1(b) of the CAT NMS Plan, the Exchange has filed this fee filing to implement the Industry Member CAT fees included in the CAT Funding Model. The Exchange believes that this proposal is consistent with the Exchange Act because it is consistent with, and implements, the CAT Funding Model in the CAT NMS Plan, and is designed to assist the Exchange and its Industry Members in meeting regulatory obligations pursuant to the CAT NMS Plan. In approving the CAT NMS Plan, the SEC noted that the Plan “is necessary and appropriate in the public interest, for the protection of investors and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanism of a national market system, or is otherwise in furtherance of the purposes of the Act.”
The SEC has determined that the CAT Funding Model is reasonable and satisfies the requirements of the Exchange Act. Specifically, the SEC has concluded that the method for determining Historical CAT Assessments as set forth in Section 11.3 of the CAT NMS Plan, including the formula for calculating the Historical Fee Rate, the identification of the parties responsible for payment and the transactions subject to the fee rate for the Historical CAT Assessment, is reasonable and satisfies the Exchange Act.
The formula for calculating a Historical Fee Rate requires the amount of Historical CAT Costs to be recovered. Specifically, Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan requires a fee filing to provide:
In accordance with this requirement, the Exchange has set forth the amount and type of Historical CAT Costs 1 for each of these categories of costs above.
Section 11.3(b)(iii)(B)(II) of the CAT NMS Plan also requires that the fee filing provide “sufficient detail to demonstrate that the Historical CAT Costs are reasonable and appropriate.” As discussed below, the Exchange believes that the amounts set forth in this filing for each of these cost categories is “reasonable and appropriate.” Each of the costs included in Historical CAT Costs 1 are reasonable and appropriate because the costs are consistent with standard industry practice, based on the need to comply with the requirements of the CAT NMS Plan, incurred subject to negotiations performed on an arm's length basis, and/or are consistent with the needs of any legal entity, particularly one with no employees.
In approving the CAT Funding Model, the Commission recognized that it is appropriate to recover costs related to cloud hosting services as a part of Historical CAT Assessments.
To comply with the requirements of the Plan, the breadth of the cloud activities related to the CAT is substantial. The cloud services not only include the production environment for the CAT, but they also include two industry testing environments, support environments for quality assurance and stress testing and disaster recovery capabilities. Moreover, the cloud storage costs are driven by the requirements of the Plan, which requires the storage of multiple versions of the data, from the original submitted version of the data
Data volume is a significant driver of costs for cloud hosting services. When the Commission adopted the CAT NMS Plan in 2016, it estimated that the CAT would need to receive 58 billion records per day
In addition to the effect of the data volume on the cloud hosting costs, the processing timelines set forth in the Plan contribute to the cloud hosting costs. Although CAT LLC has proactively sought to manage cloud hosting costs while complying with the Plan, including through requests to the Commission for exemptive relief and an amendment to the CAT NMS Plan, stringent CAT NMS Plan requirements do not allow for any material flexibility in cloud architecture design choices, processing timelines (
The costs for cloud hosting services also reflect the need for specialized cloud hosting services given the data volume and unique processing needs of the CAT. The data volume as well as the data processing needs of the CAT necessitate the use of cloud hosting services. The equipment, power and services required for an on-premises data model, the alternative to cloud hosting services, would be cost prohibitive. Moreover, as CAT was being developed, there were limited cloud hosting providers that could satisfy all the necessary CAT requirements, including the operational and security criteria. Over time more providers offering cloud hosting services that would satisfy these criteria have entered the market. CAT LLC will continue to evaluate alternative cloud hosting services, recognizing that the time and cost to move to an alternative cloud provider would be substantial.
The reasonableness of the cloud hosting services costs is further supported by key cost discipline mechanisms for the CAT—a cost-based funding structure, cost transparency, cost management efforts (including regular efforts to lower compute and storage costs where permitted by the Plan) and oversight. Together, these mechanisms help ensure the ongoing reasonableness of the CAT's costs and the level of fees assessed to support those costs.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to CAIS operating fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to change request fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to capitalized developed technology costs as a part of Historical CAT Assessments.
These costs involve the activity of both the Initial Plan Processor and FCAT, as the successor Plan Processor.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover costs related to legal fees as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover consulting costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover insurance costs as a part of Historical CAT Assessments.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover professional and administration costs as a part of Historical CAT Assessments.
CAT LLC determined to hire a financial advisory firm, Anchin, to assist with financial matters for the CAT. CAT LLC interviewed Anchin as well as other potential financial advisory firms to assist with the CAT
CAT LLC also determined to engage an independent accounting firm, Grant Thornton, to complete the audit of CAT LLC's financial statements, in accordance with the requirements of the CAT NMS Plan. CAT LLC interviewed this firm as well as another potential accounting firm to audit CAT LLC's financial statements, considering a variety of factors in its analysis, including the relevant expertise and fees of each of the firms. CAT LLC determined that Grant Thornton was well-qualified for the role given the balanace of these considerations.
The professional and administrative costs also include costs related to the receipt of certain market data from Exegy. After performing an analysis of the available market data vendors to confirm that the data provided met the SIP Data requirements of the CAT NMS Plan and comparing the costs of the vendors providing the required SIP Data, CAT LLC determined to purchase market data from Exegy. Exegy provided the data elements required by the CAT NMS Plan, and the fees were reasonable and in line with market rates for the market data received.
The professional and administrative costs also include costs related to a third party security assessment of the CAT performed by RSM. The assessment was designed to verify and validate the effective design, implementation and operation of the controls specified by NIST Special Publication 800-53, Revision 4 and related standards and guidelines. Such a security assessment is in line with industry practice and important given the data included in the CAT. CAT LLC determined to engage RSM to perform the security assessment, after considering a variety of factors in its analysis, including the firm's relevant expertise and fees. The fees were reasonable and in line with market rates for such an assessment.
In approving the CAT Funding Model, the SEC recognized that it is appropriate to recover public relations costs as a part of Historical CAT Assessments.
The total executed equivalent share volume of transactions in Eligible Securities for the 12-month period from June 2023 through May 2024 was 3,980,753,840,905.21 executed equivalent shares. CAT LLC determined the total executed equivalent share volume for the prior twelve months by counting executed equivalent shares in the same manner as it will count executed equivalent shares for CAT billing purposes.
CAT LLC has determined to establish a Historical Recovery Period of 24 months for Historical CAT Assessment 1 and that such length is reasonable. CAT LLC determined that the length of Historical Recovery Period 1 appropriately weighs the need for a reasonable Historical Fee Rate 1 that spreads the Historical CAT Costs over an appropriate amount of time and the need to repay the loans notes to the Participants in a timely fashion. CAT LLC determined that 24 months for Historical Recovery Period 1 would establish a fee rate that is lower than other transaction-based fees, including fees assessed pursuant to Section 31.
CAT LLC has determined to calculate the projected total executed equivalent share volume for the 24 months of Historical Recovery Period 1 by doubling the executed equivalent share volume for the prior 12 months. CAT LLC determined that such an approach was reasonable as the CAT's annual executed equivalent share volume has remained relatively constant in recent years. For example, the executed equivalent share volume for 2021 was 3,963,697,612,395, the executed equivalent share volume for 2022 was 4,039,821,841,560.31, and the executed equivalent share volume for 2023 was 3,868,940,345,680.6. Accordingly, the projected total executed equivalent share volume for Historical Recovery Period 1 is projected to be 7,961,507,681,810.42 executed equivalent shares.
As noted in the Plan amendment for the CAT Funding Model, as a practical matter, the fee filing for a Historical CAT Assessment would provide the exact fee per executed equivalent share to be paid for each Historical CAT Assessment, by multiplying the
The Exchange believes that imposing Historical CAT Assessment 1 with a fee rate of $0.000013 per executed equivalent share is reasonable because it provides for a revenue stream for the Company that is aligned with Historical CAT Costs 1 and such costs would be spread out over an appropriate recovery period, as discussed above. Moreover, the Exchange believes that the level of the fee rate is reasonable, as it is comparable to other transaction-based fees. Indeed, Historical CAT Assessment 1 is significantly lower than fees assessed pursuant to Section 31 (
Historical CAT Assessment 1 provides for an equitable allocation of fees, as it equitably allocates CAT costs between and among the Participants and Industry Members. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act, including the formula for calculating Historical CAT Assessments as well as the Industry Members to be charged the Historical CAT Assessments.
Historical CAT Assessment 1 provides for an equitable allocation of fees as it complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. For example, as described above, the calculation of Historical CAT Assessment 1 complies with the formula set forth in Section 11.3(b) of the CAT NMS Plan. In addition, Historical CAT Assessment 1 would be charged to CEBBs and CEBSs in accordance with Section 11.3(b) of the CAT NMS Plan. Furthermore, the Participants would continue to remain responsible for their designated share of Past CAT Costs through the cancellation of loans made by the Participants to CAT LLC.
In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1—Historical CAT Costs 1 (including Excluded Costs), the count for the executed equivalent share volume for the prior 12 months, the length of the Historical Recovery Period, and the projected executed equivalent share volume for the Historical Recovery Period—are reasonable. Moreover, these inputs lead to a reasonable fee rate for Historical CAT Assessment 1 that is lower than other fee rates for transaction-based fees. A reasonable fee rate allocated in accordance with the requirements of the CAT Funding Model provides for an equitable allocation of fees.
Historical CAT Assessment 1 is not an unfairly discriminatory fee. The SEC approved the CAT Funding Model, finding that each aspect of the CAT Funding Model satisfied the requirements of the Exchange Act. In reaching this conclusion, the SEC analyzed the potential effect of Historical CAT Assessments calculated pursuant to the CAT Funding Model on affected categories of market participants, including Participants (including exchanges and FINRA), Industry Members (including subcategories of Industry Members, such as alternative trading systems, CAT Executing Brokers and market makers), and investors generally, and considered market effects related to equities and options, among other things. Historical CAT Assessment 1 complies with the requirements regarding the calculation of Historical CAT Assessments as set forth in the CAT NMS Plan. In addition, as discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 and the resulting fee rate for Historical CAT Assessment 1 is reasonable. Therefore, Historical CAT Assessment 1 does not impose an unfairly discriminatory fee on Industry Members.
Finally, the Exchange believes the proposed fees established pursuant to the CAT Funding Model promote just and equitable principles of trade, and, in general, protect investors and the public interest, and are provided in a transparent manner and specificity in the fee schedule. The Exchange also believes that the proposed fees are reasonable because they would provide ease of calculation, ease of billing and other administrative functions, and predictability of a fee based on fixed rate per executed equivalent share. Such factors are crucial to estimating a reliable revenue stream for CAT LLC and for permitting Exchange members to reasonably predict their payment obligations for budgeting purposes.
Section 6(b)(8) of the Act
In addition, all Participants (including exchanges and FINRA) are proposing to introduce Historical CAT Assessment 1 on behalf of CAT LLC to implement the requirements of the CAT NMS Plan. Therefore, this is not a competitive fee filing, and, therefore, it does not raise competition issues between and among the Participants.
Furthermore, in approving the CAT Funding Model, the SEC analyzed the
As discussed above, each of the inputs into the calculation of Historical CAT Assessment 1 is reasonable and the resulting fee rate for Historical CAT Assessment 1 calculated in accordance with the CAT Funding Model is reasonable. Therefore, Historical CAT Assessment 1 would not impose any burden on competition that is not necessary or appropriate in furtherance of the purpose of the Exchange Act.
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Exchange Act
At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend the rule change if it appears to the Commission that the action is necessary or appropriate in the public interest, for the protection of investors, or would otherwise further the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved.
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.